Commision/Telkom reach R200m settlement

The Competition Commission announced today that it has reached a settlement agreement with Telkom accompanied by a R200m fine and raft of other conditions.

The commission said this sees a resolve of a series of complaints lodged against Telkom from 2005 to 2007 by Internet Service Providers. Telkom was accused of abusing its dominance.

Commissioner Shan Ramburuth said “We are satisfied with the settlement agreement and expect that it will lead to a more open and competitive market and translate to lower prices for consumers.”

The commission said the settlement package includes an admission of guilt; a financial penalty of R200m; functional separation between Telkom’s retail and wholesale divisions along with a transparent transfer pricing programme to ensure non-discriminatory service provision by Telkom to its retail division and ISPs. The settlement also includes effective monitoring arrangements of its future conduct; and wholesale and retail pricing commitments for the next five years estimated to yield R875m savings to customers. This agreement is subject to confirmation by the Competition Tribunal.

The commission added that it found that Telkom had contravened the Competition Act by engaging in a margin squeeze of its ISP competitors. “The specific aspects listed were charging an excessive price to customers for some services; refusing to give a competitor access to an essential facility when it is economical feasible to do so; engaging in exclusionary acts and selling services by forcing the buyer to accept a condition unrelated to the contract”.

“The parties have now reached a settlement. In this settlement agreement, Telkom agrees that the structure of its pricing of wholesale services to first tier ISP competitors resulted in a ‘margin squeeze’ of competitor internet access and Internet protocol virtual private network (‘VPN’) services in relation to Diginet leased line and ADSL access to these services”.

Telkom also agrees that in bundling these services with lower-priced leased line and ADSL access to the services it engaged in anti-competitive conditional selling to first tier ISPs. Telkom admits that this conduct amounted to a contravention of section 8(c) and 8(d) (iii) of the Act”.

The Commission added that going forward and to ensure the non-discriminatory treatment of its competitors in comparison to its own retail operations and to allow for monitoring of its conduct, Telkom will implement functional separation between retail and wholesale operations including a transfer pricing programme to regulate transactions in the provision of network services between its wholesale and retail divisions. In addition, Telkom will implement a code of conduct for the wholesale division that will ensure non-discriminatory treatment of ISPs and protection of their confidential service information from the competing retail division. Telkom will also keep separate internal accounts for its own retail corporate VPN and Internet access products to allow for monitoring that it does not engage in a margin squeeze in contravention of the Competition Act in future.

“Over the 2014, 2015 and 2016 financial years, Telkom will reduce the prices of wholesale services implicated in the complaint and used by ISPs to deliver their IP VPN and Internet access services (namely undersea cable international lines, national high bandwidth transmission lines, access to ADSL lines via the IP Connect service and Diginet leased line access) and related retail products (Telkom’s VPN Supreme and Internet Access)  The price reductions are weighted more heavily in favour of wholesale services (at least 70% wholesale) to bring about a more competitive market and will amount to an estimated R875m savings to the market. Telkom will also ensure that any price reductions are not reversed in the 2017 and 2018 financial years”.

“In addition to the above penalty and the undertakings to reduce prices, Telkom has undertaken to provide points of presence at strategic locations in the public sector. This, together with the price reductions undertaken by Telkom, is aimed at creating not only a more competitive market in South Africa, but also aiding government in the provision of public services in a digital economy”.

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