Competition Commission v Telkom SA SOC Ltd (016865) [2013] ZACT 62 (18 July 2013)

80 Reportability

Competition Law

Brief Summary

Competition — Anti-competitive conduct — Settlement agreement — Competition Commission alleging Telkom engaged in margin squeeze and anti-competitive conditional selling — Telkom admitting contraventions of the Competition Act — Tribunal confirming settlement agreement and imposing administrative penalty of R200 million — Telkom to cease conduct and implement non-discriminatory pricing policies.

Comprehensive Summary

Summary of Judgment

1. Introduction

These proceedings were heard in the Competition Tribunal of South Africa and concerned an application by the Competition Commission for the Tribunal to confirm a settlement agreement as an order of the Tribunal in terms of section 58(1)(a) of the Competition Act 89 of 1998.

The parties were the Competition Commission (as applicant) and Telkom SA SOC Limited (as respondent). The matter was placed before a panel comprising N Manoim (Presiding Member), Y Carrim (Tribunal Member), and T Madima (Tribunal Member). The Tribunal heard the matter on 17 July 2013 and issued its order on 18 July 2013.

The procedural history reflected in the order and attached settlement agreement was that, following multiple complaints submitted to the Commission between 2005 and 2007, the Commission investigated and then referred aspects of the complaints to the Tribunal on 26 October 2009 under Tribunal case numbers 55/CR/Jul09, 73/CR/Oct09, and 78/CR/Nov09. Following the exchange of pleadings, the Commission and Telkom concluded a settlement agreement dated 13–14 June 2013, which they presented to the Tribunal for confirmation.

The general subject-matter of the dispute concerned alleged abuse of dominance conduct in telecommunications markets during the complaint period (1 January 2005 to 31 December 2007), specifically allegations framed by the Commission as including margin squeeze, excessive pricing, and anti-competitive bundling/conditional selling involving Telkom’s wholesale and retail divisions and services such as Diginet, ADSL, HBTLs, IPLCs, and IP Connect, affecting competition by other operators and ISPs.

2. Material Facts

Multiple complainants, namely Internet Solutions (Pty) Ltd, Multichoice Subscriber Management Services (Pty) Ltd, Internet Service Providers Association, and Verizon South Africa (Pty) Ltd, submitted five complaints to the Competition Commission between 26 June 2005 and 19 July 2007. The Commission investigated those complaints under specified Commission case numbers and thereafter referred certain aspects for adjudication by the Tribunal on 26 October 2009.

The settlement agreement recorded a set of facts described as common cause between the Commission and Telkom for the complaint period. These included that first-tier ISPs attempted to compete in wholesale and retail Internet access and IP VPN services using backbone networks; that such ISPs had no commercially viable alternative but to build backbone networks using transmission lines sold by Telkom (specifically HBTLs and IPLCs); and that first-tier ISP customers had no commercially viable alternative but to use Telkom’s ADSL and Diginet services to access the relevant backbone networks.

It was also recorded as common cause that the prices for Telkom access services supplied to first-tier ISPs and their end customers were higher than those that Telkom Retail accounted for when pricing its bundled IP VPN services to customers. The settlement further recorded (as common cause between the Commission and Telkom) that the structures of pricing amounted to a margin squeeze of first-tier ISP competitors and to anti-competitive conditional selling of IP VPN and Internet access with Diginet and ADSL access services.

Beyond these common-cause facts, the settlement agreement contained an express admission by Telkom that its conduct amounted to a contravention of sections 8(c) and 8(d)(iii) of the Competition Act. The settlement agreement also recorded the Commission’s investigative conclusion that Telkom had engaged in a margin squeeze, including through pricing alleged to be excessive for HBTLs and IPLCs, and through pricing for Diginet access lines, HBTLs, IPLCs, and IP Connect set at levels that precluded cost-effective competition with Telkom Retail’s services; it further recorded the Commission’s conclusion regarding bundling/conditional selling.

The settlement regulated future conduct and compliance measures. It recorded that Telkom warranted that the complained-of conduct had already ceased or (to the extent not ceased) would cease within six calendar months of the Tribunal’s confirmation. Mechanisms recorded to give effect to cessation included adoption and implementation by Telkom Wholesale of a Transfer Pricing Programme (Annexure A) and implementation by Telkom Retail of a Retail Pricing Policy (Annexure B), together with a functional wholesale/retail separation contemplated in a Wholesale / Retail Code of Conduct (Annexure C), monitoring, audits, and specified price reductions with an indicative value.

