Telecom
used its network dominance to inflate prices charged to data transmission
wholesalers over a four year period ending late 2004 the Court of Appeal has
ruled. Telecom is disputing the $12
million penalty imposed.
Commerce Commission
action started when rival wholesalers complained Telecom was discriminating in
the price charged for “data tails” in the retail market for end-to-end high
speed data transmission services.
Telecommunications
service providers (TSPs) like Telstra Saturn have spent millions constructing
fibre optic and wireless backbones for their own networks but need to use
Telecom’s data tail: the final section (fibre optic and copper) from the retail
customer to the TSPs point of access to the Telecom network.
TSPs complained that
Telecom pricing for wholesale access to data tails was so high that it squeezed
their profits. Telecom pricing became a
barrier to entry. As wholesalers
offering high speed data transmission for retail customers, TSPs alleged they
were being treated as retail customers themselves by Telecom. The price charged by Telecom for access to
customer data tails was so high that individual TSPs struggled to compete with
the data transmission prices offered by Telecom to its own retail customers.
The Telecom network
has since been hived into a separate business, Chorus, leaving Telecom as a
stand alone TSP.
Section 36 of the
Commerce Act prohibits any business holding a substantial degree of market
power from using that power for an anti-competitive purpose. Prior to the creation of Chorus, Telecom was
dominant in the telecommunications market.
Evidence was given
that the telecommunications revolution of the late twentieth century
dramatically changed the volume of and speed at which data could be transmitted
between retail customers, but pricing anomalies developed: slower less
commercially valuable services were being charged at a higher rate than faster
services.
TSPs complained that
when Telecom adjusted its retail pricing structure to correct these anomalies
it failed to adjust its wholesale prices as well. There was evidence of data carrier pricing
where the wholesale price charged TSPs by Telecom exceeded Telecom’s own retail
prices: retail prices which included Telecom’s own wholesale carrier charges.
Competition law allows
a dominant firm to charge what a non-dominant firm in a hypothetical
competitive market would charge.
Monopolists are allowed to compete but monopolists are not allowed to
impose charges in excess of what would be charged in a competitive market. It can be difficult to determine what would
be a competitive market charge when there is no competitive market in fact.
In this case, the
Court of Appeal ruled that prior to 2004 Telecom had used its network dominance
to prejudice competition for end-to-end high speed transmission services.
Telecom
v. Commerce Commission – Court of Appeal (27.06.12)
12.018