The Competition Commission on Wednesday 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% of Telkom’s annual turnover for its financial year ended March 31.
The investigation follows five complaints that were lodged by the Internet Service Providers’ Association and other internet service providers, or ISPs, namely, Verizon South Africa, MultiChoice Subscriber Management Services and Internet Solutions.
According to the Competition Commission, these complaints were lodged at different times during the period 2005 to 2007, but for purposes of investigation the commission combined the complaints as they raised overlapping issues.
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 alleged misconduct, the commission said.
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, the ISPs, to access a range of telecommunications 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,” it said.
The commission concluded that Telkom charged excessive prices after comparing its 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. 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.
Furthermore, in 2007, Telkom’s prices were 30% more expensive than the average of a basket of 14 countries, it found.
The commission said it also noted that Telkom’s downstream competitors had been consistently losing market share while Telkom’s share had been increasing over time, pointing to an inability on their part to compete effectively with Telkom.
“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, or VPNs, 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 concluded. — I-Net Bridge