3. Legal Issues

The central legal question before the Tribunal, as reflected in the order, was whether the Tribunal should confirm the settlement agreement concluded between the Commission and Telkom as an order of the Tribunal under section 58(1)(a) of the Competition Act, pursuant to the Commission’s functions and the Tribunal’s powers referenced in the settlement agreement (including section 27(1)(d) read with section 58(1)(a)(iii), as described in the settlement document).

The determination was not framed as a contested adjudication of the underlying prohibited practices on their merits in the Tribunal’s order. Rather, the matter primarily concerned the application of the Tribunal’s statutory power to convert a settlement agreement into a binding Tribunal order. To the extent that the agreement incorporated admissions, remedial undertakings, and an administrative penalty, the issue was procedural and remedial in character, rather than requiring factual findings by the Tribunal beyond what was recorded in the settlement.

4. Court’s Reasoning

The Tribunal’s published order was brief and recorded that it confirmed the settlement agreement reached between the Commission and Telkom as an order in terms of section 58(1)(a) of the Competition Act, with the settlement agreement (including annexures) attached to and incorporated into the order.

The Tribunal’s reasoning, as reflected in the order itself, did not elaborate on evaluative considerations, detailed legal analysis, or a merits assessment of the underlying referral. Instead, the Tribunal’s approach was to exercise the statutory power to make the settlement agreement an enforceable order, thereby giving binding effect to the agreed terms that addressed the admitted contraventions, cessation undertakings, administrative penalty, future conduct obligations, and monitoring provisions.

5. Outcome and Relief

The Tribunal confirmed the settlement agreement between the Competition Commission and Telkom SA SOC Limited as a Tribunal order in terms of section 58(1)(a) of the Competition Act 89 of 1998, and attached the settlement agreement (including annexures) to the order.

The confirmed settlement included, among other forms of relief, Telkom’s undertaking that the conduct had ceased or would cease within a defined period; obligations concerning transfer pricing, retail pricing, and functional wholesale/retail separation; the implementation of a competition law compliance programme; monitoring and audit mechanisms; and an administrative penalty of R200 000 000 payable in specified tranches and to be paid over to the National Revenue Fund in accordance with the Act.

The order, as published, did not record any separate or additional order as to costs.

Cases Cited

No prior cases were cited or referenced in the Tribunal’s order or in the text of the settlement agreement as provided.

Legislation Cited

The Competition Act 89 of 1998 was cited, including references in the settlement agreement and order to sections 3, 8(a), 8(b), 8(c), 8(d)(iii), 19, 22, 26, 27(1)(d), 58(1)(a), 58(1)(a)(iii), 59(1), 59(2), 59(3), and 59(4).

The Electronic Communications Act 36 of 2005 was cited in the settlement agreement, including through definitions and references to electronic communications network services (ECNS) and electronic communications services (ECS) as defined in that Act.

Rules of Court Cited

No rules of court were cited in the Tribunal’s order or in the settlement agreement text as provided.

Held

The Tribunal held, in effect, that the settlement agreement concluded between the Competition Commission and Telkom SA SOC Limited should be confirmed as an order of the Tribunal under section 58(1)(a) of the Competition Act. The confirmation rendered the settlement agreement (including its annexures) binding and enforceable as a Tribunal order, thereby finalising the proceedings between the Commission and Telkom relating to the specified complaints and referral on the terms recorded in the settlement.

LEGAL PRINCIPLES

A settlement agreement concluded between the Competition Commission and a respondent may be made binding and enforceable through confirmation by the Competition Tribunal as an order of the Tribunal in terms of section 58(1)(a) of the Competition Act 89 of 1998, where the parties seek such confirmation in accordance with the Act.

Where a settlement agreement records admissions of contraventions and specifies remedies, compliance obligations, monitoring mechanisms, and an administrative penalty, confirmation by the Tribunal gives those agreed measures the status of a Tribunal order, thereby concluding the proceedings between the Commission and the respondent on the agreed terms, as reflected in the settlement’s full-and-final settlement clause.