Telkom-BCX hearings wrap up

By Damaria Senne for Telkom
Johannesburg, 22 Jun 2007

SA will know, within the next two weeks, whether the much-anticipated R2.4 billion merger between Telkom and Business Connexion (BCX) will go ahead.

Yesterday, the merging parties and objectors to the deal began presenting closing arguments before the Competition Tribunal. This is expected to be wrapped up by this afternoon.

The tribunal is expected to make a ruling within 10 working days after the hearings are concluded.

At this stage, market observers are unwilling to make a call on which way the tribunal will rule. The Competition Commission recommended in December that the merger should not be approved, as it would create an anti-competitive environment within the IT sector.

However, Telkom has made it clear it is committed to diversifying its portfolio. Its next target would be a global company, should it be barred from taking over BCX, as another local IT prospect would "not be an option".

Opposition

<B>Acquisition timeline</B>

November 2005: Telkom makes initial bid for BCX
December 2005: BCX ends talks with all potential bidders due to price
March 2006: Telkom makes new offer for BCX, taking offer straight to market
May 2006: BCX board approves Telkom's second offer
June 2006: BCX shareholders vote in favour of Telkom acquisition
August 2006: Competition Commission receives submissions vetoing deal
December 2006: Competition Commission denies acquisition
April 2007: Competition Tribunal hearings begin
June 2007:Closing arguments and ruling

Dimension Data, the Internet Service Providers' Association of SA and the South African SMME Forum are opposing the deal.

Their argument is that Telkom already is a large monopoly, and a merger with BCX would also give it competitive advantage in the IT services industry. The merged entity would have the ability to bundle IT and telecoms services and provide huge discounts for clients, disadvantaging its IT services competitors, they say.

The opposing parties also argue that Telkom could erode the level of its telecoms offerings in a bid to encourage competitors' customers to go for a Telkom/BCX combo product. These actions are likely to result in a lessening of competition in South African IT services.

However, Telkom and BCX argue that Telkom's acquisition of BCX does not give the fixed-line operator unfair advantage over competitors, as BCX is too small a player in the IT services market to have a material impact.

Telkom also argues that it does not make business sense to erode services it provides to competitors to drive them to use BCX services. "That will only throw them into [second national operator] Neotel's arms."

Looking globally

Telkom previously said it would look for a global IT acquisition if the tribunal does not approve the proposed BCX acquisition.

"It's not something that we would prefer [looking internationally], as money would leave the country through our investment, but Telkom has to play in the converged space and needs to expand its services," said Telkom Media CEO Mandla Ngcobo, who was also involved in the BCX merger process.

BCX has also said it would look for another buyer if the Telkom transaction fell through.