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IN THE HIGH COURT OF SOUTH AFRICA (TRANSVAAL PROVINCIAL DIVISION)
Case No: 11239/04
In the matter between: TELKOM SA LIMITED Applicant
and THE COMPETITION COMMISSION OF SOUTH AFRICA 1st Respondent
THE COMPETITION TRIBUNAL OF SOUTH AFRICA 2nd Respondent
____________________________________________________________________
FIRST RESPONDENT’S HEADS OF ARGUMENT
_____________________________________________________________________
INTRODUCTION
1 The applicant (‘Telkom’) seeks the review and setting aside of the following:
1.1 a decision by the first respondent (‘the Commission’) to refer a
complaint to the second respondent (‘the Tribunal’) on 23 February
2004 against the applicant (‘the referral’); and
1.2 the referral itself.
2
2 It also seeks a declaratory order that:
2.1 the Commission does not have the power to refer the matters forming
the subject matter of the referral to the Tribunal;
2.2 the Tribunal does not have the powers or competence in law to
adjudicate on the conduct forming the subject matter of the referral and
to grant any remedy consequent upon such adjudication.1
THE ISSUES IN OUTLINE
The Commission says that, outside review based on want of jurisdiction, no basis
for review has been laid
3 Telkom brings the review application in terms of s 6 of the Promotion of
Administrative Justice Act 3 of 2000 (‘PAJA’) read with rule 53 of the rules
of this Court.2
4 To the extent that Telkom makes out a case based on want of jurisdiction, the
Commission accepts that the review is properly before this court. However, to
the extent that Telkom makes a case based on unreasonableness or
irrationality, the Commission contends that no review is competent. The
prevailing law is that decisions of the Commission are reviewable, if at all,
only on the basis of ill-faith, oppression, vexation or the like, and most
1 Notice of Motion (‘NM’) paras 1-3.2 pp 1-2.
2 FA para 9 p 10.
3
certainly not on the wide grounds of review contemplated by s 6 of PAJA.3 In
any event, no proper basis for review under PAJA has been made out.
5 The circumstances in which the Commission contests the review on this basis
will be explained in the course of dealing, below, with each ground of review.
Telkom says that the competition authorities have no jurisdiction over the
conduct referred
6 The principal contention advanced by Telkom is that the competition
authorities (the Commission and the Tribunal) have no jurisdiction over the
conduct that forms the subject matter of the referral.
6.1 Telkom contends that the conduct in question is authorised by the
Telecommunications Act 103 of 1996 (‘the Telecoms Act’), which has
now been repealed and replaced by the Electronic Communications Act,
36 of 2005 (‘the ECA’).
6.2 According to Telkom, any complaint arising from such conduct should
be dealt with by the Independent Communications Authority of South
Africa (‘ICASA’).
6.3 In developing this theme, Telkom seems to contend that –
3 Answering Affidavit (‘AA’) paras 21-25 pp 358-9.
4
6.3.1 the legislature could never have contemplated that the competition
authorities would have the competence to condemn, as anti-
competitive, conduct –
6.3.1.1 authorized by the Telecoms Act, by the regulations promulgated
under it, or by its licence; or
6.3.1.2 that might be authorized by ICASA in the exercise of its powers
under the Telecoms Act.
6.3.2 the conduct attacked in the referral is just such conduct and is,
accordingly, beyond the competence of the competition authorities.4
7 Conduct actually ‘authorized’
7.1 The Commission accepts that –
7.1.1 the competition authorities have no competence to condemn conduct
that Telkom is obliged to perform or to refrain from performing
7.1.1.1 under the Telecoms Act and
7.1.1.2 under the regulations or Telkom’s licence for so long as these
legal instruments remain unchallenged;
and
4 Founding Affidavit (‘FA’) para 10 p 11.
5
7.1.2 that an attempt by the competition authorities to exercise such
jurisdictional competence would be reviewable as unlawful.
7.2 The Commission also accepts that –
7.2.1 the competition authorities have no competence to decide whether
conduct constitutes compliance with, or a breach of, the Telecoms
Act, the regulations promulgated under it or Telkom’s licence;
7.2.2 an attempt to exercise such a power would constitute an invasion of
ICASA’s exclusive jurisdiction and be reviewable as such.
7.3 The Commission states that the referral provides no basis for either
objection.
7.3.1 As to the first, the referral attacks conduct that Telkom is under no
legal obligation to perform or refrain from performing; the focus of
the attack is on conduct that Telkom perpetrates in the exercise of a
discretion. Telkom may have latitude under the Telecoms Act, the
regulations or its licence to exercise this discretion, but, the
Commission contends, it has no such latitude under the Competition
Act. In short, the conduct may be permissible under the Telecoms
Act, but it must still comply with the Competition Act.
7.3.2 The Commission seeks no relief under the Telecoms Act. The
Commission exercises the powers entrusted to it under the
Competition Act.
6
8 As to conduct that might be authorized
8.1 Telkom seems to contend (its actual contention is by no means clear)
that, as soon as ICASA has the power to authorize conduct, the conduct
falls within ICASA’s exclusive jurisdiction and the competition
authorities have no power to condemn it even if no such authorization
has yet been given. On this argument, the competition authorities have
no concurrent jurisdiction over conduct that potentially falls within the
competence of ICASA.
