R200-million Telkom anti-competitive settlement under review

The Competition Tribunal has heard details on the settlement agreement drawn between Telkom and the Competition Commission, and has decided to consider the matter before approving it.

The settlement agreement, which would see the incumbent telco pay a R200 million fine and make the telecoms market more competitive moving forward, addressed various complaints lodged against Telkom from 2005 to 2007 by the Internet Service Providers Association and others.

In August 2012, the Competition Tribunal found that, between 1999 and between 2004 and 2005 and 2009, Telkom had leveraged its upstream monopoly in the facilities market to advantage its own subsidiary in the competitive value added network market.

According to the Competition Commission, Telkom made admissions to engaging in “margin squeezing” against competitors, as well as excessive pricing.

The settlement package, announced in June, includes:

  • An admission of guilt;
  • Financial penalty of R200 million;
  • Functional separation between Telkom’s retail and wholesale divisions along with a transparent transfer pricing programme to ensure non-discriminatory service provision by Telkom to its retail division and ISPs;
  • Effective monitoring arrangements of its future conduct;
  • And wholesale and retail pricing commitments for the next five years estimated to yield R875 million savings to customers.
  • The Commission expects Telkom to reduce tariffs at the wholesale and retail level over the next 3 years, which will be implemented at a specific percentage per year, rather than a fixed amount in rands.

As part of the agreement, Telkom would need to confirm and initiate changes within 6 months, as well as open up its resources to the Commission so that it could satisfy itself, through an independent expert, that Telkom was playing ball.

Telkom has also committed to a 6 month audit, to assure the Commission and the market that it has turned a new leaf.

Telkom also made commitments to reduce tariffs on its wholesale and retail products, though reductions would be weighted in favour of wholesale at a 70%/30% basis (70% reduction at wholesale level, 30% at retail level).

Distance-based costs will be non-discriminatory; however, Telkom said that it is up to each business to cover the costs of getting points-of-presence into remote areas, and that they could not expect to “piggy-back” on Telkom’s costs.

The Commission said that it would be beneficial to conclude the settlement with Telkom, as the case would otherwise be extremely complex and use up the Commission’s resources in terms of money and manpower.

Tribunal response

In response to the reduction of prices, which were kept confidential, the Tribunal questioned why it was being kept a secret from the public. The response was that having Telkom’s specific price reductions known, would put the company at a disadvantage as it is still a competitor in the market.

Another point raised by the Tribunal was the absence of consultation with Icasa over the settlement matter. The Commission responded that the settlement dealt with unregulated prices, and Icasa would be consulted after the Tribunal had signed off on the settlement.

The Tribunal said that it would not supply an answer for the Commission and Telkom on Wednesday (17 July).

Article courtesy of BusinessTech – Competition Tribunal to consider Telkom settlement

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R200-million Telkom anti-competitive settlement under review