The Competition Tribunal has approved Telkom’s R2,7bn acquisition of IT services group Business Connexion (BCX), paving the way for the deal to be consummated, albeit with conditions attached.

It’s a case of second time lucky for Telkom, whose previous attempt, about eight years ago, to buy BCX was blocked by the competition authorities. BCX will now be delisted from the JSE, but will remain a separate subsidiary of Telkom, with its brand identity to remain intact.

But Telkom will have to adhere to a number of conditions, including a freeze on price increases for affected products in the “upstream” by Telkom; the ring-fencing of BCX in relation to monitoring conditions; and the inclusion of the copper network offering to the affected products as well as conditions on employment.

The Competition Commission had recommended to the tribunal that it approve the deal, but with a string of conditions attached to prevent Telkom from abusing its market position.

“The commission is of the view that the foreclosure of the merging parties’ downstream rivals is likely to weaken and lessen competition in the downstream markets of managed network services, value-added network services, hosting and IT services,” the commission said.

Also, the merged companies would probably have the ability and incentives to engage in bundling strategies that could result in anticompetitive effects. “The commission took the view that exclusionary bundling strategies will significantly lessen competition in the downstream markets, particularly because none of the rivals operating in these downstream markets can effectively constrain and mimic Telkom’s offerings post-merger.”

The commission asked for conditions to be imposed with regard to employment and transfer pricing.

More details on the conditions imposed are likely to emerge on Wednesday afternoon, when Telkom and BCX management will host a joint press conference in Johannesburg.

“We are very pleased that the Competition Tribunal has approved this acquisition, which will benefit both Telkom and BCX customers,” said Telkom CEO Sipho Maseko. “As a result of this transaction, Telkom will be able to grow beyond its core business of connectivity by expanding into ICT services, while reinforcing our connectivity offering and enhancing Telkom’s convergence strategy.”

BCX CEO Isaac Mophatlane also welcomed the deal. “The merger will enable Telkom to expand its existing offerings while at the same time providing scale in IT services, which will help reinforce Telkom’s core connectivity business and enhance Telkom’s convergence strategy.”