8.2 The Commission contests this submission. It states that its concurrent
jurisdiction is put beyond doubt by s 3(1A)(a) of the Competition Act.
8.3 In a weaker variant of this contention, Telkom submits that, if the
Commission has concurrent jurisdiction to condemn conduct potentially
within ICASA’s jurisdiction –
8.3.1 the power cannot be exercised until the Memorandum of
Understanding between the two sets of authorities has been complied
with;
8.3.2 it was not complied with in the present case.
8.4 The Commission submits that the Memorandum of Understanding –
8.4.1 being res inter alios ICASA and the Commission, provides Telkom
with no basis for complaint;
7
8.4.2 was never intended, either by the parties to it or as a matter of
statutory construction, to be mandatory, but is simply permissive;
8.4.3 in any event, has as a fact been complied with to an extent sufficient
to satisfy its terms.
8.5 Telkom contends that the ECA applies to the ‘forward looking’ relief
and makes it clear that the Commission’s power is subordinate to
ICASA’
8.5.1 In prayer 3.2 Telkom asks for a declarator that ‘the [Tribunal] does
not have the powers or competence in law to adjudicate on the
conduct forming the subject matter of the referral and to grant any
remedy consequent upon such adjudication’.
8.5.2 In its heads of argument, Telkom contends, for the first time –
8.5.2.1 that this ‘forward looking’ prayer falls to be decided under the
ECA, the successor to the Telecoms Act;5
8.5.2.2 and that this statute, by using the expression ‘subject to’ in the
provision governing competition (s 67), places it beyond doubt
that the jurisdiction of the competition authorities is subordinate
to ICASA.
5 Telkom heads para 65.2 p 37.
8
8.5.3 Since this point was not taken in the review papers, the Commission
has as yet had no opportunity to respond to it. But, assuming without
conceding that it can now be raised, the Commission says –
8.5.3.1 the jurisdiction of the Tribunal to consider the case was fixed by
the law as it stood at the moment when the referral was made,
and this was the Telecoms Act;
8.5.3.2 at most-
8.5.3.2.1 the ECA can be brought into account only for the purpose
of considering whether relief operating in futuro (an
interdict, for example) should properly be granted;
8.5.3.2.2 this is a matter entrusted to the decision of the Tribunal
and its decision, if impugnable on the grounds of an
irregularity in failing to take the ECA into account, can
only be reviewed once it is made.
8.5.4 In any event, the Commission points out that –
8.5.4.1 s 67 of the ECA depends for its effect on the promulgation of
regulations; and
8.5.4.2 can have no force and effect until such regulations are
promulgated.
9
Telkom says that the referral was made out of time
9 Under the Competition Act, a referral must be made within a year or within
such further period as is agreed with the complainant. In the present case it is
common cause that the referral was not made within the year and so, if it was
timeous, it must be in consequence of extensions validly granted.
10 Telkom contends that there is insufficient evidence to show that the
complainants in the present cases agreed to extend the time limit. The
Commission disputes this and places facts before this Court to show that the
time limit was extended.
11 The Commission contends–
11.1 that the issue, being one concerned not with matters of jurisdiction but
with the validity of the referral, is one for the Tribunal to decide in the
exercise of its powers;6
11.2 that, if the Tribunal’s decision on this issue would be impugnable on
review, this would be only to the extent that it manifested an error of
fact or law that was irrational or unreasonable or otherwise irregular
within the contemplation of PAJA;
12 The Commission contends, in addition, that the dispute of fact is illusory,
since the uncontroverted evidence reveals that the time limit was extended to
6 AA para 124.1 p 404.
10
cover the referral. If the dispute of fact is considered to be genuine, the
version of the Commission should be accepted.
Telkom says that the referral is vitiated by bias
13 Telkom says that the referral is unlawful because the Commission relied upon
a report prepared by a body, the Link Centre, which was partisan against it. It
says that the degree to which the Commission relied on the report is evident
from a close reading of the Commission’s final recommendation.
14 The Commission accepts that it placed reliance on this report, but says that –
14.1 its final report and, more pertinently, the referral was a culmination of a
consideration of all the material before it;
14.2 the material in the Link Centre report reveals no manifest bias, whatever
the bias of the authors might otherwise be;
14.3 if this is not so, the Commission is in any event not precluded from
taking partisan material into account in arriving at its conclusions – its
function is to weigh up whatever material it rationally and reasonably
regards as germane;
14.4 in any event –
14.4.1 Telkom nowhere suggests that the Commission’s conduct in
considering the report reveals ‘ill-faith, oppression, vexation or the
like’,
11
14.4.2 and thus the Commission’s conduct in taking the report into account
in making the referral is not reviewable.
AN OUTLINE OF THE STATUTORY FRAMEWORK
15 The three statutes that are relevant for purposes of this application are the
Competition Act, the Telecoms Act (as it stood at the time of the referral of
the complaint to the Tribunal) and the ECA.
