OSLO, Norway, Dec. 13, 2001 (PRIMEZONE) -- Telenor Mobil has been fined NOK 2 million by Okokrim, the Norwegian authority for economic and environmental crime investigation and prosecution. In addition to the fine, a sum of NOK 8 million will be seized as a result of an alleged violation of telecom legislation. The fine is based on extended market support from Telenor Mobil to Telenor Business Solutions (Nasdaq:TELN) during the late 1990s. This support was neither made public nor offered to other companies. Deficiencies in the international pricing system made it less expensive for Telenor Business Solutions' competitors to route calls via foreign countries rather than directly between customers in Norway. Telenor considered it inexpedient for Telenor Business Solutions to direct its calls through foreign countries. Telenor Business Solutions was therefore given compensation for not exploiting the deficiencies in the international pricing system. Telenor does not concur that legislation has been violated, and will consider closely whether to accept the fine.
Competitors of Telenor Business Solutions practiced for a period a system of so-called "refiling." This involved placing calls between Norwegian customers through foreign countries to have them priced lower than normal. For Telenor Mobil, this meant that the income they received was reduced by more than half compared with the prevailing domestic price within Norway. This situation was caused by the international price agreements between operators within the ITU (International Tele Union). These agreements were exclusively based on fixed telephony, and not on calls made from fixed networks to mobile networks.
Telenor Business Solutions would have benefited economically by placing calls through foreign countries, as the practice was among their competitors. However, the Telenor Group considered it inexpedient that Telenor Business Solutions should exploit the deficient international pricing system.
This is the background for the agreement made between Telenor Mobil and Telenor Business Solutions in 1999, an agreement also continued in 2000. The agreement implied economic market support from Telenor Mobil to Telenor Business Solutions, enabling the latter to avoid refiling traffic to the mobile network. The agreement involved giving Telenor Business Solutions compensation for its reduced ability to compete, but throughout this entire period competitors found it more profitable to refile. Both refiling and the agreement with Telenor Business Solutions resulted in reduced income for Telenor Mobil compared with normal circumstances.
"We do not concur that this agreement was at variance with existing telecom legislation. Primarily because Telenor Business Solutions' customers already enjoyed improved conditions of competition through their refiling practice. In addition, we can not see that the criteria for such market support must be made public. Furthermore, we can not see that Telenor has gained anything economically from the agreement, on the contrary the company's income was reduced as a consequence of competitors exploiting a pricing system that has been altered since," said CEO Tormod Hermansen. "The agreement was discontinued in 2000 and the matter no longer has any actuality or principal interest," said Hermansen.
Routing calls via foreign countries was disputed because it was inefficient from a socio-economic perspective, and involved a bypassing of international collaboration regarding international telecom traffic and pricing of calls. Considerably higher costs are involved when transmitting calls from fixed-line to mobile than between fixed-line customers. In 1999 the ordinary domestic routing price from the fixed-line network to the mobile network was NOK 1,23 per minute. The price for routing a call from a foreign country was between NOK 0,60-0,80.
This situation prevailed, with various price differences, until ITU, by the end of 2000, agreed on a two-price system where calls from fixed-line to mobile was priced on a more cost-related basis. The situation changed as soon as the two-price system was introduced. Since then, refiling and agreements on market support have been discontinued.
"Telenor Business Solutions could have opted to refile, as competitors did, rather than entering into an agreement on market support, but decided not to, because Telenor regarded the practice inexpedient, and because this would not utilize recourses efficiently, which is the objective of the legislation. It actually costs more to place a call to a foreign country, and then back again. Only the illogical pricing system in existence at the time gave a different impression. No one would argue that it would be more cost-efficient to send air passengers en route from Oslo to Bergen via Stockholm. The same goes for phone calls. We will now look closely into the matter, and make an assessment of the fine before deciding whether to accept it or not," said Telenor CEO Tormod Hermansen.