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Topic # 81850 19-Apr-2011 10:04 Send private message

Just received:


The High Court in Auckland has imposed a $12 million penalty against Telecom for breaching section 36 of the Commerce Act in the so-called ‘data tails’ case. The penalty is the highest imposed under the Commerce Act, which was amended in 2001 to increase the fines available for anti-competitive conduct.
In October 2009 the High Court determined that from 2001 to 2004 Telecom unlawfully leveraged its market power to charge downstream competitors disproportionately high prices for wholesale access to its network, preventing them from offering retail end-to-end high-speed data services on a competitive basis.

In the Court’s penalty judgment issued today, Justice Rodney Hansen said that the exclusionary effects of Telecom’s conduct “were injurious to competitors, brought significant benefits to Telecom and were damaging to the competitive process.” The Judge noted that “[t]he breach was the result of a deliberate strategy, apparently sanctioned at the highest levels of Telecom, to price data tails at a level that would preclude price competition between Telecom and other [telecommunications service providers]”.

In determining the proper penalty, Justice Hansen said that “[t]he penalty should reflect the size and financial circumstances of Telecom and its position of influence and importance in the telecommunications industry. The goal of specific deterrence requires that the penalty take account of the size and resources of the contravening company.”

His Honour also noted that in this case no allowance could be made for an acknowledgment of wrongdoing or the advantages of a negotiated settlement, and the penalty therefore had to “give full effect to the new penalty regime and the overriding goal of deterrence”.

Telecom has appealed the October 2009 judgment finding that it breached section 36 of the Commerce Act. The hearing in the Court of Appeal is scheduled to commence in September and will include consideration of the High Court penalty judgment if that is appealed in the interim. As the proceedings are ongoing, the Commission can make no further comment at this time.

The penalty judgment is on the Commission’s website at http://www.comcom.govt.nz/assets/Business-Competition/Enforcement-Outcomes/Commerce-Commission-v-Telecom-Corporation-of-New-Zealand-Limited-and-Telecom-New-Zealand-Limited-Judgment-of-Rodney-Hansen-J-High-Court-Auckland-19-April-2011.pdf

Background

Section 36 of the Commerce Act prohibits persons who have a substantial degree of market power in a market from taking advantage of that position for anti-competitive purposes, including preventing or deterring competitive conduct by others.

A company that contravenes section 36 may be ordered to pay pecuniary penalties under section 80 of the Commerce Act, which provides that any penalty must not, in respect of each act or omission, exceed the greater of $10 million; or either

- if it can be readily ascertained and if the Court is satisfied that the contravention occurred in the course of producing a commercial gain, three times the value of any commercial gain resulting from the contravention; or 
- if the commercial gain cannot be readily ascertained, 10 per cent of the turnover of the body corporate and all of its interconnected bodies corporate (if any).
  




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gjm

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  Reply # 460398 19-Apr-2011 10:06 Send private message

ouch, thats gotta hurt.




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  Reply # 460408 19-Apr-2011 10:18 Send private message

wow. these things really take an absolute age to get decided.

the stuff happened between 2001-2004, judgement was passed October 2009, and now the fine has finally been decied April 2011, and still there is the appeal process to go through which won't start until september. No doubt that will take another couple of years.



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  Reply # 460409 19-Apr-2011 10:22 Send private message

And this is Telecom New Zealand's response to the press release:


DATA TAILS CASE: TELECOM CONSIDERING PENALTY JUDGMENT
The High Court has today issued a penalty judgment of $12m in relation to the historic ‘data tails’ case, which stems from the introduction of retail and wholesale pricing for data services, more than ten years ago, in a regulatory and competitive environment that was very different from today’s.

Telecom is already appealing against the High Court’s decision on liability (dated 9 October 2009) in this case and will consider today’s penalty judgment carefully in that context.

The appeal is scheduled to be heard in September 2011.