The Competition Act
16 The Competition Act applies to all economic activity within, or having an
effect within the Republic.7
17 The concept of ‘economic activity’ has been defined very broadly to
encompass ‘the countless forms of activity which people undertake in order to
earn a living’, subject to the exceptions in s 3(1)(a), (b) and (e).8
18 Section 3(1A)(a) provides that in so far as the Competition Act applies to an
industry, or sector of an industry, that is subject to the jurisdiction of another
regulatory authority, which authority has jurisdiction in respect of conduct
regulated in terms of Chapter 2 or 3, the Competition Act must be construed
as establishing concurrent jurisdiction in respect of that conduct.
7 Section 3(1).
8 Standard Bank Investment Corp v Competition Commission 2000 (2) SA 797 (SCA) para 9.
12
19 ‘Regulatory Authority’ is defined in the Competition Act and would include
ICASA. ‘Public Regulation’ is also defined and would include the Telecoms
Act and the ECA.
20 Section 3(1A)(b) of the Competition Act provides that the manner in which
the concurrent jurisdiction (referred to in s 3(1A)(a)) is to be exercised in
terms of the Competition Act and any other regulation must be managed, to
the extent possible, in accordance with any applicable agreement concluded in
terms of sections 21(1)(h) and 82(1) and (2) of the Competition Act.
21 Significantly, the provisions of s 3(1A)(a) and (b) do not deprive the
Commission and/or the Tribunal of any jurisdiction they have under the
Competition Act, albeit concurrently with another regulatory authority.
Furthermore, the management of the exercise of concurrent jurisdiction in
terms of an agreement between the Commission and other regulators is ‘to the
extent possible’. It is not mandatory, in the sense that failure to manage the
exercise of concurrent jurisdiction by the Commission in terms of any such
agreement would per se make such exercise susceptible to review by a Court.
22 The Commission is established in terms of s 19 of the Competition Act as a
juristic person. It has jurisdiction throughout the Republic and is required to
exercise its functions in accordance with the Competition Act.
23 Section 21 of the Competition Act sets out the functions of the Commission.
These include responsibility to –
13
23.1 investigate and evaluate alleged contraventions of chapter 2 of the
Competition Act;
23.2 refer matters to the Tribunal, and appear before the Tribunal, as required
by the Competition Act;
23.3 negotiate agreements with any regulatory authority to co-ordinate and
harmonise the exercise of jurisdiction over competition matters within
the relevant industry or sector, and to ensure the consistent application
of the principles of the Competition Act;
23.4 participate in the proceedings of any regulatory authority;
23.5 advise, and receive advice from, any regulatory authority.
24 Section 25 of the Competition Act entitles the Commissioner inter alia to
contract with persons to assist the Commission in carrying out its functions.
These persons include experts in particular fields, such as
telecommunications. The significance of this section is that in this case the
Commission contracted an independent party, namely the Link Centre, to
provide it with expert input and advice in dealing with the complaints referred
to it for investigation and which form the subject matter of this application.
25 The investigations of complaints by the Commission and their referral to the
Tribunal by the Commission are done under Part C of the Competition Act.
This chapter deals with ‘complaint procedures’.
14
26 The Tribunal is established in terms of s 26 of the Competition Act as a
juristic person with jurisdiction throughout the Republic. It is required to
exercise its functions in accordance with the provisions of the Competition
Act.
27 The functions of the Tribunal are set out in s 7. In terms of the section the
Tribunal may –
27.1 adjudicate on any conduct prohibited in terms of Chapter 2, to determine
whether prohibited conduct has occurred, and, if so, to impose any
remedy provided for it in the Competition Act; and
27.2 adjudicate on any other matter that may, in terms of the Competition
Act, be considered by it, and make any order provided for in the
Competition Act.
28 Chapter 2 of the Competition Act contains provisions which deal with
prohibited practices. The prohibited practices cover restrictive horizontal
practices in s 4; restrictive vertical practices in s 5; abuse of dominance in
sections 7 and 8; and price discrimination by a dominant firm in s 9 (read with
s 7).
29 The allegations against Telkom which the Commission has referred to the
Tribunal, and which form the subject matter of this application, concern
alleged contraventions of sections 8(a), (b), (c), (d)(i) and 9 of Chapter 2 of
the Competition Act. These are matters over which the Commission has
15
authority to investigate, evaluate, and refer to the Tribunal for adjudication
and to prosecute before the Tribunal in terms of s 21(1) of the Competition
Act. The Tribunal has the corresponding authority to adjudicate such alleged
contraventions once they are referred to it by the Commission.
The Telecoms Act
30 The primary object of the Telecoms Act was to provide for the regulation and
control of telecommunication matters in the public interest.
31 Telkom is a holder of a licence to provide public switched telecommunication
services in terms of the Telecoms Act (‘PSTS licence’). It is also a holder of
a licence to provide Value-added Network Services (‘VANS’).
32 The complainants that referred complaints to the Commission regarding the
alleged breaches of the Competition Act which resulted in the Commission’s
referral to the Tribunal are also holders of VANS licences.9
33 The authority established to regulate and control telecommunication matters
under the Telecoms Act is ICASA which is established by s 3 of the
Independent Communications Authority of South Africa Act, 2000 (‘the
ICASA Act’).
