Telkom penalty 'jaw-droppingly inappropriate'

The penalty figure of R3.5 billion or 10% of turnover proposed by the Competition Commission is jaw-droppingly inappropriate, and 5% of turnover of R410 million would be more acceptable, says Telkom.

The commission wants Telkom to be fined up to R3.5 billion for allegedly abusing its dominant position and cutting downstream value-added network service providers out of the market. Telkom disputes the commission's position, arguing that the fine should not be based on total revenue.

The commission, in its submission to the Competition Tribunal, said the penalty is not meant to be "swinging". However, Telkom questioned what the commission's idea of a swinging penalty is if R3.5 billion is not.

Telkom also argued that the market, at the present time, bears almost no resemblance to the market when the complaint was laid.

Telkom says any penalty now will not act as a deterrent because the market has opened up so much since the period being discussed. “A penalty can have no deterrent effect on Telkom's behaviour.”

For this reason it says the figure should be considerably lower than that suggested by the commission. Telkom also argues that other revenue streams should be stripped out of the calculation.

“The fine of R3.5 billion is not proportionate. It would be an all time record of this tribunal. The tribunal is not obliged to impose a penalty at all.”

The commission on Monday presented its closing arguments in the case against Telkom to the Competition Tribunal, sticking to its request that the telecoms company be fined as much as 10% of its turnover.

The tribunal will wrap up hearings into the Telkom case this week. The commission referred the case to the tribunal in February 2004, after its investigation concluded Telkom was abusing its dominance by charging excessive prices, refusing access to an essential facility and engaging in price discrimination, making its downstream rivals less competitive in the telecommunications market. Telkom has denied these allegations.

The tribunal must decide if Telkom abused its dominance in the telecommunications market. Advocate Martin Brassey, for the commission, alleged Telkom abused its monopoly over the access and backhaul aspects of the network to the detriment of competitors. “Telkom has behaved very badly from a competition point of view and that needs to be corrected.”