On Tuesday 7th August 2012, the Competition Tribunal of South Africa (“the Tribunal”) imposed as fine the equivalent of N8 795 930 000.00 (eight billion, seven hundred and ninety five million, nine hundred and thirty thousand naira) in the amount of R449 000 000.00 (four hundred and forty nine million rand) on Telkom SA Ltd. (“Telkom”) for abusing its dominant position in the Public Switched Telecommunications Services (“PSTS”).
This matter was commenced at the Tribunal by the Competition Commission of South Africa (“the Commission”) pursuant to a complaint which had alleged that in the period of 1999 to December 2004 (“the relevant period”), Telkom had engaged in particular anti-competitive conducts which had resulted in a substantial lessening and prevention of competition in the Value Added Service Network (“VANS”) market. The infringing conduct was argued to be in violation of sections 8(b), 8(c) and 8(d)(i) of the Competition Act of the Republic of South Africa (“the Act”).
In this article, I summarise the main findings of the Tribunal and conclude by attempting to relate it with the present situation of the Communications sector in Nigeria.
Introduction and factual background
Telkom had enjoyed a monopoly over PSTS and facilities services until 2005 when the South Africa Telecommunications Act of 1996 was amended to introduce VANS as a new license category. While Telkom enjoyed exclusivity over PSTS and the provision of infrastructure, Telkom’s downstream division: Telvans faced stiff competition from several VANS operators.
The Commission had alleged that during the relevant period Telkom leveraged its upstream monopoly over PSTS services and the facilities market (on which VANS was dependent) to the benefit of only Telvans, its own downstream subsidiary in the VANS market.
Telkom’s conduct according to the Commission had resulted in a substantial lessening of competition by causing harm to both competitors and consumer’s alike and impeded competition and innovation in the dynamic VANS market.
Relevant markets
The Commission identified the following relevant national markets; (i) A market for local access and transmission fixed leased line infrastructure; (ii) A market for managed data network services including the provision of Wide Area Network (“WAN”) and Virtual Private Network (“VPN”); (iii) A market for whole sale internet connectivity; and (iv) A market for retail internet access for corporate customers.
While identified markets (iii) and (iv) specifically related to internet services which were regarded as value added services, the Tribunal proceeded to assess Telkom’s conduct in market (i) in relation to VANS providers across markets (ii), (iii) and (iv).
The anti-competitive conduct
The Commission alleged that Telkom abused its dominant position by;
I. Refusing to supply essential facilities to certain VANS providers unless they acceded to certain contractual conditions. To achieve this purpose Telkom redefined section 40(2) of the Telecommunications Act.
Failure to agree to these conditions would be met by freezing (refusal to provide additional links to meet the expansion needs) the network of the relevant VANS provider, which Telkom did in fact freeze networks of various VANS providers on numerous occasions. This conduct was in breach of sections 8(b) and 8(c) of the Act.
II. Refusing to lease the access facilities to VANS providers directly and insisting that VANS providers act as agents to their customers in leasing access facilities from it. To achieve this aim, VANS provider were required to enter agency agreements with their own customers in order to obtain and manage facilities from Telkom.
This administrative burden was not required from the customers of Televans. This conduct was alleged to be in contravention of sections 8(c) and 8(d)(i) of the Act.
III. Refusing to supply Satellite Data Network (“SDN”) with a high capacity link in contravention of sections 8(b) and 8(c).
IV. The Commission also alleged that Telkom’s conduct in the pricing of access facilities or circuits, contravened sections 8(a) and 9(1) of the Act.
The Decision
After dispensing with challenges brought on procedural grounds, the Tribunal proceeded to resolve the issues by first addressing the major defence canvassed by Telkom in order to justify its conducts.
Telkom in its argument had contended that VANS providers were restricted by the Telecommunications Act from sub-letting or ceding control over the facilities obtained from Telkom and its insistence on the agency agreements were simply an attempt to comply with this restriction. Furthermore Telkom had argued (by redefining section 40(2) of the Telecommunications Act) that VANs providers who were also provider of VPN services were not authorised by their licenses to do as VPN constituted PSTS which only Telkom was authorised to provide.
In relation to conduct III, Telkom argued that it enjoyed exclusivity over international gateways and that AT & T’s request for a larger capacity link would in essence bypass Telkom’s network and undermine its exclusivity.
The Tribunal in addressing the first issue referred to the case of Telkom v Internet Solutions where the Independent Communications Authority of South Africa (“ICASA”) the regulator for the South African communications sector held that Internet Solutions was providing a legitimate VANS. The Tribunal also referred to Telkom SA Ltd. V AT & T Global where ICASA had held that a VPN is not a PTN but a managed data network service (“MDNS”) which falls into the definition of VANS in section 40(2) of the Telecommunications Act. ICASA also found that AT & T was not providing PSTS nor was it subletting facilities leased from Telkom.
The Tribunal concluded that since these rulings are yet to be overturned, it stands.
Non-pricing conducts
Section 8(b)
This section provides that it is prohibited for a dominant firm to refuse to give a competitor access to an essential facility when it is not economically feasibible to do so. The main thrust of Telkom’s defence on this claim was that VANS were acting illegally by carrying on a service not authorised by law. (Recall earlier rulings by ICASA).
