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Johannesburg - A R2.6bn merger deal between telecoms firm Telkom and IT services company Business Connexion Group (BCX) has been approved with conditions.
The Competition Commission (CompCom) on Thursday announced that it recommended to the Competition Tribunal that the merger be approved with conditions.
“These are technical conditions relating to downstream services like your value-added network services, the transfer pricing programme - what must happen to that - the fact that it has to stay on I think for a certain period of time," Mava Scott, spokesperson for CompCom, told Fin24.
“There are both behavioural conditions that have been imposed and there are also employment conditions. I think that there are about 60 employees that were going to be affected and there are conditions relating to that."
A document from CompCom on the merger says that no more than 60 jobs should be lost in the next three years - 20 per year.
Also the commission said Telkom’s application and implementation of a "transfer pricing programme" should include fibre access and remain for the duration of the condition period.
The transfer pricing programme is designed to regulate transactions in the provision of network services between Telkom and its wholesale and retail business divisions and ensure that competitors achieve positive margins.
CompCom said that the transfer pricing programme will be extended from July 18 2018 to 31 December 2020.
Downstream rivals
In a document relating to the merger, the CompCom further explains how Telkom, being the largest provider of wholesale leased lines, has the ability to foreclose its downstream rivals from access to these lines.
These lines are key for the likes of managed network services (MNS), value added network services (VANS) and hosting and information technology services (ITS), said CompCon.
Regarding competition concerns arising from foreclosure of downstream rivals through bundling strategies, CompCom has ordered Telkom to:
- "Ensure that prices for wholesale leased lines are based on actual lines utilised and priced at the non-discriminatory transfer price for common components."
- "Ensure that the prices for the other services and/or components included in the bundle are based on actual costs incurred."
- "Ensure that it does not set prices for its bundled offerings using wholesale leased lines at levels which are less than the sum of the costs of components in the bundle. In other words, the principle is that the prices for wholesale leased lines included in the bundle must exceed the cost applied in internal pricing and the revenues generated from the bundled offering must exceed the costs associated with providing the bundle plus a positive margin."
- "Ensure that when providing any bundled offering which includes wholesale leased line, the price complements for each individual service included in the bundle is clearly reflected in the overall price for the bundle."
Telkom comments
Meanwhile, Telkom has welcomed the announcement in a statement on Thursday afternoon.
“We believe the proposed acquisition will assist Telkom with its strategy to grow beyond its core business of connectivity by expanding into ICT services. This will enable our business to further enhance and grow its existing offerings, while at the same time providing scale in IT services. It will also help to reinforce the company’s core connectivity business and enhance Telkom’s convergence strategy,” said Sipho Maseko, Telkom’s group chief executive officer.
