Court rejects Vodafone levy appeal

Vodafone has lost a Court of Appeal case about the way the Commerce Commission works out the costs of providing local residential telephone services to non- commercial customers.

But one of three judges who heard the case dissented, and another said the commission may have to reconsider soon as a matter of law whether its approach still applied.

The case concerns the methods used by the commission to determine the costs of the Telecommunications Services Obligations (TSO), the successor to Kiwi Share Obligations, for the 2003-04 year.

Vodafone government relations head Roger Ellis said Vodafone was disappointed with the decision "although we are pleased that the President of the Court of Appeal agreed with our view".

"However, we believe that it confirms the need for urgent reform of the flawed TSO levy system and we are encouraged that the Government is going to move quickly to resolve this matter for future years."

The Government has proposed scrapping the TSO levy, replacing it with another industry levy that would help pay for a $300 million plan to upgrade rural broadband infrastructure.

Telecom spokesman Mark Watts welcomed the "objective and independent confirmation" from the court that there was a "real and substantial cost" in providing the TSO services.

That has been disputed by the Government, which has suggested Telecom benefits as much as it loses from having to provide services under the TSO and should shoulder any costs alone.

At present, Telecom is able to recover from other telcos a proportionate share of the net cost, as determined by the commission, of providing TSO services to commercially non-viable customers.

Court of Appeal president Justice William Young, who issued a dissenting opinion, said that broadly the commission calculated the relevant cost using a model which treated Telecom's existing core fixed wire network as a given. It did not model the cost on the basis of the existing mobile sites operated by Telecom and its competitors.

While the commission accepted that mobile telephony could meet the required technical standards, it modelled mobile telephony only as an adjunct to Telecom's existing core fixed wire network, Justice Young said.

Vodafone maintained that the costs should have been calculated on the basis that an efficient service provider would have used existing mobile technology sites, except where new ones were needed to meet demand.

Vodafone submitted that by failing to adopt that methodology, the commission had overstated the net cost and therefore overstated the amount that Vodafone and other telcos had to pay to Telecom, Justice Young said. NZPA

- © Fairfax NZ News