27 June 2012

Telecoms: Telecom v. Commerce Commission


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