Tribunal finds 'downright dishonesty'

By Kimberly Guest for Telkom
Johannesburg, 21 Aug 2007

The Competition Tribunal does not believe Telkom sought only to diversify revenue contributions in its attempt to acquire Business Connexion (BCX).

Yesterday afternoon, the tribunal released a 101-page document outlining its reasons for the June prohibition of the merger between the parties.

The document highlights several inconsistencies in the testimonies of Telkom and BCX, leading the tribunal to conclude Telkom's stated rationale for the acquisition was not its true intent.

"In our view, this transaction is an attempt by an erstwhile monopolist to thwart the beneficial impact of deregulation... for rival managed network service (MNS) providers and... customers. We express concern that the acquisition could have provided Telkom with an unregulated subsidiary, through which it would seek to evade regulation," it says.

The tribunal noted that a number of witnesses at the hearing had disputed the testimony of Telkom's executive of business integration services Hendrik (Rikus) Matthyser.

Matthyser had stated the acquisition would enable it to plug revenue losses brought on by convergence. However, the tribunal notes that Dimension Data services director Derek Wilcocks' testimony disputes that claim.

He had stated: "My understanding is that Telkom has publicly announced that the reason it wishes to acquire Business Connexion [is] to diversify its earnings base. It would seem to me that is going to be incredibly difficult to achieve... because, if you look at the companies' earnings, you will notice that Telkom's earnings are about R9.8 billion, BCX's earnings were about R110 million. Even a miniscule reduction in Telkom's profits can't possibly be substituted by BCX profits," said Wilcocks.

Internal affairs

The tribunal says Telkom's internal documents paint a different picture of why it wanted to acquire BCX.

"A constant theme found in Telkom's strategic documents is that it seeks to defend its core market against competition and convergence by offering end-to-end solutions, consisting of bundled products to clients, on a long-term basis, at discounts. Its aim is to own the customer and to increase the costs of customers switching to rivals," explains the tribunal.

It also quotes Telkom's 2010 strategic plan: "We aim to counter arbitrage opportunities, defend [our] fixed to mobile revenue stream and counter revenue erosion to the SNO and other competitors such as VOIP providers, through strategies including long-term contracts, bundled discounts packages, calling plans as well as volume and term discounts."

The tribunal also slammed Matthyser's "downright dishonesty" in declaring Telkom supported self-provisioning by Electronic Communications Service licensees, as it had made extensive submissions to the Independent Communications Authority of SA opposing the granting of such rights.

Conceding points

The tribunal also noted BCX's lack of transparency in the hearings. It pointed out BCX's ex-CEO Peter Watt had denied any involvement by his board in Telkom's offer for the company.

"However, correspondence between Telkom and BCX's deputy CEO [Benjamin Mophatlane] show that Mr Watt, contrary to his evidence, under oath before the tribunal, had personally indicated his willingness to negotiate a higher offer from Telkom and was familiar with the content of the discussions between Telkom and BCX shareholders," says the tribunal.

Testimony from BCX's outsourcing group executive Michael Sewell also came under scrutiny in the document.

The tribunal notes that Sewell, under cross-examination, conceded that BCX's revenue figure for MNS could be higher than the R15 million he had originally testified to. It notes Sewell had to concede that his earlier contention that BCX Comms (old Bidnet) had only one significant client, namely Bidvest, on its virtual private network was not entirely true.

"Sewell conceded during cross-examination that BCX is offering wide area network (WAN) solutions to Ashanti Gold of more than R500 million over five years - this for services only -despite his earlier claim of R15 million as the market size of BCX Comms in the WAN market," it highlights.