South Africa’s Competition Tribunal had a busy week last week tasked with considering the proposed penalties for the various construction companies and also confirming the second significant administrative penalty on South Africa’s incumbent provider of fixed line telecommunication services, Telkom.  In terms of the second order, Telkom has agreed to pay an administrative penalty of R200m and committed to separate its wholesale and retail divisions, in order to reduce the wholesale and retail prices of its products to the value of R875m over five years.

Telkom, was previously before the Tribunal in relation to a further abuse of dominance matter and was fined R449m.  Telkom had appealed the finding but recently withdrew its appeal against the fine which related to allegations of an abuse of dominance in the telecommunications market between 1999 and 2004, a period in which it was a monopoly provider of telecoms facilities in the country. The fine was much less than the R3bn that the commission had initially requested.

In relation to the second order, the Commission found (following receipt of a significant amount of information from Telkom’s downstream competitors) that Telkom had engaged in a so-called “margin squeeze” by billing licenced operators excessive fees for bandwidth and for a product called IPLC (international private leased circuit). The pricing was set at levels that precluded cost-effective competition with Telkom’s retail internet access and services available via a leased line or ADSL access.

In terms of the settlement, Telkom has agreed to reduce prices on specific product lines that had been implicated in the complaints before the commission over the next three financial years, with no increases in the final two years in which the agreement remains in place.

Telkom has also committed itself to a weighting of 70% price reduction in its wholesale division and 30% in its retail division to eliminate any margin squeeze while ensuring that wholesale products savings are passed on to the benefit of its consumers.

It will also embark on a roll-out of strategic points of presence in the public sector at its own cost and discuss the specific needs of state departments with the Department of Communications.