Telecom receives more bad news

Telecom may have to pay back millions of dollars it received from rival telecommunications firms including Vodafone after receiving a double whammy from the High Court in Wellington.

The court upheld a claim by Vodafone that the Commerce Commission made a mistake when it calculated the reasonable costs Telecom incurred providing phone services to uneconomic customers, by not considering the impact of new technologies on its modelling.

The High Court set aside the commission's calculations of the Telecommunications Services Obligation (TSO) levy in 2004-05 and 2005-06 and ordered the commission to reconsider them. Vodafone said the commission might have to revise down the charges in other years also.

Vodafone corporate affairs manager Tom Chignell said it was willing to work with the commission and Telecom to "agree a commercial solution".

In a separate judgment, the High Court threw out an appeal by Telecom, which claimed the commission had underestimated the costs Telecom faced providing phone services to uneconomic customers by applying an appropriate return on capital in its calculations that was too low. Had its appeal been successful, the TSO levy could have been revised upwards.

Telecom group general counsel Tristan Gilbertson said it was surprised by both rulings and believed the issues could be looked at again by the Supreme Court. "The judgment in favour of Vodafone appears to be inconsistent with the recent Court of Appeal decision in a related TSO case on efficient past investments."

That case was being appealed to the Supreme Court and Gilbertson said there was merit in having "all TSO matters heard together in the Supreme Court at the same time".

The TSO levy is set to be abolished in June and replaced with a new industry levy to pay for rural broadband. Craigs Investment Partners analyst Geoff Zame said Vodafone had paid Telecom about a $100 million under the TSO and would be hoping to claw back some of that money.