9 Complaint Referral Affidavit (‘CRA’) para 4 p 71.
16
34 Section 53 of the Telecoms Act dealt with uncompetitive actions by licensees,
such as Telkom. It gave ICASA the power to deal with such uncompetitive
actions. The section does not, however, oust the jurisdiction of the
Commission and the Tribunal to deal with anti-competitive conduct which
also fell under Chapter 2 of the Competition Act. At best, under the Telecoms
Act ICASA shared concurrent jurisdiction with the Commission and the
Tribunal in respect of such anti-competitive conduct.
35 It is significant to point out also that the type of uncompetitive conduct
envisaged in s 53 of the Telecoms Act does not cover as wide a field as the
prohibited practices set out in Chapter 2 of the Competition Act. Section 53
provides as follows –
‘53 Uncompetitive actions
(1) If it appears to the Authority that the holder of a
telecommunication licence is taking or intends taking any action
which has or is likely to have the effect of giving an undue
preference to or causing undue discrimination against any person
or category of persons, the Authority may, after giving the licensee
concerned an opportunity to be heard, direct the licensee by written
notice to cease or refrain from taking such action, as the case may
be. ...’
36 It is clear from the provisions of s 53 that the authority given to ICASA does
not extend to dealing with complaints of abuse of dominance unless such
complaints relate to conduct by a licensee, such as Telkom, which have or are
17
likely to have the effect of ‘giving an undue preference to or causing undue
discrimination against any person or category of persons’.
37 The conduct envisaged in s 53 is clearly narrower than the wide categories of
abuse of dominance prohibited by the provisions of s 8 and 9 of the
Competition Act, which are discussed in more detail below.
38 Section 53 in its terms does not deprive the Commission and the Tribunal of
their jurisdiction to deal with complaints of abuse of dominance that fall
outside the narrow ambit of s 53. It also does not deprive the Commission
and the Tribunal of their concurrent jurisdiction to deal with complaints of
abuse of dominance which may fall within the narrow ambit of s 53. Section
100 of the Telecoms Act also does not deprive the Commission and the
Tribunal of such concurrent jurisdiction.
39 A further significant feature of s 53 is that ICASA’s authority to grant
remedies is limited to directing a licensee, such as Telkom, ‘to cease or refrain
from taking such action, as the case may be.’ ICASA does not have the
authority to grant the type of extensive remedies or orders that the Tribunal
can grant in terms of s 58 of the Competition Act, which include the
imposition of an appropriate administrative penalty.10
10 Section 58 of the Competition Act provides as follows:
‘58. Orders of Competition Tribunal
(1) In addition to its powers in terms of this Act, the Competition Tribunal may –
(a) make an appropriate order in relation to a prohibited practice, including –
(i) interdicting any prohibited practice;
18
40 With the less expansive and intrusive remedies in s 53, it is unlikely that the
legislature intended the regulation of competition in terms of s 53 (read with
s 100) to be exhaustive and exclusive of regulation under the Competition
Act, especially in relation to abuse of dominance by a monopoly
telecommunications operator such as Telkom.11
41 We submit that any contention effectively that the remedies under the
Telecoms Act are exhaustive and exclusive is incorrect.
(ii) ordering a party to supply or distribute goods or services to another party on
terms reasonably required to end a prohibited practice;
(iii) imposing an administrative penalty, in terms of section 59, with or without the addition of any other order in terms of this section;
(iv) ordering divestiture, subject to section 60;
(v) declaring conduct of a firm to be a prohibited practice in terms of this Act, for the purposes of section 65;
(vi) declaring the whole or any part of an agreement to be void;
(vii) ordering access to an essential facility on terms reasonably required;
(b) confirm a consent agreement in terms of section 49D as an order of the Tribunal; or
(c) subject to sections 13(6) and 14(2), condone, on good cause shown, any non-compliance of –
(i) the Competition Commission or Competition Tribunal rules; or
(ii) a time limit set out in this Act. ...’
11 The numerous ways in which a monopolist like Telkom can abuse its dominance is well documented in the EC Notice (‘Notice on the Application of the Competition Rules to Access Agreements in the Telecommunications Sector’ OJ [1998] C265/2). These include, for example, ‘refusal to grant access to facilities and application of unfavourable terms’; ‘discrimination’; ‘excessive pricing’; ‘withdrawal of supply’; and ‘price squeeze’. In terms of the EC Notice, competition rules, including Article 86 of the Treaty dealing with dominance, apply to the conduct of a dominant telecommunications operator and the competition authorities have jurisdiction to apply the competition rules to such conduct. With regard to the question of dominance the EC Notice states the following in paragraph 65:
‘65. The judgment of the Court of Justice in Tetra Pak [C 265/11] is also likely to prove important in the telecommunications sector. The Court held that given the extremely close links between the dominated and non-dominated market, and given the extremely high market share on the dominated market, Tetra Pak was ‘in a situation comparable to that of holding a dominant position on the markets in question as a whole’.
