The problem with fining Telkom - TechCentral

The problem with fining Telkom

Duncan McLeod

[By Duncan McLeod] Telkom faces the possibility of potentially crippling fines for alleged anticompetitive abuses in the Internet market. If the company is forced to cough up, creative uses that benefit consumers should be found for that money.

Telkom has always been a bit of a playground bully. After being protected from competition for decades, it didn’t particularly like the idea of other companies eating its lunch. Like most incumbent operators around the world, the idea of competition scared it.

And like other incumbents, it fought to slow the liberalisation of the market. That’s what these operators do. No-one expected it to give up its privileges without a fight.

But in 1997, when government handed effective control of the fixed-line operator to foreign operators, the situation got a lot more sinister. The playground bully became more of a terrorist, threatening and browbeating government, the regulator and competitors.

Under control of the US’s SBC Communications (now AT&T) and Telekom Malaysia, Telkom became a law unto itself.

Not long after government sold 30% of Telkom, the company made an extraordinary claim: that under its operating licence, it had a monopoly over the Internet Protocol (IP), which determines how traffic is routed over the Internet (and other networks).

The claim was outrageous. But it signalled the hostility of Telkom’s new shareholders towards competition. It was clear: Thintana, which housed the SBC and Telekom Malaysia shares, would adopt a dirty and uncompromising approach in maximising profit from its SA investment — even if that meant shutting down SA’s then-nascent Internet service provider industry.

Thankfully, Telkom’s bid eventually failed — if it hadn’t, SA would probably be in the Internet Dark Ages today.

Nevertheless, Thintana inflicted enormous damage on SA’s telecoms industry through tactics such as predatory pricing and cross-subsidisation of services. This behaviour made it hard for rivals to emerge and compete.

So, it’s not surprising that the competition commission last week said it had sufficient grounds to recommend the fixed-line operator be fined as much as R3,5bn. This followed complaints from Internet rivals.

It’s the second time the commission has recommended a multibillion-rand fine against Telkom. In 2002, it proposed a R3,7bn fine after a complaint was lodged by the SA Vans Association. Telkom took the matter to court, arguing that the commission had no jurisdiction over it. It won because of procedural errors made by the commission. The appeal is due to be heard this week.

If the court finds in the commission’s favour, Telkom could be facing fines of up to R7,2bn. But fining the company is problematic for a number of reasons.

Firstly, Thintana, and SBC in particular, are to blame for Telkom’s worst anticompetitive excesses. But Thintana sold its shares years ago, and so will escape punishment.

Secondly, long-suffering consumers will undoubtedly end up paying the fine — the telecoms market is much more competitive today, but Telkom still has the ability to charge monopoly rents in some areas of its business. A fine could have the unintended consequence of forcing up prices.

Lastly, a fine would be paid to national treasury. But it is the victims of Telkom’s behaviour who ought to be compensated.

I’d like to see the fine used to provide a discount to Telkom’s broadband subscribers.

Or the money could be ploughed into rural telecoms infrastructure. Thintana bought its stake in Telkom on the basis that it would drive up teledensity, especially in underserviced areas. But SBC and Telekom Malaysia couldn’t get their snouts out of the Telkom trough for long enough to bother.

  • This column is also published in the Financial Mail
  • McLeod is editor of TechCentral

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2 Comments

  1. Great article. In my view the fine should be used to redress the results of Telkom’s anti-competitive practices in the past. It should be used to subsidize the building of alternative last mile broadband infrastructure which is going to be the biggest lasting issue in SA for broadband to the end consumer after WACS lands in 2013.

  2. I disagree that the fine must come from Telkom’s subscribers. The company ought to be forced into selling some of its assets or dip into its oversized bank account for the funds. The funds must be channeled back to the subscribers in the form of reduced prices, not increased prices. Telkom must join Seacom to provide South African consumers with higher and cheaper bandwidth, faster line speeds without increasing fees, and become more proactive in supplying a world-class service rather than its bullying tactics and indifferent approach to subscribers.