Telecom has admitted it breached the Fair Trading Act by misleading 130,000 customers who were switching to broadband.
In 1999, Telecom customers were told they could upgrade to broadband while retaining their dial-up connection under a "pay as you go" agreement.
However, due to administrative errors, monthly account fees for dial-up remained on bills for the next seven years, resulting in customers being overcharged a total of $9.5 million.
Telecom has apologised and says it has already repaid all those who were overcharged.
Commerce Commission spokesperson Graham Gill says Telecom has been the subject of Fair Trading Act convictions, settlement or warnings on at least eight occasions since 2003.
"We are sure that New Zealand consumers expect more of Telecom," he says.
Telecom's chief of retail Alan Gourdie says all accounts have now been paid back, but some former customers have still to collect their credit.
"There are still 1400 customers who actually have a credit on their account. But because that account is no longer active or we don't have a current address for them, the money hasn't been drawn down by them.
"Those customers should immediately contact us and we'll be more than happy to pay them that money."
Telecom says it is working more closely with the Commerce Commission to avoid further breaches.
The settlement with the commission means a court case will be avoided.
$500,000 fine in December
In a separate case in December last year, Telecom was fined $500,000 for breaches of the Fair Trading Act.
Telecom pleaded guilty to 17 charges over claims made in 2006 when it promoted Xtra's Go Large broadband plan.
The commission says Telecom and Xtra claimed the plan gave users all the internet they could handle and maximum-speed internet.
However, investigations into complaints from Xtra customers found the internet speed was constrained, in some cases to dial-up speed.
Telecom paid $8.4 million in compensation to 97,000 customers affected and admitted that some of the advertising was misleading.