Let's stipulate that R3.5 billion is rather a whopper of a fine. It is a lot of cash in anyone's books, and especially in Telkom's books right now. But to describe it as 'jaw-droppingly inappropriate' is rich, coming from Telkom.
It does act as just punishment and revenge for the long-suffering people of South Africa.
Ivo Vegter, contributor, ITWeb
Telkom's revenue - of which the fine is intended to represent 10% - has been on the decline, and its profits - ignoring the obviously erroneous figure of R41.9 billion for 2010 as stated in its 2011 annual report - have been dwindling with it. In the last half-year for which it has reported, it made a paltry R233 million. It has R1.3 billion in cash on hand, but faces a multitude of challenges, ranging from new competitive pressures and regulatory changes to multibillion-rand lawsuits against it.
The proposed fine arises out of a complaint before the Competitions Commission which has been dragging on for eight long years. Back in 2004, when people still knew what “VANS” were (it used to describe value-added network services providers, such as Internet service providers), Telkom was accused of unfair competition, price discrimination for access to its network monopoly, and other anti-competitive behaviour.
Granted, the telecoms legislation of the time did permit Telkom to operate an ISP in competition with its own 300-odd ISP customers. It did permit Telkom rapine, robbery and raids against its hapless competitors. The telecoms law of the time was an abomination.
Telkom doesn't dispute the right of the Competition Commission to impose a fine. It merely disputes the quantum. Its opening bid is... wait for it... R20.5 million. That looks roughly like 10% of a half-year's profit, rather than 10% of a full year's revenue. It is less than 0.6% of the amount contemplated by the commission. It is, frankly, an insult to the commission, the regulator, and the market Telkom trampled upon during the last two decades.
Telkom wants the fine to be “nominal”. It says a big fine now won't act as a deterrent because the market no longer looks as it did in 2004. Its argument might have had some merit, if its counter-offer wasn't so downright insulting.
True, it won't act as a deterrent. It comes far too late to correct the deplorable situation of 2004.
However, it does act as just punishment and revenge for the long-suffering people of South Africa. That the market looks different today is exactly what happens when you play card after card to frustrate legitimate regulatory or court proceedings against you. The notion that Telkom's notorious record of legal delay - including a failed challenge to this particular case before the Supreme Court - entitles it to a get-out-of-jail-free card is preposterous.
Anyone who watched the market in the late 1990s and early 2000s will recall the continual contempt in which Telkom held its customers, its competition, its regulator, and the courts. It was a monopoly bully, plundering the market for the benefit first of its “strategic equity partner”, SBC Communications, and later its public shareholders. It had little competition to restrain it, and it brushed off the toothless and underfunded regulator with cavalier impunity.
If you were a VANS operator - mayhap you had a part in launching the original case before the competition authorities - you will recall being unable to get a decent price on upstream bandwidth, being locked out of Telkom's switch stations, watching Telkom's own ISP, SAIX, get cross-subsidised by preferential pricing, and even having your customers poached by your supplier.
And that is only a short sampling of Telkom's long list of abuses as a protected monopoly or dominant incumbent. Some of those abuses persist to this day in markets it still dominates, such as ADSL lines.
As a consequence of Telkom's monopoly protection, South Africa failed in spectacular fashion to take advantage of the investment boom in telecommunications. While the rest of the world got to auction off fat pipes filled with dark fibre for next to nothing, slashing bandwidth and telephony prices, South Africa got squat. All the country's telecoms prices, infamous for being persistently high and unyielding to every effort to match peer-country benchmarks, ran through Telkom, and many still do.
Telkom has a great deal to answer for.
The company now argues that the fine should be proportionate. A fine of several billion certainly is proportionate to the ruin it sowed in the market during the period in question. Perhaps it can be used to reward competitors to Telkom when they actually succeed in rolling out broadband infrastructure or offering low-cost telecommunications to the underserved masses.
Of course, Telkom has a right to argue in mitigation, and it is right to apportion some blame to the legislative environment. It also has a right to argue for a less punitive penalty. But R20.5 million? That - like its 2008 annual report title, “Freedom to Compete” - is a slap in the face to the South African consumers, companies, regulators and courts that Telkom for so long abused.
If I were the commission, I'd consider Telkom's counter-offer an insolent gesture of contempt. It is, to use Telkom's own words against it, “jaw-droppingly inappropriate”. I'd take one look at that offer and multiply it by 1 000. Now THAT would act as a deterrent. It might even deter Telkom forever. I, for one, won't mourn its passing. Good riddance, it would be.
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