South Africa - Telkom may face fine for abuse of dominance in provision of services to ISPs

[engineering news] South Africa’s Competition Commission has recommended that the Competition Tribunal fine telecommunications (telecoms) operator Telkom 10% of its yearly turnover, for the year ended March 2009, for abuse of dominance.

Telkom South Africa contributed R33,6-billion in revenue to the group's total revenue of R35,9-billion for the year ended March 2009, which meant that the group could face a fine in excess of R3-billion.

This came after the Commission investigated the company’s operations, following complaints, which were lodged at different times between 2005 and 2007.

The five complaints, which raised overlapping issues, were lodged by the Internet Service Providers Association, and other Internet service providers (ISPs), namely: Verizon; Multichoice Subscriber Management Services (MWeb); and Internet Solutions.

“The excessive prices charged by Telkom affect the prices that ISPs charge their customers. 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 South Africa,” the Commission said in an emailed statement.

In its investigation, the Commission found that Telkom abused its near-monopoly position in the market for the provision of telecommunications network facilities.

Telkom did this by charging excessive prices for the basic infrastructure needed by its downstream competitors, the ISPs, to access a range of telecoms services, while keeping its own ISP service charges low. In this way, Telkom also raised its downstream competitors costs, making it difficult for them to on sell cost effective services to end consumers, explained the Commission.

The Commission concluded that Telkom charged excessive prices after comparing the telecoms operator’s 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 to it.

These comparisons indicated, among other things, that in 2006, Telkom’s prices were more than double the average of South Africa’s major trading partners. Further, in 2007, Telkom’s prices were 30% more expensive than the average of a basket of 14 countries.

Significantly, the Commission also noted that Telkom’s downstream competitors have been consistently losing market share while the group’s share has been increasing over time, pointing to an inability on their part to compete effectively with Telkom.

The Commission stated that during the investigation it 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 would continue during the prosecution of this matter, particularly with respect to remedies for the conduct.

A fine of 10% of a company’s yearly turnover was the highest fine that could be handed down by the Tribunal, should it find that the company has in fact abused its dominant position in the market.

Telkom said that the Commission has engaged with the company over the last two years while completing its investigations.

It added that the Commission had clearly finalised its investigations and, in terms of the relevant provisions in the Competition Act, decided to refer certain aspects of the various matters to the Competition Tribunal for adjudication.

“Telkom will prepare its response to the referral in accordance with the relevant rules and procedures applicable to proceedings before the Competition Tribunal,” the company stated.

Telkom may face fine for abuse of dominance