19
The ECA
42 The ECA repealed the Telecoms Act in its entirety.
43 In terms of section 2, the objects of the ECA are to provide for the regulation
of electronic communications in the public interest.
44 Section 67 deals with competition matters.
44.1 Section 67(1) expressly gives ICASA the authority to order a licensee by
written notice to cease or refrain from conduct that it ‘determines’ to
likely substantially prevent or lessen competition by, amongst other
things, giving undue preference to, or causing undue discrimination
against, any other licensee or person providing a service pursuant to a
licence exemption.
44.2 The exercise of ICASA’s powers in terms of section 67(1) is made
subject to the requirement that ICASA must prescribe regulations –
44.2.1 setting out what actions in terms of subsection (1) would be
considered by ICASA as giving undue preference to or causing undue
discrimination against another licensee or person providing a service
pursuant to a licence exemption – in other words, ICASA
‘determines’ such actions by regulation;
20
44.2.2 detailing procedures for complaints and the monitoring and
investigation of such actions that ensure protection of the interests of
consumers;
44.2.3 indicating the penalties that may be imposed for failure to comply
with a written notice to cease or refrain from taking such actions as
prescribed in terms of subsection 2(a).
44.3 Section 67(9) provides that ‘subject to’ the provisions of the ECA the
Competition Act applies to competition matters in the electronic
communications industry.
44.4 We submit that, whereas, the phrase ‘subject to’ in section 67(9) of the
ECA subordinates the exercise of jurisdiction to competition matters in
the electronic communications industry in terms of the Competition Act,
such subordination only takes effect once ICASA has promulgated the
regulations required by section 67(2). Until such regulations are
promulgated, the Competition Act continues to apply to competition
matters in the electronic communications industry. The existence of the
regulations is a jurisdictional requirement for the exercise by ICASA of
its jurisdiction on competition matters in the electronic industry.
ICASA has not yet promulgated the regulations.
44.5 Section 96 deals with transitional provisions. It provides in subsection
(1) that all existing licenses granted in terms of the Telecoms Act remain
valid until converted by ICASA. The conversion of existing licenses
21
under the Telecoms Act has not yet occurred. Thus Telkom’s licence in
terms of the Telecoms Act remains in force. The same applies to the
licenses of the VANS providers. In this sense, the market structure that
existed under the Telecoms Act at the time of the referral of the
complaint to the Tribunal remains largely unaltered.
THE FIRST ISSUE: WANT OF JURISDICTION
General approach
45 Telkom contends, or at least apparently contends, that the competition
authorities have no jurisdiction to deal with and condemn conduct that is –
45.1 ‘authorized’ by the Telecoms Act, the regulations or its licence;
45.2 or might be ‘authorized’ by ICASA in the exercise of its powers under
the Telecoms Act.
46 The proposition is overstated. The fact that conduct is ‘authorized’ is not
dispositive and, in fact, is not even truly relevant. What counts is whether the
conduct is obligatory.
47 Actual violations
47.1 Above the Commission has conceded that the competition authorities
have no jurisdiction to enquire into Telkom’s conduct if it is obligatory
under the Act, the regulations or its licence.
22
47.2 Such conduct can be prohibitory in form: if, for instance, Telkom is
prohibited by the enactments or its licence from acting in a certain way,
the competition authorities cannot attack Telkom for not acting in that
way.
47.3 Such conduct may also be mandatory, obliging Telkom to act in a
certain way. Once again, the competition authorities cannot complain of
conduct of this nature, even though it might otherwise be anti-
competitive.
47.4 These concessions apply to every species of obligatory conduct
mandated by the Telecoms Act (assuming only that the applicable
provision is constitutional). It applies likewise to every species of the
regulations and licence, but with the additional caveat that the applicable
provision cannot and has not been reviewed for irregularity.
47.5 The position is otherwise when Telkom is – whether by the Act, the
regulations or its licence - permitted but not obliged to act or refrain
from acting in a certain way. Now Telkom has latitude to act or refrain
from acting within the parameters set by the enactments. The exercise of
this discretion entails a choice by Telkom, and the manner in which this
choice is exercised is a matter that is subject to the supervisory control
of the competition authorities in the same way as choices by any other
market actor.
23
48 Potential violations
48.1 In addition to the argument made above, Telkom seems to make a point
based on the jurisdiction of ICASA. It is based on the fact that ICASA
has some jurisdiction, both under the Telecoms Act and the ECA, to
prohibit uncompetitive conduct. Based on this provision, Telkom seems
to argue that conduct that might be scrutinized under the sections cannot
be the subject of a complaint under the Competition Act. It contends that
the competition authorities have jurisdiction of a general nature whereas
ICASA is specifically charged with the regulation of the
telecommunications sector.
48.2 Before this argument can succeed, Telkom must demonstrate that the
implication of exclusivity is a necessary one. As a matter of common
sense, this could only be so if ICASA were given jurisdiction over
offending conduct that was, if not broader, then at least co-extensive
with that of the competition authorities. Were it otherwise,
telecommunication entities would, by being subject to the narrower
jurisdiction of the Telecoms Act, be able to act with an impunity not
vouchsafed to other market actors.
