Telkom-BCX competitive position downplayed

By Nicola Mawson for Telkom
Johannesburg, 12 Mar 2007

The Competition Tribunal hearing into Telkom's proposed R2.4 billion merger with Business Connexion (BCX) got under way this morning.

The merging parties' representative downplayed the competitive market position of both companies.

Advocate David Unterhalter, on behalf of the merging parties, said at the heart of the debate are managed network services (MNS), which can be looked at in two ways - one being the traditional wide area network (WAN) and the other being the virtual private network (VPNs).

He said, in respect of both, there are a number of competitors operating in the industry and business is being done and is capable of being done within the VPN market. He said the MNS market is a well-populated market, with a large number of competitors.

In terms of VPNs, he said there are two leading firms in the industry - Telkom and Internet Solutions. However, he noted, the loss of BCX Communications will not bring about "a significant lowering of rivalry", as players are capable of entering the market and international players are targeting this area.

Unterhalter claimed Telkom had a 25% market share of the WAN market and 30% of the VPN market, but noted this is a dynamic arena. "MNS is competitive now and will remain competitive."

Fragmented market

He added the IT services market is fragmented and competitive. "Little about this merger is going to change this market."

He said discriminating customers would choose whether to offload their IT services or host them internally, but that neither choice would open them up to anti-competitive behaviour from Telkom.

Unterhalter said, despite claims BCX has between 10% and 14% of the MNS market, in reality it only has about 2% to 3%. BCX is, therefore, a small player "and one in a rather crowded field". He added that, with the entry of Neotel, which will target wholesale and large commercial entities, it is unlikely BCX would be the critical element holding the market in check.

He noted that, before the Electronic Communications Act, Telkom had a lock on the last mile, but now there are a variety of options beyond what even Neotel will offer, including WiFi, to circumvent Telkom.

Unterhalter concluded it would be unlikely Telkom would do anything to erode its own potential customer base by behaving in an anti-competitive manner.

Parties opposed to the merger will make opening statements later today. The hearing is scheduled to continue until 12 April.

It was earlier expected BCX could pull the plug on the merger, ahead of the tribunal proceedings. Speaking at the company's recent results presentation, CEO Peter Watt said he would "make a call" before the hearings kicked off as to whether to pull out of the deal.

This was after it became clear the protracted merger process had hit BCX's results, with analysts pointing to reluctance among companies to sign long-term deals with BCX.

The Competition Commission last year recommended the deal be halted on anti-competitive grounds.