/ 14 February 2012

Tribunal hearing on Telkom draws to a close

The Competition Tribunal’s hearing on the Telkom (TKG) case has adjourned for the day and will conclude on Wednesday, the tribunal says.

The Competition Commission referred this case to the tribunal in February 2004 after it had investigated and concluded that Telkom was 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 these allegations.

This case is one of two main complaints that the commission has referred to the tribunal against Telkom.

The current case was referred in 2004, while the second case was referred later, in 2009. Both matters were brought about by complaints against Telkom from various value added network service providers (Vans) and internet service providers (ISPs).

The 2004 case in particular was brought by 21 complainants, which included the South African VANS Association, the Internet Service Providers Association, AT&T Global Network Services South Africa, Internet Solutions and Omnilink.

The history of the current Telkom case dates back to February 2004 when, following the commission’s referral to the Competition Tribunal, Telkom challenged the competition authorities’ jurisdiction in the case — a matter which lasted five years until this point was rejected by the Supreme Court of Appeals in November 2009.

Thereafter applications followed in which the commission, on two occasions, sought to amend its founding papers.

In the first of the commission’s bids to amend its papers, the commission sought to clarify the range of Vans to which its case applied, clarify the virtual private networks (VPN) it referred to in its founding papers and to limit the period of its complaint to the end of 2004.

Subject to certain commitments by the commission, Telkom did not oppose these amendments and the tribunal granted the commission its request.

In its second bid the commission sought to add or clarify its allegation that Telkom had also been squeezing its rivals’ margins in the telecommunications market.

The commission maintained that this amendment was related to its earlier allegations of price discrimination and was thus not a new addition to the case.

Margin squeeze
Telkom, however, opposed the application saying that the proposed amendment was trying to introduce a fresh complaint regarding an alleged margin squeeze in circumstances where that complaint did not form part of the original complaint referral of 2004. Following a hearing into this matter, the tribunal did not grant the commission its second request to amend its papers.

The hearing started in October 2011 and closing arguments from the commission and Telkom are being heard this week. Thereafter the tribunal must decide if Telkom has indeed abused its dominance in the telecommunications market.

In addition to a summation of the arguments presented by both sides thus far, the tribunal expects to hear submissions on the appropriate penalty to be levied on Telkom, if the tribunal finds in the commission’s favour.

Commenting on the case, Andries le Grange, director in the competition practice at Cliffe Dekker Hofmeyr business law firm, says the case is complex because of the regulatory framework which conferred on Telkom a statutory monopoly for the provision of public switched telecommunication services (PSTS).

“The complaints against Telkom arose from the Vans who were denied access to the backbone and access services [or granted access on certain restrictive conditions], overcharged for access facilities compared to the charges paid by Telkom’s clients [this is a type of margin squeeze complaint but is has an excessive pricing and price discrimination flavour], they refused the right to peer with Telkom,” Le Grange explained.

“Because of Telkom’s presence in the upstream and downstream markets, and its dominance in the upstream market, it had an incentive to favour its internal VANS division. An administrative penalty of 10% of Telkom’s annual turnover in the RSA is sought against Telkom. Telkom’s defence to many of the charges is that it was entitled to impose the relevant restrictions in terms of the Telecommunications Act,” he added. — I-Net Bridge