Telkom can block Neotel

By Damaria Senne for Telkom
Johannesburg, 26 Oct 2007

Telkom has the power to prevent other operators from accessing leased lines from Neotel, the Independent Communications Authority of SA (ICASA) heard this week.

The regulator held public hearings that will help it define the end-to-end leased lines and other wholesale markets, providing a regulatory framework in which communications providers can interact in that space.

The hearings are based on a discussion document published by ICASA earlier this year. In May, ICASA invited ICT stakeholders to submit written submissions in response to the discussion document.

Jitesh Huri, Cell C`s manager of interconnection and carrier relations and regulatory affairs, told ICASA that Telkom can restrict competition because communications providers need access to Telkom facilities to set up their own communication infrastructure.

All mobile operators locate their local exchanges at Telkom facilities and Telkom is in a position to refuse to allow the operators to purchase links from another operator while co-locating in its facilities, he said.

There are restrictive clauses in the agreement between Cell C and Telkom that prevents the mobile operator from subletting its facilities to another party, thus opening the door for Neotel, he said.

Evidence already exists

The Competition Commission (CC), which attended the hearings, urged ICASA to use information that emerged out of its investigation into the rejected Telkom-Business Connexion (BCX) merger.

CC senior analyst Ryan Hawthorne told ICASA that strong evidence emerged during the rejected Telkom-BCX merger that Telkom could potentially hinder competition in the broadband market.

Hawthorne also outlined a number of complaints lodged by ICT stakeholders alleging anti-competitive behaviour against Telkom. Many of the cases were still under investigation, he said.

Hawthorne noted that Telkom`s expert witness, CRA International economist Dr Giulio Federico, said Telkom enjoyed significant market power in the supply of infrastructure to various markets.

"There is some evidence which suggests that Telkom is able to profitably raise prices of leased lines by a significant amount: between 1999 and 2001, Telkom raised prices by over 20% for three years in a row."

Furthermore, evidence by Telkom and Neotel showed they did not expect Neotel to take more than 10% of market share in the near-term, he said. "So Neotel is not about to erode Telkom`s market."

Cell C`s Huri noted that, even if mobile operators could access local exchange links from another provider, it would be a costly exercise.

Hawthorne agreed with Huri, noting that the price of leased lines in SA is substantially higher, as compared to its international peers. "Telkom`s backbone network is an essential facility, which confirms market power," he said.

No substitute

One of the issues that arose out of the discussion was whether mobile voice and Internet services could substitute for fixed-line services, where fixed line services were deemed to be too costly.

Hawthorne said evidence showed that large business cannot substitute mobile services from technologies such as WiMax for fixed line services.

Telkom`s strategy documents also suggest that WiMax, which would enable faster and cheaper broadband services, is not a substitute for fixed line services, said Hawthorne.

Customers have also said Sentech`s Biznet is not a viable alternative, he added.

Hawthorne noted that mobile operators, such as Vodacom and MTN, are unlikely to provide fixed line infrastructure to other communication providers in the short-term. "Much is made about the fact that mobile operators are about to roll out their own infrastructure, but the Competition Commission believes they are not about to do that in a big way, in the short-term," he said.

Cell C senior manager Leona Mentz also noted that the company is not swayed by what is happening in the fixed line market when developing products and services, as it is not relevant to it.