Industry observers are asking if Telkom will pay the estimated R3.6 billion fine the Competition Commission has suggested, or if it will string out the matter in or out of the courts.
The Competition Commission has recommended to the Competition Tribunal that Telkom be fined 10% of its annual revenue for its financial year, ended 31 March 2008.
The Competition Tribunal still has to uphold the “administrative fine”.
Yesterday, the Competition Commission announced its bombshell findings and said: “Given the widespread use of the Internet and the extensive use made of virtual private networks by medium to large businesses to link various locations of a single enterprise, there is no doubt that these high prices detrimentally affect consumers and hinder economic development in SA.”
Accusing Telkom of abusing its near-monopolistic position, the Competition Commission concluded that Telkom charged excessive prices. This followed a comparison of its tariffs and costs, prices in other countries, fees of other operators offering similar services, and prices charged for customers that posed a competitive threat.
“These comparisons indicated, among other things, that in 2006 Telkom's prices were more than double the average of SA's major trading partners. Furthermore, in 2007, Telkom's prices were 30% more expensive than the average of a basket of 14 countries,” it stated.
The commission also noted that Telkom's downstream competitors have been consistently losing market share, while Telkom's share has been increasing over time, pointing to an inability to compete effectively with Telkom.
Gearing up
A Telkom statement today says: “The commission has clearly finalised its investigations and, in terms of the relevant provisions in the Competition Act, the commission has decided to refer certain aspects of the various matters to the Competition Tribunal for adjudication.
The Competition Commission conducts its investigation of an issue and then makes a recommendation to the Competition Tribunal, which allows for the affected party to make representations to it. The tribunal has the power to reject, modify or overturn the commission's findings. The final resort for an affected party would be to go to the High Court.
Will Hahn, a telecommunications analyst at international research firm Gartner, says the Competition Commission's findings could have far-reaching consequences for the local industry.
“Telkom is going to need to make its charges and offerings completely transparent and, most likely, at least Broadband Infraco, MTN and Vodacom will have to follow suit, to the extent that they wish to serve as wholesalers to other carriers,” he notes.
“If that [the fine] ends up having any legs politically, imagine what it would mean for the mobile carriers, who are accused of maintaining mobile interconnect rates between twice and 20 times as high as costs.”
He says the largest issue is that Telkom's charges are unfair and/or not market-based in relation to its costs.
Major discrepancy
“The implication is that Telkom has made these costs and charges known to the Competition Commission, and a discrepancy exists between what it charges competitors and any charge it makes to its own retail division.”
Hahn says this is contrary to transparent regulation of a carrier with significant market power, and will have to be redressed.
“In most mature telecom regimes, the company in Telkom's shoes has had to undergo either rigorous functional separation between network ops/wholesale on the one hand and retail on the other, or it has gone further, approaching structural separation (where these functions would be vested in completely separate companies),” he says.
Denis Smit, CEO of local research firm BMI-TechKnowledge, doesn't expect Telkom to pay the full fine and believes the chances are that the issue will be settled out of court.
“Telkom has the ability and the will to string this out for years. However, having watched their share price fall yesterday, it seems Telkom investors are betting that it will have to pay most of the fine,” he adds.
Clearly complicated
Smit says the political mood has changed and greater transparency from the various operators will be led by the changes in the regulatory regime, especially through the Department of Communications, and even possibly telecommunications regulator ICASA.
“I don't see the fine, itself, as being a means to bring greater transparency to the sector,” he says.
Parliamentary Portfolio Committee on Communications chairman Ismail Vadi says he stands by his previous calls for Telkom to come to Parliament and explain what it is doing. He also wants the Competition Commission to present its findings to the legislature.
“We have not made any firm calls to Telkom to report to us. However, this is an issue that ICASA should have regulated properly from the beginning,” he notes.
Related story:
Comp Comm hits Telkom for R3.5bn
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