THE Competition Commission had little sympathy for Telkom yesterday, suggesting that SA’s biggest fixed-line operator should raise R4,5bn on the open market to pay the fine it was facing, or sell some of its assets. The Competition Tribunal this week heard closing arguments in a case that started in 2002 with complaints about Telkom’s excessive pricing, and its refusal to give a competitor access to an essential facility when it was economically feasible for it to do so.
More than 20 value-added network service providers, including Internet Solutions and the South African Value-added Network Services Association, had complained about Telkom’s conduct. The commission said yesterday Telkom had behaved "conspicuously badly", and reaffirmed its recommendation that it pay an administrative penalty of more than R4,5bn for contraventions of the Competition Act.
Telkom hit back by saying the penalty was a "jaw-dropping, inappropriate fine", and should it be found guilty — it still maintains it is not — the appropriate fine for the two complaints before the Competition Tribunal should rather be R26,8m. At the tribunal hearing yesterday, Alfred Cockrell SC, appearing for Telkom, argued that the way the commission had calculated the fine was punitive, and could even be unconstitutional, if regard was given to previous decisions on such calculations.
He said the appropriate fine for a company was on the benefits that accrued from the contraventions. The way the commission had calculated Telkom’s fine amounted to double-counting, as it included income that did not form part of the complaints, Mr Cockrell said. If the tribunal accepts the commission’s calculations, the Telkom fine will be the largest yet levied in SA. Pioneer has paid the most so far — 10% of affected turnover for one year, which amounted to nearly R200m.
The commission had calculated the Telkom fine for excessive pricing on 30% of affected turnover in 2004, the last year of the contravention, multiplied by five for the number of years in which the contravention had occurred. That amounted to R3,5bn. The commission asked for an additional fine of R1bn for Telkom’s refusal to give a competitor access to an essential facility.
Martin Brassey SC, appearing for the commission, argued that it was crucial in the determination of a penalty that the punishment fitted the crime. It should act as a deterrent, but it should also divest the wrongdoer of ill-gotten gains. He said Telkom had raised its defences at every opportunity and had fought the case tooth and nail, when the matter could have been resolved from the start. The reason it had not been resolved might have been a "cost-benefit calculus" by Telkom, wanting to see whether the benefit of delays outweighed the benefit of a settlement, Mr Brassey said. "Telkom’s conduct in this matter has been thoroughly spurious."
Mr Brassey said he had seen nothing that would make the commission diverge from its standpoint on the fine, and suggested Telkom raise the money to pay it on the open market, or sell some of its assets. Mr Cockrell said Telkom’s sense of the case was that it was travell ing in a time machine, as the conduct of which it had been accused had occurred in a totally different time frame. He said the penalty would have little deterrent effect, as the market now bore little resemblance to the one that existed after the liberalisation of SA’s telecommunications in 2005.
Tribunal chairman Norman Manoim interrupted and said that had been the most important point Mr Cockrell had made so far in his deliberations. He said the purpose of a penalty in the act was to deter a company or other companies from engaging in similar conduct. Given the fact that it had already been eight years after the turnover period in which the offences had been committed, it would be a moot point if the penalty could be used to regulate conduct, as it would not change the behaviour.
Mr Cockrell agreed and said Telkom could not possibly engage in any similar conduct, as the market had changed so much since 2005. Mr Brassey disagreed and said it could not be assumed all problems had gone away: "It didn’t."
Willem van der Linde SC, also for Telkom, argued that the company’s interpretation of the telecommunications legislation at the time of the contraventions entitled it to refuse to grant access to a facility if it was convinced that it would be used illegally. The tribunal’s Yasmin Carrim asked Telkom to provide it with alternative remedies in lieu of a fine. Mr Brassey said he had had lengthy discussions with the commission’s leadership to find possible structural or behavioural remedies for Telkom’s conduct, but they could not come up with any. Telkom has until next week to submit suggested remedies for the tribunal to consider. The tribunal will consider the facts before deciding on the matter.
Meanwhile, Telkom announced yesterday that it might tap international bond markets for the first time to refinance domestic debt due in April. Chief financial officer Jacques Schindehutte said it "plans to approach the local bond and loan market" and may tap international investors "if it makes commercial sense" from a pricing and covenant perspective.
The company, which is 40% owned by the government, has R1,06bn of bonds maturing in April, according to Bloomberg. "Telkom’s credit rating remains two notches above investment grade rating and therefore the one-notch downgrade received from Moody’s is not expected to materially affect Telkom’s refinancing options," Mr Schindehutte said.
Source: Business Day
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