'Telkom fined for past sins'

The fast-evolving technology market has overtaken Telkom, and the penalty imposed on it yesterday is for past sins in a market where it is no longer the force it once was, says director of competition at Cliffe Dekker Hofmeyr, Chris Charter.

Telkom's fine was imposed in a case that took eight years to come to a head.

The Competition Tribunal yesterday fined fixed-line operator Telkom R449 million for abusing its monopoly between 1999 and 2004, in what is the first competition decision to be handed down against the telecoms group.

According to the judgement, the tribunal found Telkom had refused to supply essential facilities, which limited competition in the sector. It did not find enough evidence to support an excessive pricing argument.

Telkom has six months to pay half of the penalty, while the balance is payable within 12 months of that.

“To many, the case looked open and shut against Telkom, but the incumbent was able to keep the matter from being heard at the Tribunal since its referral in 2004, through various appeals to the higher civil courts that were only resolved in 2009,” says Charter.

“Interesting to note that the tribunal lays some of the blame for the travails that beset the VANS providers at the door of the regulator (ICASA and before that, SATRA) and the minister of communications,” says Charter.

“The regulatory framework was allowed to stagnate due to inaction and poor enforcement, and the resultant uncertainty left Telkom with sufficient wiggle-room to preserve its position.

“On a similar note, the tribunal laments the clear conflict of interest suffered by the minister in being both in charge of telecoms liberalisation as well as a major shareholder in Telkom. This latter fact led Telkom to believe that it was entitled to protection, emboldening it to act as it did.”

It was these circumstances that were treated as mitigating factors and led to a 30% discount off the fine that might otherwise have been imposed (R642 million), explains the director.

“The tribunal's observations regarding the role that state shareholding played in exacerbating anti-competitive behaviour by Telkom is chilling in the face of recent reports that Telkom may be nationalised - creating an even stronger conflict of interest in a market where Telkom is still a very important service provider to a strategic industry.”

Democratic Alliance shadow minister of communications Marian Shinn says government must now learn from Telkom's anti-competitive behaviour, and in its future strategy for the telecommunications company, resist the temptation to return to monopolistic practices to dominate the market and shut out competitors.

“Communications minister Dina Pule must soon report her ideas on Telkom's future to Cabinet and there is much talk of delisting the company and merging it with Broadband Infraco and Sentech to form a single state-owned communications infrastructure entity.”

Shinn adds that the temptation to use a single, government-owned communications infrastructure provider to control the sector will have negative consequences for the competitive ICT sector that SA desperately needs.

“All three entities have dire reputations for service delivery and for being instrumental in holding back the economic potential of SA's ICT sector. The process of combining competing ANC cadre-led entities into one will further inhibit SA's global ICT-based competitiveness and must be resisted.”

The shadow minister also says the fine, which is considerably less than the R3.2 billion originally asked by the Competition Commission in February, must come as a relief to Telkom.

“I urge it not to appeal the fine and focus on becoming a market-friendly collaborator within the communications market.”

However, Charter adds that although the fine is lower than the proposed penalty of between R1 billion and R3.2 billion suggested by the commission, Telkom should also be concerned about the prospect of civil damages claims from VANS operators whose businesses were negatively affected by the conduct, as well as VANS customers in turn.

“Here, the tribunal expressly stated that such customers paid significantly more for VANS services than would have been the case absent Telkom's abuse. For this reason alone, Telkom may well look to appeal to the Competition Appeal Court and beyond.”

Telkom issued a statement to shareholders yesterday, indicating it is “currently in the process of studying the judgment and its implications, and, if necessary, a follow-up announcement in this regard will be considered in due course”.