Opposition to Telkom-BCX deal

By Kimberly Guest for Telkom
Johannesburg, 11 Jan 2007

Dimension Data and the South African chapter of the Internet Service Providers Association (ISPA) have come out in opposition of Telkom's takeover of Business Connexion (BCX).

Parties who have applied to intervene in the hearings - to be held in March and April - include ISPA, Dimension Data and BCX's black economic empowerment shareholder Gadlex.

According to the Competition Tribunal, while the intervening parties have not indicated whether they oppose the deal, the companies have said they would raise issues such as the possible impact of the merger on competition.

The Competition Commission last year referred the R2.4 billion deal to the tribunal with a recommendation that it not be allowed to proceed. The commission concluded the merger would reduce competition in the sector.

In its recommendation report, the commission said Telkom, through the proposed merger, would be able to push up pricing, or deny downstream companies access to its network infrastructure.

"The commission thus finds that Telkom has both the ability and incentive to engage in strategies to remove competitors and competition from the markets."

Full support

Gadlex's application to intervene should not be read as a decision to renege on its commitment to Telkom, says Benjamin Mophatlane, BCX deputy CEO and Gadlex shareholder. He says the BEE company will use the opportunity to air its supportive views.

"[Gadlex] continues to support the proposed acquisition and we have applied to the Competition Tribunal in order to ensure we get the opportunity to express this support," says Mophatlane.

Brothers and BCX executives Benjamin and Isaac Mophatlane, Bridgman Sithole and Nkenke Kekana established the organisation, which owns 25% of BCX's operating entity.

Shortly after Telkom went to shareholders with its offer in March, it was revealed that Gadlex had already signed heads of agreement with the telecoms giant, offering its support for the proposed acquisition.

Telkom subsequently signed an agreement with Gadlex to acquire a "certain percentage" of its BCX stake.

Anti-competitive

ISPA last year said it aimed to halt the proposed merger. GM Ant Brooks said in a statement: "Counsel has been briefed and ISPA will continue to prosecute the matter until a favourable decision has been reached."

The organisation argued the deal would result in an unfair situation as cross-subsidisation would result in higher charges across a range of services.

However, the organisation was unable to elaborate on what arguments it will put forward for fear of prejudicing the hearings. "ISPA has been advised by its legal team that it cannot comment on any of the substantive merits of the case at this stage, since this could be prejudicial to the Competition Tribunal process now under way."

Dimension Data executive Derek Wilcocks says the deal has the potential to entrench Telkom's position as a monopoly.

"This acquisition will make it possible for Telkom to impact the downstream market for IT services through the way it prices, provisions and ensures the quality of telecommunications services provided to competitive IT services providers, as part of their broader offering to the market."

ISPA, Dimension Data and Gadlex are expected to follow their presentations with a submission either recommending that the merger be approved - with or without conditions - or that it be opposed.

Telkom's shares closed yesterday at R146.93, off Tuesday's close of R150.01, while BCX's share closed at R7.60, 10c up on the previous day's close. Telkom's offer for BCX was priced at R9 a share with a 25c per share dividend as an additional sweetener.