The Competition Tribunal has yet to hand down a decision as to whether it will accept a deal between Telkom and the Competition Commission that will see the telco implement a functional split into two.
However, the tribunal has congratulated the parties for a speedy and creative resolution, which brought the matter to a conclusion without lengthy litigation, says a tribunal insider who cannot be named. The previous case against Telkom took 13 years to resolve and resulted in a R499 million fine after it was finally settled.
The settlement agreement was being heard by the tribunal this morning.
Under the non-confidential settlement agreement, Telkom has agreed that, within six months of the agreement being confirmed, it will functionally separate its wholesale and retail business, and implement a pricing regime that will regulate transactions between the two entities.
The deal is aimed at providing other parties, which source services from Telkom, with transparency. Telkom will also implement wholesale and retail pricing commitments for the next five years that should yield R875 million in savings.
Telkom will, over the 2014, 2015 and 2016 financial years, trim the price of wholesale services in areas such as undersea cable international lines, national high bandwidth transmission lines, access to ADSL lines via the IP Connect service and Diginet leased-line access, as well as related retail products, Telkom's VPN Supreme and Internet Access.
The price reductions are weighted more heavily in favour of wholesale services, at a minimum of 70%, to bring about a more competitive market, says the commission in its statement. Telkom will also ensure any price reductions are not reversed in the 2017 and 2018 financial years.
Telkom CEO Sipho Maseko has said the commission wants an accounting separation between wholesale and retail, and wants the company to be transparent about how it prices its offerings. It wants Telkom to offer the same pricing to other providers as it does to its retail arm, he says, which would be the start of a split.
Admitting
Between June 2005 and July 2007, five complaints were submitted against Telkom to the Competition Commission by several Internet service providers (ISPs) and the Internet Service Providers' Association. The commission determined that Telkom was squeezing margins and acting in an anti-competitive manner.
Telkom has admitted that, during the complaint period, first-tier ISPs had to use Telkom's services to build or gain access to backbone networks, but that the pricing charged by Telkom was higher than it charged its own retail arm.
The telco has agreed that Telkom Wholesale will provide other licensed operators with services at the same price that it provides to its retail arm. Components that are not provided to both parties will be offered at cost plus a "reasonable" return.
In addition, Telkom will implement a retail pricing policy that will ensure Telkom Retail does not practise margin squeeze to the detriment of other licensed operators.
Telkom will pay an "administrative" penalty of R200 million, which will be paid in three equal tranches, the first due when the agreement is confirmed. The second payment will be a year later and the third a year after the second payment.
Telkom will only comment on the merits of the agreement after the tribunal has confirmed it.
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