Commerce Commission welcomes Court of Appeal judgment in data tails case

The Court of Appeal has  upheld an earlier High Court decision against Telecom for breaching section 36 of the Commerce Act, in a judgment released today in the ‘data tails’ case.

A 2009 High Court ruling found that from 2001 to 2004 Telecom unlawfully took advantage of its market power to charge downstream competitors disproportionately high prices for wholesale access to its network. This prevented competitors from offering retail end-to-end high-speed data services at a competitive price. Telecom appealed that decision.

In the Court of Appeal judgment, Justice Glazebrook dismissed Telecom’s appeal saying that Telecom’s breach “...was a significant breach. It was a ‘universal’ breach of the [pricing rule] in that it applied to all usable data tails offered by Telecom over the relevant period, for all speed and transmission pathway combinations.” In the Court of Appeal’s view, statements in internal Telecom memoranda from 1999 “...indicated that Telecom’s philosophy was to avoid price competition.”

The Court of Appeal also extended the period of the breach back to February 1999 not 2001, and gave a declaration to that effect.

The appeal judgment also recognised a separate breach, over and above what the High Court had found.

“While the same conditions do not exist today, this ruling is important as it reinforces the fact that it is illegal for a business with a substantial degree of market power to take advantage of that power to deter or prevent rival businesses from competing effectively,” said Commerce Commission Chair, Dr Mark Berry.

In April 2011 the High Court imposed a record $12 million penalty against Telecom for the breach in this case. Telecom’s appeal against penalty was heard in November 2011. The Court of Appeal has not yet released its separate judgment on penalty.

Telecom may seek leave to appeal to the Supreme Court against the Court of Appeal’s findings.

The Commission has no further comment at this time. The judgment will be available shortly at www.comcom.govt.nz/competition-enforcement-outcomes/

Background

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