Telkom is appealing the decision of the Competition Tribunal to fine it R449 million for abuse of dominance in the sector.
But the industry feels the fine sets an important example for other players in the market.
Dominic Cull, regulatory advisor for the Internet Service Providers Association (ISPA), emphasises that it's not about the fine but the precedent it sets.
"Telkom's decision to appeal the fine is regrettable. It should rather take its medicine and move on," says Democratic Alliance shadow communications minister Marian Shinn.
Telkom was fined for abusing its dominance in the telecommunications market between 1999 and 2004.
The Tribunal concluded that Telkom was in breach of the Competition Act of 1998 by leveraging its upstream monopoly in the facilities market 'to advantage its own subsidiary in the competitive value-added network market'.
By freezing its competitors' networks, Telkom impeded their growth and retarded innovation in the marketplace, said the Tribunal.
The Competition Commission referred this matter to the Tribunal on 24 February 2004 after it had received a complaint from the South African Vans Association (VANS) and 20 other Internet service providers (ISPs).
Telkom has declined to comment on the impact of the fine. On 30 August, it announced that it had filed a notice of appeal against the Tribunal ruling.
Ancient issue
"The fine serves as an important message, not just to Telkom but the entire industry that anti-competitive conduct will be frowned upon. We're hoping the Tribunal's judgement will resonate throughout the industry," says Cull.
He exemplifies this by pointing out that Telkom recently launched higher ADSL speeds, which were initially only open to its own ISPs. The operator subsequently made the trial available to other providers.
Telkom's decision to appeal the fine is regrettable. It should rather take its medicine and move on.
However, Chris Charter, director of competition at Cliffe Dekker Hofmeyr, argues that the sector won't be hugely affected since the historical conduct under review is not relevant in the current economic context so lessons from the case are limited.
Telkom argued the same point during the Tribunal hearings, saying the market, at the present time, bears almost no resemblance to the market when the complaint was laid and so a penalty now will not act as a deterrent because the market has opened up so much since the period being discussed.
Web Africa CEO Tim Wyatt-Gunning was the joint CEO of Storm and part of the VANS group that initially took the complaint to the Commission. He says while there is clearly a lot more separation between wholesale and retail than there was in 2003, Telkom Retail is not treated at a full arm's length alongside other wholesale customers.
Charter adds that if the fine does result in greater access to monopoly services like the local loop, this will be a good thing, but responsibility for liberalising the sector should be driven by the Independent Communications Authority of SA (ICASA) rather than the competition authorities.
World Wide Worx MD Arthur Goldstuck says a key aspect of the fine is that it addressed abuses that occurred while Telkom had a complete monopoly on fixed-line services in SA, before Neotel came on the scene and before VANS were allowed to self-provide.
"We have a somewhat different landscape today, with numerous other choices available, and dependence on Telkom has diminished. The result is that it is now more a case of how Telkom will behave to keep customers, than what impact this has on the customers themselves."
However, Goldstuck says Telkom still has a monopoly on the local loop, and in particular ADSL, and this ruling will be a constant reminder to it not to abuse that monopoly.
The operator's annual report for the 2011 financial year shows declining fixed-line revenues and shrinking profits. Profit from continuing operations in 2010 was R3.3 billion, and in 2011 it was R2.4 billion.
"Telkom is a deeply schizophrenic company," says Cull. "On the one hand it must maximise shareholder revenue, and on the other, it has government as a major stakeholder, which sees Telkom as having a role in its developmental agenda. The two don't sit comfortably together."
He adds that ISPA thinks the fine is large enough to send a clear message to the industry without impacting on Telkom's ability to continue its current upgrade path.
"Telkom's difficulty is not about the fine but more about its inefficiencies and the question of where it's going," Cull says.
Drastic rethink
Although management has changed at Telkom, the culture has not, partly because there has not been enough pressure on it to change, according to Goldstuck. "This fine, combined with dismal annual results announced recently, must engender a drastic rethink at Telkom."
Charter says the extent of economic harm is difficult to pin down in dynamic markets such as telecommunications.
Telkom's difficulty is not about the fine, but more about its inefficiencies.
"The market has moved faster than the monopolist, and Telkom is by many accounts not the force it once was and its market power is watered down in the face of the changing dynamics of competition. Accordingly, the fine is something of a symbolic penalty for past sins rather than an attempt to put the brakes on a currently abusive player."
He also says there is an irony in imposing massive fines on companies where the state is a major shareholder and many would say the fine is merely round-tripped, just moving from one state pocket into another.
Whatever Cabinet and the other Telkom shareholders decide on the future of Telkom, cognisance must be taken of the pending lawsuits against the company for uncompetitive behaviour, says the DA's Shinn.
"These include the appeal of the fine, the contemplated legal action by competitors for financial loss caused by Telkom, and the next looming case for uncompetitive behaviour, brought by Neotel and Internet Solutions (IS), due to be heard next year."
In October last year, Neotel lodged a complaint with ICASA over Telkom's refusal to lease its last mile to its competitor.
"The only winners here for the next decade will be the lawyers as industry energy and money is sucked into the morass of turf protection," says Shinn.
Charter says the success of the complainants in the concluded case is a good sign for other matters in the pipeline.
"However, it should be noted that the Commission was not successful on all counts, with the excessive pricing and price discrimination cases not being converted."
Goldstuck adds that the problem with most of these cases is that they drag out and by the time they are resolved, the circumstances that gave rise to them have changed. The rulings are about history rather than the current competitive environment. "Service providers don't have a choice, however, as a dominant player will always test the limits of its dominance if it is not kept in check."
Despite several requests for comment, Telkom says it is not willing to make any statements on this matter.
First published in the November 2012 issue of ITWeb Brainstorm magazine.
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