The Tribunal held further that even for the sake of argument that the illegality question was yet to be decided, Telkom itself had relied on it inconsistently and selectively – by electing to freeze rather than disconnect the network of offending VANS, freezing some and not others- thereby demonstrating that its refusal to supply was not a matter of law but rather a matter of commercial strategy.
The Tribunal further held that the requirement by Telkom that its competitors accede to conditions of supply that were not contained in legislation or regulation and which adversely impacted on their businesses did amount to a constructive refusal to supply.
The Tribunal finally concluded that Telkom had in fact breached section 8(b) of the Act.
Section 8(d)(i)
This section provides that it is prohibited for a dominant firm to require or induce a supplier or customer to not deal with a competitor unless that firm can show technological, efficiency or other pro-competitive gains which outweigh the anticompetitive effect. The conduct complained of here was that Telkom insisted that leased lines be registered in the names of the customers of the VANS providers and could only be obtained from Telkom through an agency agreement.
Telkom failed to raise any technological, efficiency or pro-competitive gains to satisfy the exemption requirement under this section. The main plank of its defence was that VANS providers were acting illegally and infringing on Telkom’s exclusivity. According to the Tribunal this issue had already been decided against Telkom (Recall earlier rulings by ICASA) and even Telkom’s own regulatory department noted that the alleged illegality claim could be challenged on the basis of its legality.
On this claim, the Tribunal also held Telkom to have infringed section 8(d)(i) of the Act.
Pricing conducts
Sections 8(a) Excessive pricing
Section 8(a) provides that it is prohibited for a dominant firm to charge an excessive price to the detriment of consumers. To sustain a section 8(a) infringement, the Tribunal relied on Mittal Steel v Harmony which held that “the economic value of the good or service” must be established.
However the Tribunal was unable to make a finding of this conduct as the Commission had failed to establish the economic value of the good or services in its pleadings.
Section 9(1) Price discrimination
This section provides that:
An action by a dominant firm, as the seller of goods or services is prohibited price discrimination, if-
a) It is likely to have the effect of substantially preventing or lessening competition;
b) It relates to the sale, in equivalent transactions, of goods or services of like grade and quality to different purchasers; and
c) it involves discriminating between those purchasers in terms of –
i. the price charged for the goods or services;
ii. any discount, allowance, rebate or credit given or allowed in relation to the supply of goods and services;
iii. the provision of services in respect of the goods or services; or
iv. payment for services provided in respect of goods or services.
To this, Telkom contended that it was not offering “equivalent service” in relation to its own valued added services and that offered by other VANS providers and that its sales of access line to its own customers was bundled with other services and therefore could not be compared on the basis of equivalence.
The Tribunal proceeded to compare the equivalence of bundled services to which Telkom failed to provide cost information which was necessary to perform a cost price analysis. The Tribunal finally concluded that Telkom’s bundling claim was not a credible one and proceeded to establish the requirement of “equivalent transactions” (for the purpose of price discrimination) by making a finding on the type of harm caused.
However due to the inability of the Commission’s pleading to make a clear showing of whether the alleged price discriminatory conduct caused harm to the consumers or the VANS operators, the Tribunal was unable to find a contravention of section 9(1).
In all, the Tribunal came to a conclusion that Telkom had contravened sections 8(b) and 8(d)(i) of the Competition Act, for which it was fined R449 000 000.00 (four hundred and forty nine million rand).
The situation in Nigeria’s communications sector
Abuse of a dominant position in Nigeria’s communications sector is primarily governed by section 92(4) of the Nigerian Communications Act (“NCA”) and Part V of the Competition Practice Regulations 2007 (“CPR”). To prove an abuse of a dominant position by a communications licensee, it will be necessary to first determine whether the licensee in question occupies a dominant position in the relevant market.
In March 2010, the Nigerian Communications Commission (“NCC”) exercised its power under section 92 (1) NCA for the purpose of determining whether a licensee holds a dominant position in 2 markets namely; the Mobile Telephone Services market; and the International Internet Connectivity (“ICC”) market (including related international leased data line connectivity markets).
NCC concluded its investigation by stating that no licensee held a position of market dominance in the Mobile Telephone Services market (collectively or individually). With respect to the market for ICC, NCC concluded that NITEL, the pre-liberalization dominant operator no longer held a dominant position, however NCC also noted that work in dominance investigation would significantly improve if the industry had access to more accurate, detailed and timely data on the workings of the relevant markets.
It is however noted that since the commencement of the NCA, there is yet to be decision by either NCC or a court of competent jurisdiction on an allegation of anti-competitive conduct engaged by a dominant licensee. The absence of such decision does not necessarily imply that competition in the communications sector has achieved maturity, neither does it imply the absence of an anti-competitive conduct.
As NCC rightly responded to complaints raised by stakeholders during its dominance investigations, where market forces fail to quickly resolve anti-competitive conduct(s) of a dominant licensee, timely, direct and targeted remedies are available under the telecommunications framework which can in most cases be implemented without a finding of dominance.
