Telkom's chickens come home to roost - TechCentral

Telkom’s chickens come home to roost

By Duncan McLeod

Years after complaints were first lodged, Telkom is finally being called to answer to charges that it abused its monopoly in the telecommunications industry. It could face a huge fine. But the foreign shareholders responsible for the excesses are gone.

When SBC (which later became AT&T) and Telekom Malaysia bought a 30% stake in Telkom through Thintana in the late 1990s, they didn’t hesitate to enforce the rights they believed had been afforded to the fixed-line telecoms operator by the Nelson Mandela administration.

Many people will have forgotten by now that at one stage Telkom made the audacious claim that its exclusive rights extended to the Internet Protocol, the communications system used to relay packets of data across the Internet. The move threatened to close down hundreds of Internet service providers.

Telkom eventually gave up that fight after it was skewered in the media and faced a backlash from industry and consumers. But rivals say its aggressive stance continued unabated while Thintana remained a shareholder and as the foreign management team, led mainly by SBC, sought to maximise the investment in Telkom, pushing through huge increases in the cost of local phone calls, for example, as part of a process it called “tariff rebalancing”.

Rebalancing had to happen to prepare Telkom for competition — which, incidentally, arrived years later than expected — but the company pushed up prices to an obscene extent.

Thintana went out of its way to enforce Telkom’s perceived rights, prompting rivals to lodge multiple complaints against the operator for alleged anticompetitive behaviour.

After years of delay — Telkom tried unsuccessfully to question the jurisdiction of the competition commission at the supreme court of appeal in Bloemfontein — the competition tribunal finally began hearing arguments in one of the cases last month. The commission wants the tribunal to fine Telkom 10% of its 2003 annual revenues, or more than R3bn, for engaging in “excessive pricing”, “exclusionary strategies” and “price discrimination” that allegedly harmed competition in the telecoms industry.

Of course, the industry has changed dramatically in the past few years. It’s now much more competitive, thanks in part to Altech’s stunning 2008 high court victory against former communications minister Ivy Matsepe-Casaburri. Telkom is facing competition in virtually every aspect of its business except, arguably, in the fixed last mile into people’s homes.

Thintana has long since sold its stake and the foreign management team that was responsible for driving the strategy that got Telkom into trouble with the competition authorities in the first place is also gone. SBC and Telekom Malaysia made billions of rand in dividends and now won’t face the music. That seems grossly unfair to other Telkom shareholders.

The tribunal’s hearings will resume on 1 December, when Telkom’s lawyers will be given the opportunity to rebut the detailed charges the commission has levelled against the company. It will argue that it was acting within the policy and regulatory frameworks in place at the time.

However, commission insiders appear confident of winning the case. A multibillion-rand fine is the last thing Telkom and its shareholders need. It is being pressured financially from the escalation in competitive activity and strategic missteps by management in recent years. Shareholders will be hoping the case is dismissed or that the tribunal doesn’t impose the maximum allowable fine — it has not done so in other cases.

It just seems a pity that those chiefly responsible for the excesses, SBC/AT&T and Telekom Malaysia, will escape sanction. They’re the only real winners here.

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