Bheki Mpofu
29 October 2009
Johannesburg — TELKOM 's continued abuse of its market dominance could land it a record R3,59bn fine -- the largest meted out by SA's competition authorities.
The Competition Commission said yesterday it had asked the Competition Tribunal to adjudicate on its recommendation to fine Telkom 10% of its annual turnover, or R3,59bn. This is in addition to a previous investigation, for which it could also receive a R3,75bn fine. Telkom's annual turnover to March was R35,9bn.
The Johannesburg and New York-listed company could end up paying more than R7bn in penalties as a result of the two cases, which could be the largest imposed on a local company for antitrust behaviour and could have negative implications for its balance sheet and reputation.
Telkom is under pressure to contain costs and grow earnings as it faces competition from mobile operators and new fixed-line firm Neotel.
The commission said yesterday a two-year probe found Telkom's conduct towards Internet Service Providers (ISPs) had been anticompetitive and it had referred its findings to the Tribunal for determination.
Telkom already has another case of anticompetitive behaviour pending before the tribunal dating back to 2004 . Telkom has taken this matter to the Supreme Court of Appeal, where it is challenging the tribunal's jurisdiction. Telkom said that it would prepare its response to the referral in accordance with rules and procedures applicable to proceedings before the tribunal".
Its share price fell almost 3% yesterday after the news.
The commission said its latest investigation followed five complaints lodged by the Internet Service Providers Association and other internet service providers -- MTN's unit Verizon, MWeb and Internet Solutions -- between 2005 and 2007.
The commission said its probe found Telkom abused its "near- monopoly" position in the market for the provision of telecoms network facilities.
Telkom did this by charging excessive prices for basic infrastructure needed by ISPs -- its downstream competitors -- to access telecoms services while keeping its ISP service charges low, the commission said.
Telkom raised its competitors' costs, making it difficult for them to sell cost-effective services to consumers, it said.
In 2006 Telkom's prices were more than double the average of SA's major trading partners.
The commission concluded that Telkom charged excessive prices after comparing prices to its costs, prices in other countries, prices of other operators offering similar services and prices to customers of Telkom, which posed a competitive threat.
In 2007, Telkom's prices were 30% more expensive than the average of a basket of 14 countries. The commission said that Telkom's downstream competitors had consistently lost market share while its share increased, which meant that those companies were unable to compete effectively with Telkom.
The commission said that, given the widespread use of the internet and the extensive use made of virtual private networks by medium to large businesses, Telkom's high prices were detrimental to consumers and hindered economic development. Nandi Mokoena, the commission's manager for strategy and stakeholder relations, said Telkom's challenge to the 2004 case would be heard in the Appeal Court next week.
She said Telkom was arguing that the Tribunal had no jurisdiction to hear the case.
That case came after complaints lodged in 2002 by the South African Value Added Network Services Association, Omnilink and others.
The commission had asked that Telkom pay an administrative fine of 10% of its annual revenue, which was R37,6bn in the year to March 2003.
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