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Record Commerce Act penalty against Telecom for price squeeze

19 April 2011

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 www.comcom.govt.nz/competition-selected-judgments

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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