Telkom’s R649 million competition crimes

Telkom and the competition commission have reached a settlement which will see the operator add a R200 million penalty to the R449 million fine it already owes for abusing its dominance in the broadband market.

In August 2012, the competition tribunal found that, between 1999 and 2004, Telkom had leveraged its upstream monopoly in the facilities market to advantage its own subsidiary in the competitive value added network market.

Telkom’s conduct caused harm to both competitors and consumers alike and impeded competition and innovation in the dynamic VANS market, and a R449 million fine was imposed on the telco.

The latest settlement relates to claims made against Telkom for similarly abusing its dominance in the market from 2005 to 2007

In terms of the settlement, along with an admission of guilt and a R200 million financial penalty, the commission also made sure the encumbent operator would make the market more competitive over the next 5 years.

“What we are really talking about here is ensuring that we achieve more competitive outcomes in the telecommunications sector going forward,” Trudi Makhaya, deputy commissioner at the Competition Commission, told MoneyWeb.

“Telkom has agreed to various behavioural undertakings that will ensure that it treats its competitors on a non-discriminatory basis as it treats its own downstream operations.”

As part of the settlement, Telkom has committed to the functional separation between its retail and wholesale divisions and promised to implement a transparent transfer pricing programme to ensure non-discriminatory service provision by Telkom to its retail division and ISPs.

More significantly, the telco has also committed to wholesale and retail pricing changes for the next five years, which are estimated to yield R875 million savings to customers.

“Telkom has also made pricing commitments, to reduce prices over the next three years, and to ensure that those reductions are maintained within a five-year period,” Makhaya said.

“In that sense I think we find that these remedies talk directly to competition, which is very important to us.”

The agreement is subject to confirmation by the Competition Tribunal.

The initial R449 million fine agreement provides for Telkom to pay 50% of the amount within six months of 12 April 2013. The balance is to be paid within 18 months of the said date. The R200 million penalty, however, can be paid off over 3 years.

According to Makhaya, the commission will put monitoring systems in place to make sure Telkom follows through with its promises. With both major antitrust cases closed, the commission considers the Telkom dominance issues resolved.

On Friday (14 June 2013), Telkom delivered yet another disappointing set of results for the year ended March 2013, highlighted by a 73.2% decline in headline earnings per share to 87.0 cents.

Group operating revenue decreased by 1.7% to R32.501 billion (2012: R33.079 billion).

Speaking at the troubled operator’s results presentation in Rosebank, Sipho Maseko, who took the helm of the firm in April, said that the big point is that the company takes accountability.

“We want to assure you that we will not be repeating the mistakes of the past,” Maseko said. “We’ve had a bit of a tough time over the past few years. We have a number of issues to address.”

By close of play on the JSE on Friday, Telkom shares were trading at R16.00, up 69 cents from the previous day’s close of R15.31.

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