I was at the Carlton Hotel in 1995 when then-minister Pallo Jordan announced that government “wouldn't even consider” competition for Telkom, and handed the recently corporatised former government department an “exclusivity period” of five years. I watched the envoys of foreign telecommunications giants walk out in protest, never to return. I watched the foreign media shake their heads in disbelief. So soon after the elation of winning our political freedom, it became clear that our economy would remain in chains. It was not a pleasant day to be a South African.
I was at Pinmill Farm in 1998 when the then-regulator, known as SATRA, ruled against Telkom. The case was brought by Telkom, asking for a determination on its audacious claim that the Internet constitutes a “basic service”, and therefore should fall under Telkom's legal monopoly. SATRA took nine months to conclude that it did not, upon which Telkom promptly took it to court, claiming that even though Telkom implicitly acknowledged the regulator's jurisdiction by approaching it for a ruling, as a point of law it did not have the legal authority to make it.
This astonishingly hypocritical, manipulative move was a harbinger of how evil this state-owned monopoly would turn out to be.
At each turn, Telkom has been contemptuous of customers, competitors and the government.
Ivo Vegter, contributor, ITWeb
The history of Telkom is one of aggressive litigation to sow confusion and delays, opposed only by under-resourced regulators armed with toothless law. It cynically played off the competition authorities, the regulator and the Department of Communications against each other. This set the stage for many more examples of legal obstructionism and failed telecommunications policy, as other would-be players in the market quickly learnt how the game is played in South Africa.
Licensing new operators, implementing new law, and promulgating new regulations were delayed, often by years. Some attempts to restore the telecoms industry to some semblance of market competition, such as unbundling the local loop and implementing carrier pre-selection, remain delayed to this day.
At each turn, Telkom has been contemptuous of customers, competitors and the government. It followed the letter of the law, which made it a condition of its monopoly to provide a set number of fixed lines in under-serviced areas, but cynically cut off most of them for non-payment, which the exclusive licence did not prohibit.
It manipulated consumer tariff regulations to its own advantage, cross-subsidised its own Internet services at the expense of those of its customers, and dragged its feet when supplying the very facilities over which it enjoyed a monopoly. Its abusive behaviour had been a matter of public concern and official investigation since at least 1997. Finally, in 2012, the Competition Tribunal made just one charge stick, dating back to 2004, and slapped the behemoth of South African telecommunications with a fine amounting to R449 million.
In the Tribunal's defence, it had been seeking a fine at least twice as large, while Telkom itself, with barefaced arrogance, argued that just a few million would be a sufficient slap on the wrist.
Some commentators have floated the idea that the fine is unfair on Telkom, because the issues are today moot; it is being punished for transgressions in a long-distant past, and in any case, it has since sold shares to the public, which did not intend to take such risks. The last point has some merit, because the government aggressively markets Telkom shares to unsophisticated retail investors, but this happened in 2003, predating the matters on which the Tribunal ruled in this case. naïvet'e is no defence against the caveat emptor principle that applies to all would-be investors.
However, all this is beside the point. Is Telkom guilty? Absolutely! It is guilty of much more than just failing to provide essential services.
Is the quantum justified? No, it should have been much higher. The cumulative cost to the South African economy of having dropped from 14th in the rankings of most-connected countries in 1997 to 136th today (by percentage of the population with Internet access) is immense. The cost of having the most expensive Internet access even among developing-country peers is felt throughout the economy.
Should Telkom be alone on the hook? No. It cynically took advantage of bad law and weak regulation. Ultimately, the policy of “managed liberalisation” was to blame. It was government policy that prevented South Africa from taking advantage of the foreign investment that lay ready to build fibre networks in the late 1990s. It was government policy that turned Telkom from an inefficient government department into a rapacious corporate behemoth.
By finding against Telkom, the Competition Tribunal implicitly confirms the harsh judgment on South Africa's telecommunications policy, stated over and over again by local and foreign research organisations, as well as by a consistently critical media. It was indeed a disaster, and the after-effects continue to be felt. Access to the Internet largely remains limited to rich elites and the formally employed. The cost of Internet access continues to be a drain on personal finances and entrepreneurial innovation.
The fine amounts to far too little, and it comes way too late. Critics of government policy and Telkom's monopoly abuses might claim vindication, but it is a small consolation for tasting the bitter fruit.
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