48.3 This requirement is plainly not satisfied in the present case. It may be
(though we by no means concede) that conduct impugnable as anti-
competitive under the Competition Act can equally be condemned under
the equivalent provisions of the Telecoms Act. But one thing is
24
absolutely clear: the remedies and penalties under the Competition Act
are much more far-reaching than those under the Telecoms Act. This
provides a complete negation of the implication of exclusivity that
Telkom seeks to draw.
48.4 The intention of the legislature is manifest in s 3(1A)(a) of the
Competition Act. It makes express provision for concurrent jurisdiction.
Telkom seeks to wriggle free of the scope of the provision by arguing
that the Telecoms Act and ICASA’s powers under it are specific
whereas the jurisdiction of the competition authorities is general. The
contention, besides falling foul of the submission made above, is
revealed to be specious once it is appreciated that, since no legislature
would enact two statutes of general application covering the same field,
every other enactment would necessarily have to be more specific. If the
maxim generalia specialibus non derogant were applicable in the
present context, as Telkom boldly suggests, the concurrent jurisdiction
provision of the Competition Act would never have any scope of
operation.
48.5 The present case is distinguishable from the case of Dumpit Waste
Removal (Pty) Ltd v City of Johannesburg and another12 which Telkom
relies upon. We can do no better than to quote the reasoning on
jurisdiction by the Tribunal in its decision -
12 Dumpit Waste Removal (Pty) Ltd v City of Johannesburg and another [2004] 1 CPLR 189 (CT).
25
‘Jurisdiction
27. The Applicants effectively allege that the Respondents are
excluding it from the market for the provision of waste
delivery services. This exclusion is effected by the
Respondents’ refusal to issue permits to the Applicant or
its customers and potential customers. Moreover, alleges
the Applicant, employees of the Respondents are
attempting to induce consumers of the waste delivery
service to utilise the services of the Second Respondent,
Pikitup. This inducement, it is alleged, largely takes the
form, of advising actual and potential customers of the
Applicant that the latter does not posses the necessary
authority to offer removal services in respect of those
categories of waste specified in Clause 8 of the SDA.
However, there is, in our view, little point served in
examining the intricacies of the case made out in terms of
the Competition Act until we have decided the
jurisdictional point taken by the Respondents.
28. We are persuaded that the Respondents are on secure
ground. The Constitution clearly reserves the provision of
waste delivery services to the municipalities. Moreover, it
appears that, in giving effect to the Constitution, the First
Respondent has meticulously followed the provisions of
the Systems Act. In particular it has established an entity,
Pikitup, responsible for the collection of waste within the
area of its jurisdiction. The form taken by this entity – “an
external mechanism” designated “a municipal entity” – is
expressly sanctioned by section 76 of the Systems Act. In
compliance with the further provisions of section 76, the
26
First Respondent has entered into a Service Delivery
Agreement with the Second Respondent.
29. The statutory scheme that we have referred to above has
meant that the provision of waste services in Johannesburg
can only be performed by an entity that has been licensed
by the COJ, and then only within the ambit of the license.
The COJ has, by virtue of its licensing powers over the
provision of waste removal services, the right to determine
whether this activity should be subject to market forces. In
respect of what it has chosen to define as “council
services” it has elected to use it own entity as the sole
provider and not to create a market for these services.
Absent a market there can be no market power. Pikitup’s
monopoly over the so-called “council services” is a
function not of market power but administrative fact.
Without market power there can be no abuse of dominance
and hence no prohibited practice. Since interim relief is
predicated on the existence of an alleged prohibited
practice it follows that if the application does not succeed
in making out the first of the essential requirements for
interim relief, which is the existence of an alleged
prohibited practice, it must fail.
30. Given that the First Respondent clearly envisages that
there remains a role – albeit circumscribed – for the
market in the provision of waste services, those with an
interest in competition policy may well believe that the
COJ should move rapidly to establish clear boundaries
between those areas of waste collection monopolised by
an entity designated by the First Respondent and those in
which private operators are permitted to compete. Indeed,
27
they may go further and urge the COJ to leave as much
room as possible for the functioning of a market in the
collection of waste. There may even be justified grounds
for fearing that the form selected by the First Respondent
– a separate corporate entity – portends likely future
privatisation by which time the dominance of the existing
statutory monopoly would be well nigh unassailable.
However, these policy concerns must give way to the clear
provisions of the Constitution and the subordinate
legislation – notably the Systems Act – that seeks to give
effect to it.
31. Policy considerations aside, the Applicants may well be
justified in holding that the Respondents have flouted the
basic requirements of fairness provided for in the
Constitution and administrative law. However, these
claims must be adjudicated in another forum. The
provisions of the Constitution and the Systems Act clearly
place these questions outside of the ambit of the
Competition Act.’
[Footnotes omitted]
48.6 The reasoning of the Tribunal in the Dumpit case does not apply to
Telkom. With regard to Telkom there is a market in which it abuses its
dominance. The abuse of dominance relates to conduct in respect of
which Telkom exercises a discretion, albeit emanating from its licence
under the Telecoms Act. Such conduct is subject to the provisions of the
Competition Act.
