ComCom goes legal over alleged separation breach

Wholesale loyalty offers lead to court action

The Commerce Commission is issuing proceedings against Telecom, alleging that three loyalty offers made by the company's wholesale unit were in breach of the company's separation undertakings.

"The commission considers that breaches of Telecom’s separation undertakings have the potential to seriously harm competition in telecommunications markets and undermine or deter efficient investment in telecommunications infrastructure," the regulator says in a statement released this morning.

"The Commission has therefore decided to issue proceedings against Telecom in the High Court to seek remedial orders and/or monetary penalties in relation to the loyalty offers."

The Commission’s investigation followed a report from Telecom's Independent Oversight Group’s (IOG), which found that the loyalty offers constituted a breach of the undertakings.

As part of its investigation into this matter, the Commission says it consulted on the meaning of "discrimination" in clause 56 the undertakings. It now intends to provide further guidance on Telecom’s obligation not to discriminate.

The High Court may impose penalties of up to $10 million for each breach and issue orders on any terms and conditions the it thinks appropriate to restrain Telecom or to require the company to undertake specific actions.

Telecom began offering the discounts to wholesale customers in December, on the condition that they had 90 percent of their Auckland business with the company.

The aim appeared to be to dissuade rivals from unbundling its phone exchanges, or buying wholesale products from Vodafone and Orcon which had already done so.

Telecom extended the offer nationwide earlier this year and last month announced more loyalty discounts targeted at wholesalers that kept 90 per cent of business in five North Island centres with Telecom Wholesale.

The latest move appeared designed to forestall a challenge by TelstraClear, which has announced plans to unbundle up to 70 of Telecom's 714 exchanges, targeting provincial centres as well as Auckland.

Telecom chief executive Paul Reynolds told analysts earlier this year that the company was committed to seeing no more than 15 per cent of phone lines unbundled.

He said the wholesale loyalty offers had proved very effective in maintaining its traditional business and margins.

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