Sharechat Logo

Regulator erred in setting rural phone service levy, Supreme Court rules

Thursday 17th November 2011

Text too small?

The Commerce Commission made an error in law in the way it set the levies for Telecom’s unprofitable rural phone services, the Supreme Court ruled today.

In a unanimous judgement, the Supreme Court bench decided the antitrust regulator got it wrong in the way it interpreted the Telecommunications Act to set the now-defunct Telecommunications Service Obligation by not incorporating new technology, including mobile networks, in its methodology.

That meant the commission overvalued the net costs to Telecom, to which rivals had to contribute, for providing phone services to remote locations. The requirement was imposed when Telecom was sold by the government in 1990 and was known as the Kiwishare obligation.

Vodafone New Zealand, which faced the biggest cost under the TSO, and Telecom reached an out-of-court settlement in August to bury the hatchet in the seven-year dispute, but the regulator requested a decision as other parties not privy to the proceedings would be affected by the determination.

“The commission erred in law by failing to adjust its model to take account of mobile technology, where an efficient service provider would use it,” Chief Justice Sian Elias said in the judgement. “It did not therefore eliminate ‘unavoidable’ incremental costs.”

Judge Peter Blanchard said the commission’s original error in setting its valuation methodology was compounded when it couldn’t accommodate new technologies, and it “should have reappraised the situation and concluded that it must not continue to use a model which even Telecom’s counsel, in his submission to us, described as a flawed model.”

The regulator needs to remodel its methods so it can properly make TSO determinations in the 2008/09 and 2009/10 years for the benefit of other parties, such as TelstraClear, Judge Blanchard said.

Judge Andrew Tipping said the commission committed an error of law by correctly interpreting the meaning of ‘net cost’, but fundamentally misapplying that interpretation.

“I consider the commission must have misinterpreted the statutory definition of net cost when it allowed Telecom the benefit of valuing its existing assets on an ‘as-new’ or ‘cost of replacement’ basis,” Judge Tipping said. “By doing this the commission failed to reflect the reality that the assets were not new and that they did not require replacement.”

In effect, that let Telecom pass on the cost of depreciation when that wasn’t a real cost, Judge Tipping said.

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

New Zealand Rural Land Company Limited (NZX: NZL) Agreement to acquire large scale dairy asset portfolio
EROAD Limited (NZX: ERD) launches Clarity Solo Dashcam
22nd October 2021 Morning Report
Pictor ready to roll out game-changing COVID antibody test in New Zealand
Scott Technology Limited (NZX: SCT) Announces FY21 Results
21st October 2021 Morning Report
Greenfern Industries Limited (NZX: GFI) L&Q Notice
TruScreen Group Limited (NZX: TRU) Clinical Trial Results Highlight Efficacy of TRU Technology
20th October 2021 Morning Report
Freightways Limited (NZX: FRE) Acquisition of ProducePronto