It’s a case of second time lucky for Telkom and Business Connexion (BCX). The Competition Commission announced on Thursday that it has recommended to the Competition Tribunal that the telecommunications operator’s R2,7bn deal to acquire the IT services group be approved – with conditions.

It’s the second time in the past decade that Telkom has attempted to buy BCX. The previous attempt was thwarted by the competition authorities, which were concerned about the impact that a merger would have on competition in the information and communications technology sector.

In a statement on Thursday, the Competition Commission said it had found that Telkom, as the largest provider of wholesale leased lines to downstream customers, has the ability to foreclose its downstream rivals from access to these wholesale leased lines which are essential inputs for the provision of downstream services including managed network services, value-added network services, hosting and IT services.

“The commission also found that the merger will result in the merged entity having the ability and incentives to engage in bundling strategies that may result in anticompetitive effects,” it said.

“On public interest issues, the commission found that the merger will result in employment losses of up to 60 employees over a three-year period.”

To address its concerns, the commission has recommended to the tribunal that certain behavioural and employment conditions be imposed.

“Among the behavioural conditions, is that Telkom’s application and implementation of the transfer pricing programme should explicitly include fibre access, and remain in force for the duration of the condition period,” it said. “Consequently, the tenure of the transfer pricing programme will be extended from 18 July 2018 to 31 December 2020.”

In relation to competition concerns arising from foreclosure of downstream rivals through bundling strategies, the commission said Telkom will among other things:

Ensure that the prices for wholesale leased lines are based on actual lines utilised and priced at the non-discriminatory transfer price for common components.
Ensure that the prices for the other services and/or components included in the bundle are based on actual costs incurred.
Ensure that it does not set prices for its bundled offerings using wholesale leased lines at levels which are less than the sum of the costs of components in the bundle. “In other words,” it said, “the principle is that the prices for wholesale leased lines included in the bundle must exceed the cost applied in internal pricing and the revenues generated from the bundled offering must exceed the costs associated with providing the bundle plus a positive margin.”
Ensure that when providing any bundled offering which includes wholesale leased lines, the price for each individual service included in the bundle is clearly reflected in the overall price for the bundle.

To address its employment concerns, the commission has recommended that a condition be imposed limiting the number of employment losses arising as a result of the merger to a maximum of 60 employees.

“Such employment losses shall be limited to a maximum of 20 employees per year in each of the three years.”