Wellington, Aug 27 NZPA - A watchdog group has found wholesale loyalty offers offered by Telecom breached the company's separation undertakings.

The Independent Oversight Group (IOG) investigated after complaints from Vodafone and Kordia.

It upheld complaints about an Auckland loyalty offer Telecom launched last December and a New Zealand loyalty offer launched in March.

In a decision released today, the IOG said the loyalty offers were "non-trivial" breaches of the undertakings. Reasons for its decision would be issued within the next seven days.

Telecom said it would study the detail of the "important" decision before making any further comment.

Telecom Users Association (Tuanz) chief executive Ernie Newman said that, in general, Telecom had responded to operational separation constructively and with integrity.

But it was inevitable that at some point the boundaries would be tested.

While encouraging Telecom to immediately remedy the breach, TUANZ considered the matter to be an isolated and inevitable testing of boundaries, and "certainly not the tip of any iceberg".

The Commerce Commission said it was considering the IOG's decision before deciding what further action would be appropriate for it to take.

While the commission could take enforcement action, it was up to the courts to impose penalties, a commission spokeswoman said.

If Telecom failed to comply with finalised undertakings the commission was able to take enforcement action in the High Court for each breach. The maximum penalty for each breach was $10 million, plus $500,000 per day for continuing breaches.

The commission had also received a formal complaint in relation to Telecom Wholesale's loyalty discounts.

Separately, the commission was considering whether to open a formal investigation into whether the loyalty offers breached general competition law under the Commerce Act.

Scott Bartlett, chief executive of Kordia-owned Orcon said the loyalty offers had been structured in such a way as to disadvantage Orcon, which had led the unbundling of the local loop, and its customers.

Orcon was eagerly awaiting the outcome of the commission's process.