Almost R800 million was wiped off Telkom's market capitalisation this afternoon, within minutes of the Competition Commission announcing that it was recommending the fixed line operator be fined 10% of is annual turnover.
The finding is a surprise... Telkom would likely appeal as in the past they have successfully declared that the Competition Commission has no jurisdiction over them and they are acting within the telecommunications laws.”
Rob Forsyth, an analyst at Investec Asset Management
By 3pm, Telkom's share price had dropped 162c, to R42.49, in busy Johannesburg Stock Exchange trading, following the Competition Commission's announcement. The group's market capitalisation currently stands at R22.1 billion.
Earlier, the Competition Commission had issued a statement saying that it was recommending to the Competition Tribunal that Telkom be fined 10% of its annual revenue for its financial year, ended 31 March 2008.
During the period, Telkom's revenue was R35.9 billion and so, if the fine is paid, then this could be as much as R3.6 billion - and the Competition Commission has confirmed that if this fine is upheld then it will be the biggest ever, with the next closest being the R600 million fine imposed on steel producer Mittal.
So far, the Competition Commission statement talks about an “administrative fine”, meaning that the Competition Tribunal still has to uphold it.
Doesn't look good
Rob Forsyth, an analyst at Investec Asset Management, says: “The finding is a surprise and I cannot believe that this is the end of the matter. Telkom would likely appeal as in the past they have successfully declared that the Competition Commission has no jurisdiction over them and they are acting within the telecommunications laws.
The latest news compounds Telkom's negative public perception, as yesterday international ratings agency Moodys down-graded the group due to the sale of its stake in mobile network operator Vodacom.
In its investigation, the commission found that Telkom abused its near-monopoly position in the market for the provision of telecommunication network facilities.
“It did this by charging excessive prices for the basic infrastructure needed by its downstream competitors, the ISPs, to access a range of telecommunications services, while keeping its own ISP service charges low. In this way, Telkom also raised its downstream competitors' costs, making it difficult for them to on-sell cost effective services to end consumers,” the statement said.
The commission concluded that Telkom charged excessive prices after comparing Telkom's prices to its costs, prices in other countries, prices of other operators offering similar services and prices to customers of Telkom, who posed a competitive threat. These comparisons indicated, among other things, that in 2006 Telkom's prices were more than double the average of SA's major trading partners.
Furthermore, in 2007, Telkom's prices were 30% more expensive than the average of a basket of 14 countries.
Excessive prices
Significantly, the commission also noted that Telkom's downstream competitors have been consistently losing market share, while Telkom's share has been increasing over time, pointing to an inability on their part to compete effectively with Telkom.
“The excessive prices charged by Telkom affect the prices which ISPs charge their customers. Given the widespread use of the Internet and the extensive use made of virtual private networks or VPNs by medium to large businesses to link various locations of a single enterprise, there is no doubt that these high prices detrimentally affect consumers and hinder economic development in SA,” the Competition Commission said.
It said the investigation followed five complaints that were lodged by the Internet Service Providers' Association and other Internet service providers, or ISPs, namely Verizon, MWeb and Internet Solutions.
The commission said that during its investigations it worked with and received cooperation from the ICASA, the telecommunications regulator, in accordance with understanding between the two regulators.
“The cooperation of the two regulators will continue during the prosecution of this matter, particularly with respect to remedies for the conduct,” the statement said.
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