The Competition Commission is determined to haul Telkom over the coals for allegedly making it impossible for smaller value-added network operators to make profits and expand their businesses.
The commission's allegations are based on an investigation that took place between 2005 and 2007 into complaints that Telkom's wholesale pricing was excessive and harmed downstream providers, such as Internet Solutions. Its complaint, alleging that Telkom had abused its dominant position, was filed with the tribunal last year.
Last month, Telkom was accused of deploying delay tactics when it argued technical exceptions to the commission's case against it, which would push out hearings for about a year.
Among Telkom's complaints was that the charge that its excessive pricing resulted in squeezing the margins of downstream players should be two separate issues, and not combined. Advocate Rafik Bhana, Telkom's senior counsel, said the commission needed to rectify its complaint.
This morning, the commission is set to argue why it should be allowed to clarify its original complaint referral so that it spells out the margin squeeze issue. Telkom has hit back in its responding papers, saying the commission's amendment will delay matters again and is prejudicial.
As a consequence of Telkom's behaviour, the commission wants the Competition Tribunal to fine Telkom 10% of its 2009 turnover - an amount of almost R3.7 billion - for allegedly abusing its dominant position in the market.
Downstream pressure
The commission's initial complaint made out a case of abuse of dominance against Telkom, which it alleges led to a margin squeeze for downstream competitors - threatening the viability of their businesses.
In the affidavit seeking to set out the margin squeeze case, Ngoako Moropene, legal counsel for the commission, argues Telkom's “margin squeeze strategy” strengthens its position in the downstream market, where it competes against value-added network (VAN) operators.
Moropene says this resulted in Telkom's competitors and their customers paying more for services than Telkom's customers.
“This results in the private VANS licensees suffering negative margins over the complaint period, such as to make it difficult to expand in the downstream market, so as to effectively compete against Telkom,” states Moropene.
Moropene says the amendment is “not likely to cause any prejudice to Telkom”. This is because the allegation of price discrimination is already on the table, and discriminating on the basis of price leads to a margin squeeze.
Harmful paperwork
Telkom, however, opposes the commission's amendments, arguing that the commission is trying to introduce an entirely new charge against Telkom, which is prejudicial and will delay hearings further.
Telkom's response to the commission argues the requirements to prove a margin squeeze is that the price charged by the upstream provider makes it impossible for downstream rivals to cover their costs.
George Candiotes, Telkom's competition law and wholesale executive, states in the affidavit: “These essential requirements for a margin squeeze are not addressed at all” in the initial complaint, and is inadequately covered in the amended paperwork.
Candiotes adds if the amendment was granted, it would involve a “significant” expansion of the complaint referred to the tribunal as “it would require the commission to prove that a reasonably-efficient downstream rival was not able to make sufficient profits to remain in the market”.
In addition, he argues the commission should not be allowed to get away with the amendment because it is “procedurally incompetent”, because a form has not been filled in. Candiotes further says the commission's paperwork does not support its contention that there is a margin squeeze, because it is too vague and does not back up its allegations.
Candiotes adds that the commission has taken far too long in filing its amended application, which has prejudiced Telkom. “I respectfully submit that to allow the commission to introduce a margin squeeze complaint at such a late stage in the proceedings would be unfair and highly prejudicial to Telkom.”
Moreover, allowing the commission to amend its application will require Telkom to again “trawl through all its archives” to find documents relevant to the question as to whether its pricing resulted in margin squeeze. Telkom originally took 4 000 hours to find paperwork relating to the original complaint, says Candiotes.
He says allowing the commission's complaint would delay the tribunal hearings and they would not take place in May next year. In addition, Telkom says, the amendment would result in a duplication of charges against it.
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