Updated: Vodafone wins TSO appeal

Telecom may seek to have various TSO cases heard by Supreme Court at the same time

In a judgement dated April 1 but released only today, the High Court in Wellington has found in favour of Vodafone in an appeal against Telecommunications Service Obligation (TSO) determinations made by the Commerce Commission.

The case covers determinations for the for the 2004-2005 and 2005-2006 years, but the judgment is now likely to affect subsequent years as well.

See also: Vodafone wins TSO appeal
The TSO is an agreement between the Crown and Telecom that requires Telecom to deliver basic residential telecommunications services, including free local calling for residential customers. The telecommunications industry funds the cost for Telecom to provide this service to non-viable customers through a levy set by the Commerce Commission.

The review hinged on the use of wireless technologies to provide telephone service. In the determinations, the Commission relied only on copper loops for telephone service, and didn't include wireless alternatives as suggested by Vodafone.

Judge Winkelman ruled this amounts to an error of law and that the TSO cost to liable persons under the Telecommunications Act 2001 should be set aside.

While Judge Winkelman hasn't ruled that the Commission has to consider wireless for this purpose, it has to now redo its sums for the levies in the determinations, taking into account the most efficient way of delivering telephone service.

For the two years covered by the appeal, Vodafone compensated Telecom for TSO to the tune of $32 million. Some of that money may be returned to Vodafone, with interest and use of money charges, depending on the Commission's revised cost figures. Determinations for other years may have to have costs revised as well.

A spokesperson for the Commerce Commission says the regulator doesn't wish to comment at this stage, but it is studying the judgement released today.

Telecom's group general counsel, Tristan Gilbertson, says the judgement in favour of Vodafone's appeal appears to be inconsistent with the recent Court of Appeal decision in a related TSO case on efficient past investments. That case is subject to an appeal to the Supreme Court.

"While this is a historic case, and the Government has recently announced a change to the TSO regime, the issues raised in the litigation still require resolution," he says in a statement.

Telecom also challenged the determinations, Gilbertson says, based its conviction that the rates of return set by the Commission are below what any reasonable investor could accept for large-scale infrastructure investments.

Telecom was unsuccessful in its appeal and judicial review applications in a separate judgment also released today.

"In the interests of resolving these cases, and providing greater and earlier clarity for all parties, Telecom believes there may be merit in having all TSO matters heard together in the Supreme Court at the same time.

"We'll discuss this with the other parties to see whether an agreed way forward is possible, before taking further action."

Vodafone says it is pleased with the ruling and the reconsideration of the cost model for the TSO in light of ithe Commerce Commission's failure to calculate the "unavoidable costs to an efficient operator".

Vodafone argued that the TSO should be based on the most efficient technology available and that the Commission should therefore consider wireless and mobile technologies. “The ball is now in the Commerce Commission’s court. It will have to review its approach to cost modelling not only for these determinations but potentially for all of the other TSO determinations as well,” says Vodafone’s GM of Corporate Affairs, Tom Chignell. Vodafone is challenging the 2006/2007 and 2007/2008 decisions in the High Court. The draft determination for the 2008/2009 year has been released but not a final determination at this stage.

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