Think of Telkom’s users

There’s a chance the Competition Commission and Telkom will reach a settlement before a scheduled midyear showdown at the Competition Tribunal. The commission should use the opportunity to wrest concessions that will favour consumers. By Duncan McLeod.

News last week that the Competition Commission is in early-stage talks with Telkom with a view to possibly reaching a settlement ahead of the tribunal hearings should be welcomed if the outcome benefits consumers.

The tribunal hearings relate to a broad complaint brought by industry players against the fixed-line incumbent. In the latest round, which deals with alleged anticompetitive abuses after 2005, the main complainants are Internet Solutions, MWeb and MTN.

Just last year, after lengthy legal delays, Telkom was handed a R449m fine for “leveraging its upstream monopoly” in the telecoms industry between 1999 and 2004. Telkom says the amount is unfair and is taking the tribunal, which handed down the fine, to the competition appeal court. The commission is also going to the court asking that the fine be increased substantially.

One has to ask what the point is. The R449m, assuming Telkom is not successful in its appeal, must be paid to the national revenue fund. The money isn’t ring-fenced for reinvestment in the telecoms sector. Rather, it goes into the same large revenue pot as all tax receipts. The absurdity is that this money — and more — could come flowing back to Telkom in the next few years if its management team is forced to go cap in hand to shareholders; government holds about 40% of the company’s equity. This is not inconceivable, given the operator’s high operating costs and declining market share.

Surely a better outcome than imposing another hefty fine on a troubled company, especially one that is no longer able to abuse its dominant position, would be to find a way of helping the companies that suffered from its behaviour.

Dominic Cull, regulatory adviser to the Internet Service Providers’ Association, an industry lobby group, has mooted what I think is an excellent alternative to imposing another financial penalty on Telkom. He thinks negotiations between the commission and Telkom can be used to enforce a further reduction in the wholesale fees that Internet service providers (ISPs) pay for access to the operator’s “last mile” of fixed-line infrastructure into homes and businesses.

These wholesale fees, known as Internet Protocol Connect (IPC) charges, make up a substantial portion of the input costs for ISPs. When Telkom agreed to cut IPC rates by 30% in 2012, at the behest of telecoms regulator Icasa, it prompted an immediate, even brutal, round of price cuts, directly benefiting consumers. Competition in the ISP market is so cutthroat that the benefits of the lower wholesale fees were passed on straight away.

In its settlement talks with Telkom, the commission would do consumers and the telecoms industry a huge favour by considering ways it can reduce the cost of wholesale services like IPC in lieu of a big fine. Let’s face it, a fine is a blunt instrument that could have unintended consequences such as further job losses or higher prices.

Cutting wholesale fees could even prove beneficial for Telkom in the longer term. Lower prices for fixed-line broadband will mean more users, or at least a slowing in the decades-long substitution by consumers of fixed services for mobile alternatives.

Last year, the total number of fixed lines in service fell below 4m, while growth in the number of fixed broadband lines slowed to a paltry 5,8%. It’s clear prices need to come down for fixed broadband services — and for Telkom — to remain relevant. The Competition Commission may be able to help.  — (c) 2013 NewsCentral Media

• Duncan McLeod is editor of TechCentral; this column is also published in Financial Mail