Telecom is investigating what it says is the unauthorised accessing of customer account details from one of its databases.
The company believes a sales company working for its rival, Slingshot, has had access to names, addresses and other data held in the Wireline database.
Telecom says financial records and credit card data were not accessed.
It's now working to establish the exact details of the breach.
Telecom says the firm Power Marketing acquired log-in details from a dealer, who is yet to be spoken to.
Telecom Retail chief executive Alan Gourdie says the improper access is both unethical and disappointing.
Mr Gourdie says Telecom will be vigorously pursuing the matter, and may yet approach the police.
The Office of the Privacy Commissioner says it wants Telecom to explain what's gone wrong and how it plans to close the security loophole.
Assistant Privacy Commissioner Katrine Evans says Telecom will be called to a meeting at the start of next week to explain what's happened.
She says a lot of people's personal information is involved and the commission needs to make sure it is properly protected.
Slingshot has not returned calls from Radio New Zealand News.