28
The provisions of the Competition Act allegedly contravened
49 In its complaint referral to the Tribunal, the Commission relies on sections
8(a), (b), (c), (d)(i) and 9 of the Competition Act.
50 The relevant provisions of s 8 of the Competition Act provide as follows –
‘8. Abuse of dominance prohibited.—It is prohibited for a dominant firm
to—
(a) charge an excessive price to the detriment of consumers;
(b) refuse to give a competitor access to an essential facility when
it is economically feasible to do so;
(c) engage in an exclusionary act, other than an act listed in
paragraph (d), if the anti-competitive effect of that act
outweighs its technological, efficiency or other pro-
competitive, gain; or
(d) engage in any of the following exclusionary acts, unless the
firm concerned can show technological, efficiency or other pro-
competitive, gains which outweigh the anti-competitive effect
of its act:
(i) requiring or inducing a supplier or customer to not deal
with a competitor; …’
51 Section 9 provides as follows –
‘9. Price discrimination by dominant firm prohibited.— (1) An action by
a dominant firm, as the seller of goods or services, is prohibited price
discrimination, if—
29
(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 or
services;
(iii) the provision of services in respect of the goods or
services; or
(iv) payment for services provided in respect of the
goods or services.
(2) Despite subsection (1), conduct involving differential treatment
of purchasers in terms of any matter listed in paragraph (c) of
that subsection is not prohibited price discrimination if the
dominant firm establishes that the differential treatment—
(a) makes only reasonable allowance for differences in cost
or likely cost of manufacture, distribution, sale,
promotion or delivery resulting from the differing
places to which, methods by which, or quantities in
which, goods or services are supplied to different
purchasers;
(b) is constituted by doing acts in good faith to meet a price
or benefit offered by a competitor; or
(c) is in response to changing conditions affecting the
market for the goods or services concerned, including—
30
(i) any action in response to the actual or imminent
deterioration of perishable goods;
(ii) any action in response to the obsolescence of
goods;
(iii) a sale pursuant to a liquidation or sequestration
procedure; or
(iv) a sale in good faith in discontinuance of business
in the goods or services concerned’.
52 The prohibitions in s 8, as are those in s 9 of the Competition Act, depend
upon a showing that the firm concerned is dominant in a market. The relevant
market in which the firm is alleged to be dominant must be proved by means
of relevant evidence. This often requires an analysis by expert economists of
the relevant evidence as to what the relevant market is. It is not a matter
which can easily be determined solely by reference to the evidence of lay
witnesses and/or the relevant statutory provisions and/or relevant documents.
53 In terms of s 7 of the Competition Act, dominance is determined as follows –
‘7. Dominant firms
A firm is dominant in a market if –
(a) it has at least 45% of that market;
(b) it has at least 35%, but less than 45%, of that market, unless it
can show that it does not have market power; or
(c) it has less than 35% of that market, but has market power’.
31
54 ‘Market power’ is defined in s 1 of the Competition Act to mean ‘the power
of a firm to control prices, or to exclude competition or to behave to an
appreciable extent independently of its competitors, customers or suppliers’.
55 Analysis of the provisions of s 8
55.1 Section 8(a) and (b) describe per se abuses. In respect of these two
sections there is no requirement to prove an anti-competitive effect. The
offences described in s 8(a) and 8(b) are presumed to embody anti-
competitive consequences. However, s 8(c) and 8(d) require that both
the elements of the exclusionary act and its alleged anti-competitive
effect are proved in order to undertake the balancing required by the pro-
competitive defence that is permitted in respect of these exclusionary
acts, but which is not provided for in respect of the conduct described in
s 8(a) and 8(b).’13
55.2 In order to prove a contravention of s 8(a), it must be shown that a firm
charges an excessive price to the detriment of consumers.
55.3 An ‘excessive price’ is defined as follows in s 1 of the Competition Act–
‘(ix)‘excessive price’ means a price for a good or service which –bears
no reasonable relation to the economic value of that good or service;
and is higher than the value referred to in sub-paragraph (a)’. 13 Mandla-Matla Publishing (Pty) Ltd v Independent Newspapers (Pty) Ltd [2006] 2 CPLR 499 (CT) para 78.
32
55.4 Although s 8(a) suggests that both the excessive price and the detriment
to consumers must be proved, the Tribunal has warned against such an
overly fastidious interpretation of the section. Detriment to consumers is
almost presumed to result from the charging of an excessive price.14
55.5 The contravention of excessive pricing is treated with great repugnance,
which is reinforced by the fact that an administrative penalty can be
levied for a first time contravention.15
55.6 The refusal of an essential facility in s 8(b) must be to a competitor of
the allegedly dominant firm. In other words, the complainant and the
dominant firm should be competitors.
14 Harmony Gold Mining Company Ltd and another v Mittal Steel South Africa Ltd and another, case number 13/CR/FEB04 para 71:
‘[71] An overly fastidious defence counsel may wish to make something of the phrase ‘to the detriment of consumers’ though none have attempted to do so here. What, after all, could more clearly inure to the detriment of consumers than an ‘excessive price’? We will, without further consideration, as, implicitly, have the defence counsel, treat this phrase as simply a superfluous description of an excessive price rather than a qualifier of its likely effects. ...
