The Competition Commission (CC) recently referred its findings of abuse of dominance against Telkom to the Competition Tribunal for adjudication, and has asked the Tribunal to levy an administrative penalty of 10% on Telkom’s annual turnover for its financial year ended 31 March 2009. Telkom’s annual turnover for its last financial year was R35.9-billion, which means that a 10% penalty will be in the region of R3.6-billion.<\/p>\n
The investigation and subsequent referral follows five complaints that were lodged between 2005 and 2007 by the Internet Service Providers Association (ISPA) and other Internet Service Providers (ISPs) including Verizon South Africa (Verizon), Multichoice Subscriber Management Services (MWeb) and Internet Solutions (IS).<\/p>\n
“During the investigation the Commission engaged with and received cooperation from the Independent Communications Authority of South Africa (ICASA), in accordance with the Memorandum of Understanding between the two regulators. The cooperation of the two regulators will continue during the prosecution of this matter, particularly with respect to remedies for the conduct,” the CC said in a press statement.<\/p>\n
In its investigation the Commission found that Telkom abused its near-monopoly position in the market for the provision of telecommunications network facilities. It did this by charging excessive prices for the basic infrastructure needed by its downstream competitors to access a range of telecommunications services, while keeping its own ISP service charges low.<\/p>\n
“In this way, Telkom also raised its downstream competitor’s costs, making it difficult for them to on sell cost effective services to end consumers,” the CC said. “The Commission concluded that Telkom charged excessive prices after comparing Telkom’s prices to its costs, prices in other countries, prices of other operators offering similar services and prices to customers of Telkom who posed a competitive threat to it.”<\/p>\n
“The excessive prices charged by Telkom affect the prices which ISPs charge their customers. Given the widespread use of the internet and the extensive use made of virtual private networks or VPN’s 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 South Africa,” the CC concluded.<\/p>\n
Telkom fights back<\/strong><\/p>\n Telkom is however fighting back, saying that it is not guilty of abusing its monopoly and that it will definitely oppose the referral by the CC to the Tribunal. Anton Klopper, Telkom’s Group Executive for Legal Services, said that ICASA approved most of these prices in one form or another, and that all of the services were offered in terms of the regulatory framework at the time.<\/p>\n Klopper further highlighted that most of the complaints were made a few years ago, and that a totally different regulatory and legislative frameworks were in effect at the time. The previous dispensation must therefore be used as a yard stick when ruling on the complaints.<\/p>\n This may however all become irrelevant if an upcoming court ruling goes in Telkom’s favour. A Competition Commission complaint filed in May 2002 by the South African Value Added Network Services Providers’ Association (SAVA) resulted in a CC referral to the Tribunal where Telkom was accused of contravening the Competition Act through various actions.<\/p>\n Telkom however challenged the Competition Commission’s jurisdiction in the High Court, arguing that the Competition Tribunal does not have jurisdiction to adjudicate these matters and argued that ICASA has the requisite jurisdiction.<\/p>\n Telkom also sought to set aside the decision by the CC to refer the complaints to the Competition Tribunal on the basis that the CC was biased, that the referral was out of time and that the CC had not adhered to the memorandum of understanding between it and ICASA.<\/p>\n The High Court ruled in Telkom’s favour, but the judge did not make a decision on whether ICASA or the Competition Tribunal has the jurisdiction to deal with competition matters in the electronic communications industry.<\/p>\n The CC filed an application for leave to appeal the decision of the High Court on the basis that the judge erred on the issue of bias as well as his finding that issues surrounding the extension of time to investigate the issues constitutes a ground for review.<\/p>\n Telkom then filed an application for leave to cross-appeal on July 11, 2008. The main basis of Telkom’s cross-appeal is that Telkom believes that the judge erred in failing to make a decision as to whether ICASA or the CC and Competition Tribunal should deal with this type of complaint.<\/p>\n The application for leave to appeal and the application for leave to cross-appeal were granted by the Pretoria High Court on October 9, 2008. The case is scheduled for next month, and the outcome can significantly influence the CC case against Telkom and future cases of alleged anti-competitive activities in the telecoms market.<\/p>\n Should the judge rule in Telkom’s favour – and therefore finds that ICASA should deal with this type of complaint – the CC’s referral to the Tribunal and its 10% penalty will effectively become null and void. Klopper said that they expect a ruling from the court of appeal shortly after the case was heard, and that this may well happen before the expected Competition Tribunal hearing which is likely to take place in early 2010.<\/p>\n The CC case, and a possible fine of R3.6-billion against Telkom, is therefore in the hands of the appeals court whose ruling will dictate which route this case will take.<\/p>\n