The Commerce Commission has reached a $1.6 million settlement with Telecom following an investigation after receiving complaints from the teleco industry alleging that Telecom Wholesale’s ‘loyalty offers’ breached Telecom’s Separation Undertakings.

Vodafone and Orcon will share the $1.6 million compensation equally.

The settlement does not prevent anyone from seeking further compensation directly from Telecom. As part of the settlement, Telecom has also been warned by the Commission that it is likely that the loyalty offers amounted to discrimination in breach of the Undertakings.

Dr Ross Patterson, Telecommunications Commissioner, said that 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,” he 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 loyalty offers related to Telecom Wholesale’s regulated wholesale broadband service. 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.

Last month the Commerce Commission ordered Telecom to refund approximately 1300 customers who it said may have been misled by a broadband promotion in 2008.

According to the New Zealand Herald, Telecom has shelved its plans to sign up a new IT supplier. According to an internal note the company's executive team decided against inking a major deal with a single supplier "in the current uncertain environment".