The Commerce Commission announced today that it has launched an investigation into an alleged breach of the Separation Undertakings by Telecom's Wholesale business unit. This decision follows receipt of the Independent Oversight Group's (IOG) findings that Telecom Wholesale's loyalty offers constitute a breach of Telecom's Undertakings. The Commission is also in receipt of complaints on the same matter.

The Commission's investigation will assess whether there is a breach of the Undertakings. The Commission will seek the views of Telecom Wholesale and the complainants before reaching a decision.

In accordance with the Commission's guidelines for handling operational separation complaints, the Commission expects to issue a decision by 9 October 2009 on whether or not any enforcement action is required. In the event that a breach of the Undertakings has occurred, the High Court may issue remedial orders and/or monetary penalties and damages.

In addition, the Commission has received a complaint regarding the same loyalty offers under the Commerce Act.

The Commission has not decided whether to commence a separate investigation under the Commerce Act.

The Commission has published guidelines for handling operational separation complaints. These guidelines can be found on the Commission's website www.comcom.govt.nz under Industry Regulation/Telecommunications/Operational Separation of Telecom.

Background

The Separation Undertakings have effect as a deed given by Telecom to the Crown under Part 2A of the Telecommunications Act 2001 (Act) on 25 March 2008. The Separation Undertakings required Telecom to establish an Independent Oversight Group (the IOG) to monitor Telecom's compliance with the Undertakings. Its decisions are not binding on the Commission.

The Commerce Commission is responsible for enforcing the Undertakings. The Commission is investigating whether to take enforcement action under Part 2A, subpart 1 of Part 4A, and subpart 2 of Part 4A, of the Act.

Penalties. While the Commerce Commission can take enforcement action, the Commission itself cannot penalise an individual or a company - it is up to the courts to impose penalties. It is important to note that the penalties set out below are the maximum. It would be up to the courts to set appropriate penalties.

Operational Separation. If the Commission finds that Telecom has failed to comply with the Separation Undertakings, the Commission may request that the High Court impose penalties of up to $10 million for the breach, plus $500,000 per day for breaches continuing after the decision by the High Court. In addition, the High Court may order Telecom to pay damages to injured parties, and may issue orders requiring Telecom to undertake other remedies, including injunctions restraining Telecom from behaviour that breaches the undertakings.

The Commerce Act. If the court finds that a person has breached Part 2 of the Commerce Act, it may:

  • impose pecuniary penalties on businesses that must not exceed the greater of: - $10 million; or either:
  • three times the value of any commercial gain or expected commercial gain resulting from the breach; or
  • if commercial gain is not known, 10 per cent of the turnover of the business and all of its interconnected businesses (if any).

In determining the appropriate penalty, the Court must have regard to the nature and extent of any commercial gain. It may:

  • impose pecuniary penalties of up to $500,000 on an individual. The Court must order an individual to pay a monetary penalty unless it considers that there is good reason for not making that order;
  • order an individual to pay exemplary damages;
  • order named persons to be excluded from management of a business;
  • impose injunctions restraining businesses or individuals from behaviour that breaches the Commerce Act;
  • award damages to any person who has suffered loss or damage by a breach of the Commerce Act; or
  • order a variety of other remedies, including orders varying contracts that breach the Commerce Act.