/ 18 July 2013

Telkom to pay settlement agreement of R200m

Telkom To Pay Settlement Agreement Of R200m

The settlement is for infringements of the Competition Act and will be payable over three years.

According to the agreement, the prices on specific product lines that had been implicated in the complaints before the commission will be reduced over the next three financial years, with no increases in the final two years in which the agreement remains in place.

The settlement suggests that Telkom abused its position as the monopoly provider of telecoms facilities in the country.

During the period June 26 2005 and July 19 2007 Internet Solutions, the internet division of Multichoice Subscriber Management Service and the Internet Service Providers Association, submitted five complaints to the Competition Commission for investigation.

On the basis of information received, the commission found that Telkom had engaged in so-called “margin squeeze” by billing licenced operators excessive fees for bandwidth and for a product called IPLC (international private leased circuit). The pricing was set at levels that precluded cost-effective competition with Telkom’s retail internet access and services available via a leased line or ADSL access.

Telkom has agreed to separate its wholesale and resale divisions, in order to reduce the wholesale and retail prices of its products to the value of R875-million over five years.

The tribunal said the settlement may not be varied unless Telkom provides good reasons to the commission, and if rejected can bring the matter before the tribunal.

The whopping R449-million fine amounted to 5% of Telkom's market capitalisation of R9-billion – or two-and-a-half times the company's operating profit of R179-million for the financial year ended March 31 2012.

The case took seven years and numerous legal challenges before it was heard by the tribunal which sat in October 2011. By February 2004, the commission had completed its investigation and referred its case against Telkom to the tribunal.

However, 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 which was ultimately lost by Telkom.

Some subsequent legal challenges followed, based on the commission's decisions to amend its papers, which have since been resolved before the case finally reached the tribunal.