Telkom's share price drops

Telkom's share price was down at the close of business yesterday by 1.4% and at around 11am this morning, it was down 2.4%.

This comes after the Competition Commission yesterday confirmed it wants Telkom to be fined up to R3.5 billion for allegedly abusing its dominant position and cutting downstream service providers out of the market.

The All Share Index was up yesterday, closing at 34 207. Telkom's share opened at R28.75, had an intra-day high of R28.78 before closing at R28.20. Some 766 183 shares changed hands.

The case, for which hearings will continue tomorrow, is complex because of the regulatory framework which conferred on Telkom a statutory monopoly for the provision of public switched telecommunication services.

This is according to Andries le Grange, director in the competition practice at Cliffe Dekker Hofmeyr business law firm. He notes that Telkom also provided valued-added network services (VANS) in competition with other VANS based on the backbone and access facilities of Telkom.

“The complaints against Telkom arose from the VANS who were denied access to the backbone and access services (or granted access on certain restrictive conditions), overcharged for access facilities compared to the charges paid by Telkom's clients. This is a type of margin squeeze complaint but has an excessive pricing and price discrimination flavour. They refused the right to peer with Telkom,” Le Grange explains.

“Because of Telkom's presence in the upstream and downstream markets, and its dominance in the upstream market, it had an incentive to favour its internal VANS division. Telkom's defence to many of the charges is that it was entitled to impose the relevant restrictions in terms of the Telecommunications Act.”

The commission yesterday stuck to its request that the telecoms company be fined as much as 10% of its turnover in SA.

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. In addition to a summation of the arguments presented by both sides thus far, the tribunal expects to hear submissions on the appropriate penalty to be levied on Telkom, if the tribunal finds in the commission's favour.

Advocate Martin Brassey, for the commission, said: “Telkom has behaved very badly from a competition point of view and that needs to be corrected."