The Commerce Commission alleged a widespread breach of the Commerce Act relating to all high speed data pricing between 1999 and 2004.  However, the court found that breaches only occurred in the much more limited ‘two data tails’ scenario.  Today’s judgment recognises that this “affected only a small proportion of [Telecom’s] data transmission business” – the balance of which pricing the Court held was compliant.

Telecom continues to believe that the ‘two data tails’ breach was technical and unintentional, and this is the basis of its appeal.

While today’s judgment notes that Telecom’s pricing strategy was deliberate, it emphasises that Telecom did not engage in a “flagrant or willful” breach of the Act.

The Commission’s claim related to pricing that was superseded in late 2004 by regulated data transmission service pricing.  Further regulation and, more recently, operational separation have meant that market conditions at the relevant time also no longer exist and have not existed for more than five years.

As the case is currently before the court, Telecom has no further comment.

 




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  Reply # 460429 19-Apr-2011 10:53 Send private message


Have plan, send $NZD50m
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  Reply # 460476 19-Apr-2011 12:41 Send private message

Choice of focus?

Have top skilled people sitting about trying to figure out how to get out of a $12m fine.

Have those same top skilled people figuring out how to deliver more, faster 1's and 0's to New Zealanders so we can better compete on the world stage.

Com Com rocks. While they've got all the smart people at Telecom tied up in knots in court, everyone else is out there building networks, taking retail customers and getting on with the business.

As I'm not a shareholder, I'm just sitting here laughing.

Why Paul doesn't draft a $12m dollar cheque today and take it down to the court house in front of cameras, and just take it in the chin and use the publicity to look like the good guys for one, is beyond me. I'd love someone to explain that one to me.






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  Reply # 460508 19-Apr-2011 14:13 Send private message

DonGould: Choice of focus?

Have top skilled people sitting about trying to figure out how to get out of a $12m fine.

Have those same top skilled people figuring out how to deliver more, faster 1's and 0's to New Zealanders so we can better compete on the world stage.



you think those kind of skills are the same? Surprised

I don't know of many top lawyers who are also top network designers.

[Moderator edit (MF): no need to quote the whole post]

 

Have plan, send $NZD50m
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  Reply # 460511 19-Apr-2011 14:22 Send private message

NonprayingMantis: you think those kind of skills are the same? Surprised

I don't know of many top lawyers who are also top network designers.


If Telecom customers and shareholders are happy to pay a fleet of top lawyers to fight a battle that they've already lost in the court of public opinion, rather than paying three times as many network designers and 5 times as many network builders (cost of a good layer being between $450 and $1200 an hour) then I guess that's their choice.

In the mean time I'm building layer 1 networks because I have no choice.  The copper exists, the company exists, but they're so busy in court that they don't seem to have time, money or energy to actually provide products to New Zealanders who want to build applications/businesses on top of those products.  Again, that's their choice.






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  Reply # 460513 19-Apr-2011 14:26 Send private message

DonGould:
NonprayingMantis: you think those kind of skills are the same? Surprised

I don't know of many top lawyers who are also top network designers.


If Telecom customers and shareholders are happy to pay a fleet of top lawyers to fight a battle that they've already lost in the court of public opinion, rather than paying three times as many network designers and 5 times as many network builders (cost of a good layer being between $450 and $1200 an hour) then I guess that's their choice.

In the mean time I'm building layer 1 networks because I have no choice.  The copper exists, the company exists, but they're so busy in court that they don't seem to have time, money or energy to actually provide products to New Zealanders who want to build applications/businesses on top of those products.  Again, that's their choice.




ah ok, so when you said 'pay those same people'  you actually meant different people. fair enough

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  Reply # 460515 19-Apr-2011 14:37 Send private message

NonprayingMantis: ah ok, so when you said 'pay those same people'  you actually meant different people. fair enough


No.  You did have a very valid point sorry, that was my bad.

What I was actually thinking about when I made the original post was just the key staff in areas like strategy and technical areas that are figuring out defense to the ACCC's allegations. 

