Telkom said to have ‘ripped off’ the guys downstream.

ALEC HOGG: Today news came from the Competition Commission that, after its investigation into Telkom's alleged abuse of its dominant position, it has decided to ask for the maximum possible penalty - and that's R3.6bn.
    Simon Roberts who's manager of policy & research at the Competition Commission joins us now. Simon, you are going to make a lot of people at Telkom very unhappy if you do manage to get that R3.6bn fine approved by the Competition Tribunal. Why have you gone for the maximum?

SIMON ROBERTS: Well, we've been investigating this case for a long time. We believe the harm to the economy has been very substantial, and the penalties that we can levy are really also to put a marker down to deter conduct such as this going forward.

ALEC HOGG: It happened between 2005 and 2007. And, in a nutshell - and please help me if I am misinterpreting it - what Telkom did according to your research is they abused their position by overcharging Internet service providers for what they could charge into the market, and then undercutting them by having their own Internet service provider offer things cheaper.

SIMON ROBERTS: That's correct. The backbone that Telkom controls, they've been pricing that excessively, and that rides on through the market. At the same time they are competing with the downstream ISPs, people ... virtual private network, and they've been squeezing those guys at the same time. So you've got harm to consumers, costs going up right through the economy, and the same time you've got harm to competition, squeezing some of the guys downstream who are offering products and services.

ALEC HOGG: Simon, how excessive has their pricing been?

SIMON ROBERTS: Well, we've got a lot of different benchmarks we put up, and unfortunately some of the data is confidential. We've looked at their costs, we've looked at comparisons versus other countries, we've looked at the pricing of the international private leased circuit, where some of the measures are that those are 400% higher than they should have been...

ALEC HOGG: Just stop there a minute - 400%? So it's five times what it should have been?

SIMON ROBERTS: That's right, ja - on the international private leased circuits particularly. All these components build up to the costs that you need if you are going to put in a virtual private network type services or ISP services.

ALEC HOGG: Now, what about consumers? What was I paying at home that I might not have had to pay?

SIMON ROBERTS: Well, it depends obviously on what type of service you were taking, because you are buying a product where it's a bundle of these different things. You've got the national backbone, you've got the international, and then we've got these different benchmarks. So we can say it's been very, very substantially above what you should have been paying.

ALEC HOGG: Are you saying that Telkom has ripped off the South African consumer?

SIMON ROBERTS: Ja.

ALEC HOGG: And you are asking for them to levy a R3.6bn fine. The discussions that you've had with Icasa, with the regulator - are they on board?

SIMON ROBERTS: Ja, Icasa is still on board. This largely related to lines that they don't regulate the price of, the above-2-megabit lines, as we indicated with them throughout the investigation.

ALEC HOGG: And Telkom itself?

SIMON ROBERTS: Well, Telkom itself - we requested a lot of information from them. They provided that information and we've used it in our analysis.

ALEC HOGG: And has there been any defence from Telkom?

SIMON ROBERTS: Well, they argue that obviously they think there are reasons why they've had to incur those costs, etc, but we don't believe any of their protestations about it.

ALEC HOGG: What happens from here, Simon?

SIMON ROBERTS: Well, it's referred to the Tribunal. We've filed our papers, that's what's happened now, and Telkom will file their answering papers, and then we'll see what their arguments are.

ALEC HOGG: Simon Roberts is manager of policy & research for the Competition Commission. David, if you are a shareholder in Telkom, this is really bad news.

DAVID SHAPIRO: He didn't hold his punches - "ripped off" is a very strong word for a national communications company to do that. We know, we've been paying, but there's very little we could have done about it. It's been a first admission.

ALEC HOGG: It's been a long research. Telkom from its side - we did invite them to come onto the programme. It said it had engaged with the Competition Commission. It said the complaints referred to the period of 2005-2007 - in other words, it's not ripping us off at the moment - and that Telkom will prepare its response in accordance with the rules and procedures of the Tribunal.

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