Telkom to pay R320m to settle ICASA case

By Phillip de Wet for Telkom
Johannesburg, 06 Jun 2002

The Independent Communications Authority of SA (ICASA) and de facto monopoly Telkom yesterday signed a settlement to end the legal battle over Telkom`s rates.

While described by Telkom as a "win-win" deal, the agreement is an apparent victory for ICASA, despite Telkom`s continued expressions of confidence that it was on the right side of the law in its actions.

Although the tariffs introduced in January, which saw the prices on some services increase by 50%, will remain unchanged, the effect is to be reversed over two years.

"One of the major motivations for commencing with settlement talks was to try to protect consumers, an end that is not always met by lengthy and costly court battles," says ICASA chairman Mandla Langa.

It was also in the public interest, he says, to remove a potential cloud over the public listing of Telkom planned for later this year, and to ensure foreign players are not scared to invest in both it and its upcoming competitor.

"There was an overwhelming feeling that with the backdrop of this case it would be difficult to attract investment into the SNO [second national operator]."

Terms

The settlement agreement will end both ICASA`s challenge on the legality of Telkom`s tariffs for this year and Telkom`s counter-charge that ICASA`s rate regime is not valid.

In effect, the agreement is designed to eliminate, over two years, the difference between the current rates Telkom is charging and what the charges would have been under ICASA regulations.

"Telkom will ensure that the increase in revenue derived from local call tariffs in 2002, 2003 and 2004 will be equal to the increased revenue that would have been obtained if the annual tariff filing in respect of the 2002 tariff year had been filed in accordance with the regulations," the agreement reads.

In addition, Telkom will adjust its rates for 2003 and 2004 in such a way that it earns R320 million less than it would have been entitled to for those years.

Other concessions will not hit its bottom line as hard, but are to address two issues crucial as far as ICASA is concerned: development of the dial-up Internet market and the large number of people disconnected from the Telkom network due to non-payment.

Telkom is to introduce "Internet packages" before the end of this year. Details are still to be worked out, but these packages are to make it cheaper to use a dial-up Internet connection.

From July, a lifeline service will be offered to residential customers who fail to pay their Telkom bills. Customers who elect to make use of the service will keep their telephone and be able to receive calls and call emergency numbers, while only paying the basic R55 monthly rental charge.

"It doesn`t mean the debt [which would have led to a cut-off] will be excused," says Telkom CEO Sizwe Nxasana. "We will still pursue the debt and will have to make some kind of pay-off arrangement."

ICASA has made very few concessions on its part. It has agreed to use its "best endeavours" to make what Langa terms "editorial changes" to the rate regime that governs how Telkom can increase its tariffs. Because the changes related to regulations, communications minister Ivy Matsepe-Casaburri would have to give her approval.

Telkom contends that the changes will clarify what it considered vagueness in the rules. Nxasana says the other benefits the company derives from the deal are related to preventing a long court battle.

"This matter created an environment in the business which was less than ideal," he says. "This agreement removes a potential contingent liability we would have had."

The company came under heavy fire from customers after details of the increases were first released late last year.

Political pressure

Both parties say the agreement came about because of their willingness to settle rather than continue the fight. "The settlement itself is not a compromise by either party, but is a win-win situation for Telkom, ICASA, the industry and consumers," Nxasana says in a statement.

Yet Telkom has often reiterated its confidence that it had acted well within the law in its 2002 increase and would hold its own in court. Its apparent capitulation could be due to pressure from government, both in its role as majority shareholder in the company and from a policy level.

The government refused to intervene directly in the dispute or act as arbitrator, but Matsepe-Casaburri in recent months made constant public calls for a resolution and said she would pressure both sides to settle.

The Department of Communications could not this morning comment on the terms of the agreement, but said it was happy in principle that it had been reached.

"The minister inspired this settlement," said department spokesman Robert Nkuna.