Even if those people only take up 10 minutes of Paul's time each week for an update on the progress, that's 10 minutes of his time that is just wasted in my view, which should be spent on delivering communications solutions, not bitching with the stupid regulator in court.

To be honest I hadn't even considered the raft of lawyers.

Now before someone jumps at me for suggesting that regulator is stupid...  my comment is intended to convey the sense of my distaste for wasting good public money just to sit around in court rooms and bitch!  Just how much more productively could that money be used if it was spent on helping to fix Christchurch's sewer system?!


Edit:  I just wonder what the judge and ACCC would say if Paul stepped up this afternoon and said "We'll end this today if rather than pay a $12m fine we can make a $15m dollar donation to the Christchurch earthquake appeal".




 




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  Reply # 460525 19-Apr-2011 15:05 Send private message

This is what TelstraClear sent out just now:


The record fine imposed by the High Court on Telecom for anti-competitive behaviour has been welcomed by TelstraClear CEO Dr Allan Freeth. It also highlights the danger of the proposed regulatory holiday until 2020 for the ultrafast broadband network.

“The court decision coming 10 years after the fact highlights the need for a referee on hand that industry and consumers can turn to,” says Dr Freeth.

“This is the type of behaviour one expects of a monopoly with market power, and is the type of behaviour TelstraClear and consumer groups are concerned will occur if the Government does not modify the Bill now before Select Committee.

“The Telecommunications Act was developed to fix these types of problems quickly or to stop them occurring in the first place. Why then is the government hell-bent on again crippling the Commerce Commission and allowing Telecom, or any other fibre company, to rip off every New Zealander all over again? It’s utter madness.

“If the Telecommunications Amendment Bill passes in its current form, fibre companies such as Telecom will get a regulatory holiday until 2020. Until that time only part of the Commerce Act will apply to critical issues like the price for monopoly services. Worse, they’re being given $1.35 billion of taxpayer money.

“Why is this government funding companies with Kiwi’s hard-earned cash and refusing to put in place safeguards to prevent them being charged even more? It’s like paying criminals to break into people’s homes and rob them.

“Unless the Telecommunications Amendment Bill undergoes substantial change, it’s highly likely we’ll see a repeat of this type of behaviour by Telecom, or any other fibre company, abusing their fibre monopoly. Do we really want another 10 years where we all pay far too much to line the pockets of a few?”







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  Reply # 460627 19-Apr-2011 19:46 Send private message

What else would I expect from TelstraClear..




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Old3eyes

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  Reply # 460681 19-Apr-2011 21:55 Send private message

Telecom sounds like the school yard bully.

Telecom walks up to TelstraClear and punches them in the arm.
TelstraClear: Why did you do that?
Telecom: There was a fly on your arm.
TelstraClear: but you punched me!
Telecom: Sorry that was unintentional technical error.

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  Reply # 460729 20-Apr-2011 00:08 Send private message

$12 million is a lot of money, even to telecom so I can't see this being the shot in the arm they needed to keep their share price from crashing further.

Part of me feels sorry for them as they keep getting hammered and forced to take whatever form the comcom wants. On the other hand going off Telecom's earnings it goes to show what a difference some competition does in the market,

As for Telstra's response to the news, a total cheap shot, it's not like their operations in OZ run guilt free,

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  Reply # 460737 20-Apr-2011 01:32 Send private message

Yeah like time I checked Telstraclear isn't forced to sell wholesale access to their cable network to competitors by at prices regulated by the ComCom.

Good for the goose, good for the gander?

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  Reply # 460783 20-Apr-2011 08:53 Send private message

Well this is a relief to me. I was wondering if Telecom would ever be penalised for it's blatant shoddy behaviour toward the New Zealand market.

I hope the appeal goes the same way as the original judgement. Perhaps this will be a warning and lesson to everybody's favourite incumbent to buck up and provide a good service to everybody.

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