Vodafone and Orcon are to equally share $NZ1.6 million ($A1.3 million) of compensation from Telecom, under a Commerce Commission ruling on loyalty offers made by Telecom Wholesale.
The commission on Friday said it had reached a $1.6 million settlement with Telecom, following an investigation launched after complaints from the telecommunications industry.
Those complaints alleged Telecom Wholesale's loyalty offers breached undertakings agreed to by Telecom.
Telecom's wholesale business unit had launched a series of loyalty offers in relation to the regulated wholesale broadband service — used by competing service providers to provide broadband service to retail customers — between December 2008 and July 2009, the commission said.
Telecom offered substantial discounts in return for a commitment for the service providers to maintain current and future customers on Telecom Wholesale's service rather than that of a competitor.
In August 2009, the Independent Oversight Group — which monitored Telecom's compliance with the undertakings — determined that the loyalty offers were a non-trivial breach of the undertakings.
Following that decision, Telecom Wholesale had withdrawn all loyalty offers.
The commission said Telecom's undertakings required the company not to discriminate between or against its wholesale customers.
The commission investigation had concluded the loyalty offers were likely to constitute breaches of the undertakings.
Telecommunications Commissioner Ross Patterson said in the commission's view the loyalty offers were detrimental to investment in telecommunications infrastructure and undermined wholesale competition.
"The $1.6 million settlement means that the complainants Vodafone and Orcon have been compensated, and that further harm to the competitiveness of the market has been prevented," Patterson said.
"While the issue was serious enough for the commission to consider issuing proceedings, we are pleased to have worked constructively with Telecom to settle this issue. The settlement avoids potentially lengthy and expensive litigation."
The commission said Vodafone and Orcon would share the $1.6 million compensation equally. The settlement did not prevent anyone from seeking further compensation directly from Telecom.
Telecom group general counsel Tristan Gilbertson said Telecom had thought the loyalty offers were a legitimate response to competition.
Non-discrimination was an undefined and untested concept, so Telecom had to do its best to navigate through considerable uncertainty, Gilbertson said.
"We thought we landed on the right side of the line — but the commission disagreed."
Uncertainty about the meaning and application of non-discrimination had a dampening effect on Telecom's ability to compete, so removing that uncertainty had been a critical issue for Telecom.
"While there is still a degree of difference between Telecom and the commission on non-discrimination, the constructive approach taken by the commission has enabled a sensible resolution without resort to litigation," Gilbertson said.
"With this settlement, we can put behind us what has been the only significant issue that has arisen since we were operationally separated two years ago, and reaffirm our commitment to competing robustly on a level playing field consistent with our undertakings."