Will Telkom settle its fine?

Johannesburg - Telkom [JSE:TKG] has withdrawn its appeal before the Competition Appeal Court against the guilty verdict handed down to it by the Competition Tribunal in August last year. This means that the state-owned company’s R449m fine is back on the table.

But negotiations between the two parties mean that the size of the fine is not final and could increase or decrease depending on the outcome.

At the same time, the Competition Commission has withdrawn its counter appeal, asking for a higher fine. The original penalty proposed by the commission was in excess of R3bn, indicating that it felt a fine of this magnitude was warranted due to the nature of Telkom’s anti-competitive behaviour.

At a press briefing last week, competition commissioner Shan Ramburuth announced that Telkom had approached the commission to settle the cases it faces before the tribunal.

In August, the tribunal found Telkom guilty of abusing its dominance in the telecommunications market between 1999 and 2004.

It found the parastatal had abused its dominance by charging excessive prices, refusing access to an essential facility and engaging in price discrimination, thereby making its downstream rivals less competitive in the market.

Telkom has two cases against it, both of which have been lodged by the commission.

The first was on appeal at the Competition Appeal Court until recently, and the second was set down to be heard by the tribunal in the middle of this year.

The second case, which involves allegations of similar conduct that took place during the introduction of new technology in 2009, is, according to those familiar with the case, even stronger than the case upon which the tribunal ruled last year.

But in a move contradictory to the pending negotiation around a settlement, Telkom has appealed to the Competition Appeal Court over access to documents in the build-up to the commission’s second case.

On January 25, the tribunal heard Telkom’s appeal for further documents to be released to it and only last month ruled against the parastatal.

The tribunal’s judgment reads: “We find Telkom’s non-application argument to be without any merit whatsoever. Telkom’s counsel unusually announced at the hearing that if we were against them on this point, the matter might be taken on appeal.

“Whilst Telkom is fully entitled to pursue its rights as a litigant, it would be most unfortunate if the hearing of the matter was delayed to decide this point as an interlocutory matter.”

Telkom has previously tied up regulatory intervention with legal might. Its initial case, which was lodged by the commission, took seven years and numerous legal challenges before the tribunal sat to hear it.

By February 2004, the commission had completed its investigation and referred its case against Telkom to the tribunal.

But Telkom decided to challenge the commission’s jurisdiction in the Supreme Court of Appeal, a legal move that resulted in a five-year delay to the tribunal hearing, which Telkom ultimately lost.

Some subsequent legal challenges followed, which were based on the commission’s decisions to amend its papers.

The R449m fine amounts to 6.3% of Telkom’s market capitalisation of R7.1bn, or about two-and-a-half times its operating profit of R179m for the financial year ended March 31 2012.

The tribunal originally allowed Telkom to pay half the fine (R224.5m) within six months and the other half within 12 months after that.

Now, both parties have chosen to make light of the latest developments.

The Competition Commission’s manager for advocacy and stakeholder relations, Trudi Makhaya, said: “It is common in competition law proceedings for the parties to engage in dialogue to attempt to resolve some of the issues through settlement.

“The commission and Telkom have engaged on various issues related to the two cases but we are not at liberty to discuss these sensitive and confidential engagements.

“The commission has referred a second complaint of anti-competitive conduct to the Competition Tribunal. The hearing for the second complaint is set for June?10?2013.”

Telkom claims both matters are sub judice and that it does not feel it proper to comment on them in the media.

The parastatal said: “Telkom has, however, consistently maintained that it is always willing to settle any litigation as long as this is in the company’s best interests. Should any matter reach a stage of finality, either through a judgment by a competent authority or through final settlement, Telkom will inform its stakeholders as appropriate.”