Telkom may not be out of the woods yet

VANS operators and customers may still sue

Telkom received a far more lenient judgment than many expected from the Competition Tribunal on Tuesday.

The tribunal imposed a R449-million fine on Telkom, far below the R3.5-billion requested by the Competition Commission, for Telkom's anti-competitive behaviour.

According to the judgment, the original fine was meant to be R642-million, but was discounted after taking into account uncertainty in the regulatory framework created by the lack of appropriate definitions in the Telecommunications Act and conflicting government objectives, which according to the Tribunal, was not of Telkom's own doing.

The case was originally referred to the Tribunal in February 2004 after the Commission received a complaint from the South African VANS (Value added network services) Association and 20 other internet service providers who operated in the competitive space of value added network services.

VANS include internet access by way of leased lines and dial-up access, e-mail services as well as web hosting services.

In the complaint, the Commission alleged that Telkom had refused to supply essential access facilities to independent VANS providers and induced their customers not to deal with them.

Telkom also charged the other service providers' customers excessive prices for access services and provided its own customers a discount on distance-related charges which it did not advance to customers of the independent VANS providers.

Telkom did not deny that it acted as alleged but argued that it was justified in doing so because, by providing certain value-added services, the VANS providers were engaged in illegal conduct.

Telkom alleged that the VANS operators had adopted a business model that effectively trespassed on Telkom's exclusivity rights as set out in the Telecommunications Act and in its licence.

In its judgment, the Tribunal found that Telkom had indeed refused to supply essential facilities to independent VANS providers and induced their customers not to deal with them, conduct which resulted in a substantial lessening of competition in the VANS market.

The Tribunal stated that instead of competing on the merits, Telkom had devised a strategy claiming that the independent VANS were conducting business illegally.

Through this strategy, which involved the freezing of its competitors' networks, Telkom impeded the growth of its competitors and retarded innovation in the marketplace.

"It is interesting to note that the Tribunal lays some of the blame for the travails that beset the VANS providers at the door of the regulator [Icasa and before that, Satra] and the minister of communications," said Chris Charter, a partner at law firm Cliffe Dekker Hofmeyr.

"The regulatory framework was allowed to stagnate due to inaction and poor enforcement. The resultant uncertainty left Telkom with sufficient wiggle-room to preserve its position.

"The Tribunal's observations regarding the role that state shareholding played in exacerbating anti-competitive behaviour by Telkom is chilling in the face of recent reports that Telkom may be nationalised - creating an even stronger conflict of interest in a market where Telkom is still a very important service provider to a strategic industry," said Charter.

Leigh-Ann Francis, spokesperson at Telkom, said they were still studying the judgment and would then decide what action to take next.

Telkom was given six months to pay half of the fine and 18 months to pay the balance.

But Charter said it might not be out of the woods yet.

"Although the fine is lower than the proposed penalty of between R1-billion and R3.2-billion suggested by the Commission, Telkom should also be concerned about the prospect of civil damages claims from VANS operators whose businesses were negatively affected by the conduct, as well as VANS customers in turn. Here, the Tribunal expressly stated that such customers paid significantly more for VANS services than would have been the case absent of Telkom's abuse. For this reason alone, Telkom may well look to appeal to the Competition Appeal Court and beyond," said Charter.