Telecom wins dial-up ruling

Telecom has been vindicated by the Supreme Court over one of the most controversial episodes of the Deane-Gattung era – forcing competitors to use an 0867 prefix for dial-up internet calls.

The Commerce Commission prosecuted Telecom in 2000, claiming the move was an abuse of monopoly power and breached the Commerce Act. But it lost its case in 2008 when the High Court ruled Telecom had acted to remove what the court described as a "perverse incentive" for rival internet providers (ISPs) to make dial-up internet cheap or free.

The commission has spent hundreds of thousands of dollars appealing against the ruling, but reached the end of the road yesterday, when the Supreme Court unanimously upheld a 2009 Court of Appeal ruling in favour of Telecom.

Telecom argued it had to introduce the prefix because it had to pay ISPs a per-minute connection fee – but earned no revenue itself – when consumers used a normal local number and Telecom's network to connect to the net. ISPs had an incentive to earn higher fees by encouraging customers to leave their phone lines hooked up to the net and Telecom argued that that risked overloading its network and interfering with the ability for people to make voice calls.

The Supreme Court ruled that "any firm acting competitively, whether dominant or not, would have taken steps to mitigate the loss by introducing a scheme analogous to the 0867 package rather than continue to incur substantial losses". "It has therefore not been proved that Telecom used its [assumed] dominant position in the relevant markets when introducing its 0867 service."

The commission was yesterday still totting up the costs of the actions. It spent $521,592 appealing against the High Court ruling to the Court of Appeal stage and was yesterday ordered to pay Telecom $50,000 plus reasonable costs.

The commission previously justified the Supreme Court appeal on the basis that important points of law required clarification. A spokeswoman said it was studying the ruling.

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