The Commerce Commission has found no evidence that Telecom's Internet service provider (ISP), Xtra, is breaching the Commerce Act by offering below cost access to the Internet.
Commission Chairman Dr Alan Bollard said that the Commission has ended its investigation of Telecom's pricing, but will continue to closely monitor developments and changes in the Internet as it develops. It will pay particular attention to Telecom's involvement in these markets.
In reaching its decision, the Commission investigated Telecom's business strategy of offering cheap Internet access and making its profit by selling value-added services to subscribers. These services including advertising, entertainment, gaming and electronic commerce.
Dr Bollard said that the Commission had carefully considered New Zealand and international information about the growth of the Internet, the development of value-added services and the likely competition effects from Telecom's strategy.
It noted that there are numerous existing ISPs competing with Telecom, and barriers to new entry are low. In addition, Clear has entered the ISP markets, and Telstra intends to enter, after Telecom reduced its access prices.
The Act prohibits anti-competitive contracts arrangements or understandings, and also a dominant firm using its dominance for an anti-competitive purpose.
The Commission concluded that it had no evidence that Telecom is breaching the Act because:
· Telecom does not appear to be using a dominant position to harm competitors - other firms which are not dominant but are otherwise in similar circumstances, could profitably adopt a similar strategy;
· the strategy does not depend for its success on driving other firms from the relevant markets, but rather on developing value-added services;
· in accordance with its strategy, Telecom has every incentive to keep its access prices as low as possible to encourage the market to expand more rapidly; and
· low entry barriers suggest that the competitive process in the relevant markets is less likely to be harmed - significantly Clear has entered the market since Telecom reduced its Internet access prices and Telstra has announced that it will enter the market.
Public copies of the Commission's report are available from reception at its Wellington office, 7th floor, Landcorp House, 101 Lambton Quay.
