Telkom says it was fully within its rights to deny value-added network service (Vans) licensees, mainly Internet service providers, additional services after it found that they were essentially providing the same services Telkom offered via facilities the providers had leased from it.

Anton Klopper, group executive of legal services at Telkom, began giving evidence on behalf of the telecommunications company in the ongoing hearing before the Competition Tribunal in Pretoria on Thursday. The company is accused of engaging in anticompetitive behavior and could be fined as much as R3,5bn if found guilty.

The case stems from an investigation conducted by the Competition Commission in 2004 after complaints from various Internet service providers and Vans providers.

In 1997, Telkom was granted a licence that effectively gave it a sanctioned five-year monopoly in fixed-line services. The company was expected to realign its tariff structures during this period to enable it to remain competitive once the market was opened to competition.

Klopper says at the time there was a “lack of clarity” as to what services Vans providers were allowed to offer, but they were expected, and legally obliged, to provide “more than the mere conveyance of signals” to qualify as a provider of value-added services.

“In 2000, many of our customers with private telecoms networks were collapsing these and using Vans providers’ services,” says Klopper. He says these Vans licensees then came to Telkom asking for greater facilities allocations to meet demand.

“This infringed on Telkom’s exclusivity and saw the Vans providers providing services that we are of the view they were not permitted to provide.”

According to Klopper, Telkom had obligations imposed on it in exchange for its monopoly privileges and had agreed to increase the roll-out of infrastructure and fixed-line services to previously underserviced areas.

“Telkom could not continue with these [capital expenditure] projects if other parties were able to infringe on its exclusive rights,” says Klopper.

Telkom says Vans providers leased existing facilities from Telkom to build their own networks. Their customers then needed an access link to these networks, and these access lines had to be leased to the client from Telkom.

It says in some instances Vans licensees leased those links in their own names, and this, it claims, was in contravention of the Telecommunications Act, which stated that the access link could not be sublet. This clause was also part of Telkom’s own standard terms and conditions.

When Telkom realised this was happening, it allowed Vans to act as agents on behalf of their customers, in part because the Vans remained Telkom’s customers and it stood to lose revenue if it did not find a workaround.

Adv Martin Brassey, who is cross-examining Klopper for the Competition Commission, says it is the commission’s view that the threat to freeze Vans providers’ access to additional services was a limit to competition in the Vans market. In order to escape the freeze, it was necessary for these companies to submit to a set of conditions outlined by Telkom.

Klopper says those conditions stated that Vans providers could offer “managed data network services”, which, in Telkom’s view, constituted managing the data networks and services of a customer. It did not, however, allow Vans providers to route their customer’s data “exclusively through the Vans provider’s network”.

According to Klopper, once a Vans provider used its own network for the transfer of information or “mere transmission of signals, without adding value, it was in contravention”.

Brassey says his understanding is that the problem was not a Vans provider transferring the information of a customer, but rather whether there was the requisite addition of value.

Telkom says there must have been more than mere transfer of data to satisfy the terms of the act and the Vans licence, but that Vans were allowed to carry data only if it was “necessary and incidental to the value-added service the Vans was providing a customer”.

Telkom says it filed complaints at the Independent Communications Authority of SA when it realised what Vans licensees were doing, but that it felt the authority was dragging its feet. “By utilising [virtual private networking] technology, Vans were carrying data without adding value, and Telkom was losing revenue as a result,” says Klopper.

Telkom chose not to terminate Vans providers’ services because “they were our customers, too”, but didn’t allow for further expansion or grant further facilities to Vans providers unless the operator’s demands were met.

Brassey says by doing so, Telkom legitimised existing illegalities “but undermined Vans providers’ capacity to compete with [it]”. Klopper says Telkom only “retarded unlawful competition”.

Brassey says if the tribunal decides Vans providers were adding sufficient value, “then the issue is closed”. Klopper agrees.

Moreover, Klopper says the reason Telkom was losing customers to Vans providers was because the providers were “more efficient for customers” as well as “cheaper”, but that this wasn’t allowed under the terms of licencing at the time, and that that is the issue at hand.

The competition tribunal’s hearings run until 9 December. — Craig Wilson, TechCentral