The Competition Commission and Telkom SA SOC Ltd (Telkom) have reached a settlement agreement to resolve a series of abuse of dominance complaints lodged against Telkom from 2005 to 2007 by competitor Internet Service Providers (ISPs). The Commission's investigation found that Telkom had contravened the Competition Act, No. 89 of 1998 (the Act) by engaging in a so-called 'margin squeeze' of its ISP competitors.
In terms of the settlement agreement, Telkom has agreed that the structure of its pricing of wholesale services to first tier ISP competitors resulted in a 'margin squeeze' of competitor internet access and internet protocol virtual private network (VPN) services in relation to Diginet leased line and ADSL access to these services. By bundling these services with lower-prices leased line and ADSL access to the services, it engaged in anti-competitive conditional selling to first tier ISPs. Telkom admitted that its conduct amounted to a contravention of section 8(c) and 8(d)(iii) of the Act and agreed that it will pay a financial penalty of ZAR 200 million over three years. This fine is in addition to the ZAR 449 million penalty imposed on Telkom in April this year for abusing its dominance in the telecommunications market between 1999 and 2004.
To ensure non-discriminatory treatment of its competitors in comparison to its own retail operations and to allow for monitoring of its conduct, the settlement agreement also provides that Telkom will, among other things:
- implement functional separation between its retail and wholesale operations, including a transparent transfer pricing programme to ensure non-discriminatory service provision by Telkom to its retail division and ISPs;
- implement effective monitoring arrangements of its future conduct; and
- undertake wholesale and retail pricing commitments for the next five years, estimated to yield ZAR 875 million in savings to customers.
The settlement agreement is subject to confirmation by the Competition Tribunal. The confirmation of this settlement agreement will bring to an end the Commission's long-standing proceedings against Telkom.
The Commission's media release is available here.
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