Telecom holds a dominant position in the telecommunications industry, but it is allowed to fight its corner as fiercely as any other telecoms provider. Provided it uses strategies available to any non-dominant supplier, Telecom cannot be said to be abusing its market position in breach of the Commerce Act.
The Commerce Commission lost its long-running litigation against Telecom in which it alleged Telecom’s 1999 introduction of the 0867 prefix to control internet usage was a misuse of its dominant position.
The Supreme Court ruled there was no evidence that Telecom’s behaviour was any different to that expected of a non-dominant supplier responding to market dynamics.
Evidence was given that tensions between suppliers grew as Clear Communications began to expand its services. Internet penetration meant shorter residential phone calls were being replaced by much longer internet dialup connections.
This upset the revenue balance between Clear and Telecom because most of the residential internet callers were on the Telecom network and their traffic to service providers on the Clear network was not only causing congestion on Telecom’s lines but also resulting in substantial “termination” charges from Telecom to Clear. “Termination” charges arise because the network on which a call originates must pay a per minute charge to the network on which the call is received (or terminated).
Clear exploited these changing dynamics by sharing its increasing volume of termination charges with internet service providers on its network, reducing costs to users and encouraging them to log on for even longer periods – to Telecom’s further cost.
Telecom responded by introducing its “0867 package”. Customers who did not use either the 0867 prefix for internet dialup, or did not use Telecom’s own internet service provider (Xtra), were required to pay two cents per minute for internet usage beyond a free allowance of ten hours connection per month. Use of the 0867 prefix was justified as a means of managing internet traffic.
The Commerce Commission acknowledged that Telecom was justified in taking steps to manage internet traffic on congested lines, but claimed that the method used was anti-competitive and amounted to abuse of its dominant position as owner of the fixed line network.
The Supreme Court said that the Commerce Act prohibits uses of market power that damage competition, not market power that damages competitors. Nothing in the Act prohibits vigorous legitimate competition by a dominant firm which may damage competitors but does not damage competition.
The Commerce Commission had failed to prove that because of a fear of losing retail customers, Telecom would not have introduced the 0867 prefix if it had not been dominant.
Commerce Commission v. Telecom – Supreme Court (1.09.10)
10.10.002