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Telecom to pay $1.7m in compensation

Friday 9th July 2010

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Telecom has avoided a court appearance over its controversial wholesale loyalty offer, by agreeing to cough up $1.7 million to the regulator and retail rivals.  

The country’s biggest phone company reached a settlement with the Commerce Commission over three loyalty offers from its wholesale unit which were deemed likely to breach its operational separation undertakings and could have incurred fines of up to $10 million apiece.

Instead, Telecom agreed to pay a $1.6 million settlement to Vodafone New Zealand and Orcon Internet and $100,000 in costs to the regulator, and accept that it caused concern in the wholesale market and risked breaching its undertakings. The phone company also has to revise its internal processes and will prepare guidelines for its staff on ‘non-discrimination’.

“The loyalty offers were detrimental to investment in telecommunications infrastructure and undermined wholesale competition,” said Ross Patterson, Telecommunications Commissioner, in a statement.

“While the issue was serious enough for the commission to consider issuing proceedings, we are pleased to have worked constructively with Telecom to settle this issue.”  

Telecom offered substantial discounts on broadband services to internet service providers in return for a commitment to stay with the company, and the regulator decided this probably breached the undertakings requiring the company not to discriminate between or against its wholesale customers, even if they were retail rivals.  

The regulator decided to pursue the matter after the Independent Oversight Group, an industry watchdog, deemed the offer was a “non-trivial” breach of its undertakings.

The loyalty offer was blamed for a slowdown in local-loop unbundling in the commission’s twice-yearly monitoring report of the sector. Tristan Gilbertson, Telecom general counsel, said the company believed the offers were a “legitimate response to competition”.

Shares in Telecom rose 0.5% to $1.88 in trading today and have fallen 26% this year.  

Last November, Telecom and the commission got into a spat as to whether there had been any guidance over the loyalty offers. Patterson wrote to chief executive Paul Reynolds calling for a public retraction of a “misleading” statement saying the company didn’t get any direction from the regulator. Gilbertson said the company stood by the statements. The correspondence has since been posted on the commission’s website.  

Orcon chief executive Scott Bartlett said the decision “goes a small way to redressing the telco’s long-standing efforts to stifle competition and delay investment”.

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