The long and protracted legal battle between the Competition Commission ("Commission") and Telkom SA SOC Limited ("Telkom") appears to be reaching an end as Telkom and the Commission have concluded a settlement agreement that will see Telkom paying a R200 million fine and acceding to a number of behavioural remedies.

The Commission's statement that it had reached yet another settlement agreement with Telkom follows the announcement in April 2013 that Telkom will pay the administrative penalty of R449 million handed down by the Competition Tribunal ("Tribunal") against Telkom in August 2012 and that Telkom will withdraw its appeal to the Competition Appeal Court (and the Commission its cross-appeal) of a Tribunal finding that Telkom was guilty of abusing its dominance in the telecommunications market between 1999 and 2004, when it was a monopoly provider of telecommunications facilities in South Africa.

This brings the total amount of administrative penalties imposed on Telkom in the last year to R649 million.

The current settlement relates to a string of complaints lodged by a number of Internet Service Providers ("ISPs") against Telkom's conduct over the period 2005 to 2007, which were investigated by the Commission and subsequently referred to the Tribunal in 2009. The Commission's referral contended that during this period, Telkom's conduct contravened sections 8(a), 8(b), 8(c), and 8(d)(iii) of the Competition Act (the "Act").

In its media release the Commission states that its investigation revealed that during the period, Telkom charged excessive prices for its high bandwidth national transmission lines (HBTLs) and undersea cable international lines (IPLCs) and that the prices for wholesale services to first tier internet service providers (ISPs), used to construct their internet access and IP virtual private network (IP VPN) services, were set such that they precluded cost-effective competition with Telkom Retail's own internet access and IP VPN services.

The settlement agreement includes an admission of guilt by Telkom in respect of contraventions of sections 8(c) and 8(d)(iii) of the Act (but excludes admissions as regards the contravention of sections 8(a) and 8(b) of the Act).

In addition to the admissions of guilt and the agreement to pay the administrative penalty of R200 million over a three year period, the settlement agreement contains a number of behavioural remedies to ensure, inter alia, the non-discriminatory treatment of Telkom's competitors. The Commission expects that these behavioural changes will yield an estimated R875 million of savings to customers during the next 5 years.

The behavioural remedies agreed upon between Telkom and the Commission include, inter alia-

  • the functional separation of Telkom's retail and wholesale operations;
  • a transparent transfer pricing programme to regulate transactions in the provision of network services between its wholesale and retail divisions;
  • a code of conduct for the Telkom wholesale division that will ensure non-discriminatory treatment of ISPs and protection of their confidential service information from the competing retail division;
  • separate internal accounts for Telkom's own retail corporate VPN and Internet access products;
  • price reductions in 2014, 2015 and 2016 of wholesale services used by ISPs to deliver their IP VPN and Internet access services (such as undersea cable international lines, national high bandwidth transmission lines, etc) and related retail products;
  • a commitment to not reverse any of the aforementioned price reductions in the 2017 and 2018 financial years; and
  • a commitment by Telkom to provide points of presence at strategic locations in the public sector.

The Commission is of the view that the price reductions, which are weighted in favour of the wholesale level, will bring about a more competitive market going forward.

In its media release the Commission acknowledges the co-operation of Telkom's new leadership throughout the settlement process.

The agreement is subject to confirmation by the Tribunal.

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