The Independent Oversight Group (IOG) has found (pdf) that a Telecom Wholesale loyalty offer launched in March is in breach of undertakings the company gave to the government in 2008. The IOG, which polices Telecom's compliance with its operational separation undetakings, describes the breach as "non-trivial".
Vodafone and state owned enterprise Kordia, parent company of ISP Orcon, filed a complaint with the IOG soon after the loyalty offer was released, alleging it breached clauses 47 and 56 of Telecom’s legally binding undertakings.
These two clauses require Telecom to provide equivalence of inputs for access seekers and not to discriminate against any one provider.
The penalty for breaching an undertaking is a fine of up to $10 million plus $500,000 a day for an ongoing breach. The IOG will release full details of the decision later today.
In December, Telecom offered discounts to customers that had 90 percent of their Auckland business with the company. The offer has since been expanded to cover other centres.
At the time the complaint was filed, Vodafone and Kordia said the loyalty offer would preclude them from further unbundling of local exchanges. Also, the two telcos said their own fixed-line wholesale businesses would disappear, thanks to Telecom's requiring access seekers to put the majority of their custom with the Wholesale division.
Today, Orcon said it was pleased with the decision.
Orcon's CEO, Scott Bartlett, says the company is pleased the IOG took the company’s concerns seriously.
“Orcon led the unbundling of the local loop and the loyalty offers were structured in such a way as to disadvantage us and our customers," he says.
“We eagerly await the outcome of the Commerce Commission’s process.”
According to Telecom Wholesale spokeswoman Nicole Walker, the loyalty offer required providers to sign up for two years and bring ninety percent of their business to Telecom Wholesale. The offer covered Auckland and the regions, Walker said, but she would not disclose the discount given in the deal. Computerworld understands, however, that Telecom Wholesale offered discounts in the 15 to 20 percent range to providers, for reselling DSL and voice services. ISP customers, operating on thin margins, are said to have found that offer attractive.
Walker said Telecom Wholesale had a “good response” to the offer. In a statement to the New Zealand Stock Exchange today, Telecom said it would study the detail of the decision before making any comment.
Telecommunications Users Association CEO Ernie Newman says the IOG has had a very low profile since separation. “This finding should, however, give considerable confidence to Telecom’s competitors and to users that it is an effective watchdog that will step up when needed," he says. Newman says it was inevitable that at some point the boundaries would be tested as the regulation is complex and requires some "fine judgment calls".
“So while we support the process the IOG has gone through to reach its conclusion, and encourage Telecom immediately to remedy the breach, we see this as an isolated and inevitable testing of boundaries. It is certainly not the tip of any iceberg," he says
“Users should take heart from the process.”