Fixed-line operator Telkom abused its dominant position to exploit the regulatory regimes to the detriment of its competitors, the Competition Tribunal heard this morning.
Telkom is facing charges based on a 2002 complaint laid at the Competition Commission by the then value-added network service (VANS) providers and several other entities. Hearings into the matter are set to take place until 28 October and again between 1 and 9 December.
The Competition Commission wants Telkom to be fined 10% of its 2003 turnover, which amounts to a penalty of R3.75 billion.
Advocate Martin Brassey, for the commission, alleged Telkom abused its monopoly over the access and back haul aspects of the network to the detriment of competitors.
Telkom refused to provide services if companies breached its contract or its interpretation of the then Telecommunications Act, Brassey argued. It also sold services to its own VANS for much less than its competitors had to pay, he alleged.
Telkom engaged in “exploitation” of the regulatory regime, Brassey argued. He said while these events are now “well in the past,” the company must be interdicted to prevent it from engaging in a similar practice in the future.
Looking ahead
The case dates back to 2004, when the commission referred the abuse of dominance case to the tribunal. However, it has been dogged by legal action, as Telkom sought to argue, first in the High Court and then in the Supreme Court of Appeals, that the commission and its higher body did not have jurisdiction over the issue.
That matter was finally settled about two years ago, when the Supreme Court ruled the tribunal and commission have authority to penalise Telkom for anti-competitive practices. These hearings are the first time the actual substance of the allegations against Telkom are being heard.
Brassey said although the regulator environment has changed, as the Telecommunications Act has since been replaced by the Electronic Communication Act, there is a “propensity” for these actions to recur. He said that although Telkom argues many of these practices no longer take place, there is still a need for the tribunal to interdict the company.
“It is what Telkom charges to get information into the cloud and get out of the cloud that is... the point of this complaint.”
Storm brewing
However, the case is likely to hinge on whether the VANS were permitted, under the old law, to transmit data, or whether they were limited to providing value-added services such as e-mail and management of networks.
Brassey explained that VANS came into being when companies realised they should outsource network management. As connectivity is costly, this led to the development of virtual private networks, and VANS used to combine data needs from various clients to ensure efficient and cost-effective use of pipes.
Telkom argues that the use of the pipes to transmit data was a contravention of the Telecommunications Act, noted Brassey. He said the fixed-line operator contended that the use of VPNs was not allowed and that, as the only licensed fixed-line operator, Telkom had to manage the use of the pipes.
Brassey said this led to a situation in which Telkom limited what services the VANS could provide and froze their access if they breached its contract, or contravened its definition of the regulations.
Telkom's insistence that end-users deal directly with it for network access allowed the company to build up a database of clients to pre-empt the arrival of the second national operator, Neotel.
However, advocate Willem van der Linde, for Telkom, said while the legislation gave Telkom a window of opportunity to act as a monopoly as it had rolled out a network, technology advanced faster than the law.
Van der Linde said the VANS stretched the boundaries beyond what they were entitled to do under the law. He said technically-skilled people ran ahead with technology, leading to a debate as to whether they were entitled to provide the services they did.
This is the first of two cases that have been brought against Telkom. In 2009, the commission and Internet Solutions (IS) referred complaints against Telkom to the tribunal, alleging Telkom's wholesale pricing was excessive and harmed downstream providers such as IS.
However, that case has been delayed as a result of hearings into technical objections that Telkom lodged last March relating to legal issues within the referral. The commission is seeking a fine of 10% of Telkom's 2009 turnover, which amounts to almost R3.7 billion in that case.
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