Telkom's conduct 'anti-competitive'

Johannesburg, 25 Feb 2004

The Competition Commission has ruled that Telkom's behaviour towards value-added network service (VANS) providers is anti-competitive.

The matter - which follows the commission's investigation into complaints lodged in 2002 against Telkom by the SA VANS Association (SAVA) and others - has been referred to the Competition Tribunal for determination.

It has also been reported that the commission has asked that Telkom pay an administrative fine of 10% of its annual turnover, which could amount to R3 billion.

Monopolistic advantage

A VANS is a telecommunication service provided to a customer over a telecommunication facility by a provider who is licensed to do so by the regulator, during which value - in the form of e-mail, electronic data interchange and Internet service provision, among others - is added for the benefit of the customer.

Since Telkom holds the monopoly on the telecommunications services required by VANS operators and at the same time competes with them in the same market, SAVA believes this places Telkom at a unique advantage in regards to its competitors.

According to Advocate Menzi Simelane, commissioner at the Competition Commission, the investigation revealed that Telkom has abused its dominant position by engaging in a pattern of anti-competitive practices.

"These include Telkom imposing unreasonable conditions for it to provide telecommunication services to the VANS, such as forcing them to sign contracts which subject them to Telkom's dictates," he says.

"As the VANS cannot operate without these facilities and since they must obtain them from Telkom, they have no choice but to subject themselves to Telkom's dictates."

He says the effect of these practices, including legal actions and threats of service termination, has been to chill competition in the VANS market.

"This anti-competitive conduct is likely to have a serious impact on both the ICT sector and broader economic development," states Simelane.

Five complaints

SAVA's initial complaints against the monopoly were alleged on the following grounds:

Telkom's refusal to provide telecommunications facilities to certain VANS providers to construct their networks;
Telkom's refusal to peer with certain VANS providers, as well as its refusal to provide facilities to certain VANS providers for use in peering (the interconnection of separate networks by internet service providers (ISP) to allow communication by customers of ISP providers for the provision of the Internet);
Telkom's refusal to lease access facilities to VANS providers directly and insisting on VANS providers acting as agents of their customers in leasing access facilities from it;
Telkom's discriminatory pricing with regard to leased-line services; and
Telkom's provision of bundled competitive services with monopoly services.

The commission found that Telkom abused its dominance as alleged in the first four complaints, although it decided not to refer the bundling complaint to the tribunal, as the investigation did not reveal sufficient evidence of abuse of dominance by Telkom.

Telkom is 'confident'

Telkom's legal services group executive, Mandla Ngcobo, says the organisation will respond to the Competition Tribunal in due course, once it has been served with a notice of motion.

"The commission's further decision not to refer the 'bundling complaint' to the tribunal has demonstrated that Telkom has not unfairly leveraged its position as a provider of facilities in the VANS market," says Ngcobo.

"Telkom has consistently provided telecommunication facilities to VANS providers within the current legal and regulatory framework and the parameters as set out by the regulator in its previous rulings. We are confident that Telkom, as a public switched telecommunications services provider, has not abused its dominant position."