/ 20 October 2011

How Telkom allegedly squeezed its competitors

More evidence against Telkom is stacking up at the Competition Tribunal hearing into alleged anti-competitive practices.

The evidence against Telkom is stacking up as the Competition Commission called its second witness in the tribunal hearing into alleged anti-competitive practices.

The fixed-line operator stands accused of abusing its dominance by charging excessive prices, refusing access to an essential facility and engaging in price discrimination thereby making its downstream rivals less competitive in the telecommunications market.

Telkom has denied the charges but if it is found guilty in the hearing it could face a penalty of as much as 10% of its 2003 turnover, which could be as much as R3.5-billion.

The tribunal hearing kicked off on Monday this week, with the first leg running for two weeks till October 28, but Telkom’s witnesses are only expected to take the stand in the second leg in December.

The commission’s second witness was Tony Walt, the chief operating officer of Internet Solutions, who took to the stand late on Wednesday afternoon.

He testified that Telkom had effectively choked Dimension Data’s virtual private network (VPN) provider OmniLink by refusing to sell telecommunication circuits to it.

Walt testified that this had hindered a planned merger between OmniLink and Internet Solutions.

He said that Telkom refused to provide services to OmniLink and this meant that OmniLink couldn’t meet its existing clients’ needs.

“The environment was quite intolerable,” said Walt. “We were caught between a rock and a hard place.”

“Telkom felt that the VPN service we were providing was part of their exclusive rights and they felt that they could make a call on whether what we were doing was legal or not,” he said.

Walt testified that Telkom went as far as calling up OmniLink’s customers and telling them that the service they were getting was illegal.

He also queried why the rates OmniLink was being charged were different to the rates that Telkom charged its customers.

“Telkom’s prices were 30-50% below what we charged,” said Walt. “There is no logical reason for this difference.”

“We had to drop our prices below cost to keep our customers,” he added. “We had to try and make a plan for the clients.”

Damages case
Cross-examination of Walt by Telkom’s advocate, Willem van der Linde, began on Thursday and Van der Linde tried to make a lot of the fact that OmniLink and Internet Solutions had settled with Telkom in 2007 over the freezing of OmniLink’s network by Telkom.

According to Van der Linde, OmniLink and Internet Solutions lodged a damages claim for more than R100-million, but when it was settled it agreed to a settlement that didn’t see them receiving any damages.

He argued that this showed that the two companies had a weak damages case, a point that Walt disputed.

“We agreed to the settlement so we could get further service provision,” said Walt. “To continue with the damages claim would have resulted in us being denied services.”

Van der Linde also raised concerns about documentation that had not been supplied to Telkom by Walt after its lawyers requested it. Walt maintained that the documents were sent through to the commission’s attorneys and he could not explain why Telkom’s legal team did not have them in its possession.

Walt was asked to present these documents on Friday morning.

The cross-examination of Walt is expected to continue till Friday.

On Wednesday Telkom’s legal team and the commission’s legal team had agreed for regulatory expert Alison Gillwald not to be called as a witness.

It is understood that the testimony Gillwald was expected to provide on behalf of the commission is not in dispute and related to legal proceedings between Telkom, its competitors and the Independent Communications Authority of South Africa.

The case before the tribunal dates back to 2002 when a complaint was lodged with the commission by 21 entities.

These included the South African Value-Added Network Services Association, the Internet Service Providers’ Association and 19 other value-added network service providers.

By February 2004 the commission had completed its investigation and referred its case against Telkom to the tribunal.

But Telkom decided to challenge the commission’s jurisdiction in the Supreme Court of Appeal, a legal move that resulted in a five-year delay to the tribunal hearing, but ultimately was lost by Telkom.

Some subsequent legal challenges followed based on the commission’s decisions to amends its papers, which have since been resolved and the case has finally reached the tribunal.

The hearing has been set down to be heard until Friday October 28, 2011 and will then resume between December 1 and 9.