[84] If we are to approach this allegation in the manner of a competition authority, we must first ask ourselves whether the structure of the market in question enables those who participate in it to charge excessive prices. As we will indicate, we believe this to be a significantly higher hurdle than those that must be cleared in order to establish ‘mere’ dominance. It requires ‘super-dominance’, a structural condition the characteristics of which are elaborated below. If that higher hurdle is cleared, we must then ask ourselves whether Mittal Steel SA has engaged in conduct designed to take advantage of – to ‘abuse’ – those structural opportunities by imposing excessive prices on its customers. If the second question is also answered in the affirmative, the excessive pricing must be proscribed by imposing a remedy which addresses the underlying structural basis for the offending conduct and/or any ancillary conduct arising from the structural advantage that enables the firm in question to charge a price in excess of that which would have prevailed in the absence of the anti-competitive structure and/or the ancillary conduct.14 Only if both forms of these remedies are impossible to devise should an actual price level be specified. In short, we treat excessive pricing as a phenomenon that may arise from a particular structure and that itself may be the basis for ancillary conduct that is utilised in order to sustain supra-competitive prices, to sustain, as per the definition of the Act,
‘a price for a good or service which (aa) bears no reasonable relation to the economic value of that good or service; and (bb) is higher than the value referred to in subparagraph (aa)’.’
15 Harmony Gold Mining Company Ltd and another v Mittal Steel South Africa Ltd and another, Case number 13/CR/FEB04 para 72.
33
55.7 Section 1 of the Competition Act defines an essential facility to mean
‘an infrastructure or resource that cannot reasonably be duplicated, and
without access to which competitors cannot reasonably provide goods or
services to their customers’.
55.8 An exclusionary act for purposes of s 8(c) is defined in s 1 of the
Competition Act to mean ‘an act that impedes or prevents a firm
entering into, or expanding within, a market’.
55.9 The Commission has to prove that the dominant firm has engaged in an
exclusionary act and that such an act has the effect of impeding or
preventing a firm from entering into or expanding in the relevant market.
56 An analysis of the provisions of s 9
56.1 The Commission has to prove the following against a dominant firm to
succeed in terms of s 9 –
56.1.1 the existence of the price discrimination by the dominant firm;
56.1.2 that the discrimination is likely to have the effect of substantially
preventing or lessening competition in a market;
56.1.3 that the price discrimination relates to the sale, in equivalent
transactions, of goods or services of like grade and quality to different
purchasers;
34
56.1.4 that the discrimination involves discriminating between those
purchasers in terms of any of the aspects referred to in s 9(1)(c)(i) to
(iv).
56.2 In relation to the likelihood of substantially preventing or lessening
competition, the CAC has given guidance as to what is to be proved in
the following manner:
‘Once a supplier has been proved to be dominant in the market and
engages in discriminatory pricing practice, the test is whether there is a
‘reasonable possibility’ that competition may be adversely affected by
a practice under which the dominant firm sells its goods at a cheaper
price to some customers at the expense of others …’16
The complaint against Telkom falls within the provisions of the above sections of
the Competition Act and it is in respect of conduct that Telkom perpetrates in
the exercise of a discretion; and/or which is not authorised by the Telecoms Act,
any regulations or Telkom’s licence
57 The gist of the complaint against Telkom
57.1 Telkom is a holder of a licence to provide both Public Switched
Telecommunications Services (‘PSTS’) and Value Added Network
16 Sasol Oil (Pty) Ltd v Nationwide Poles CC [2006] 1 CPLR 37 (CAC) at 51.
35
Services (‘VANS’).17 Telkom provides a range of VANS and services
or products that compete with VANS.18
57.2 The complainants that referred complaints to the Commission which
form the subject matter of this application are holders of VANS licenses
in terms of the Telecoms Act.19 They therefore compete with Telkom in
the provision of VANS and are thus in a horizontal relationship to
Telkom as contemplated in the Competition Act.20
57.3 The essence of the complaints by the complainants against Telkom is
that within the market for the provision of telephony services Telkom
abused its dominance in contravention of the Competition Act by:
57.3.1 refusing to provide backbone and access facilities to certain VANS
providers to construct their VANS networks unless they provided
confirmations to Telkom that they would use the facilities in
accordance with Telkom’s interpretation of the Telecoms Act and
their licenses as to the boundaries of VANS; 17 Annexure ‘BMN7’ to FA p 104. ‘VANS’ is defined as follows in the Telecoms Act:
‘a telecommunication service provided by a person over a telecommunication facility, which facility has been obtained by that person in accordance with the provisions of section 40(2) of the Act, to one or more customers of that person concurrently, during which value is added for the benefit of the customers, which may consist of –
(a) any kind of technological intervention that would act on the content, format or protocol or similar aspects of the signals transmitted or received by the customer in order to provide those customers with additional, different or restructured information;
(b) the provision of authorised access to, and interaction with, processes for storing and retrieval of text and data;
(c) managed data network services’.
18 CRA para 3.2 p 69.
19 CRA para 4 p 71.
20 Section 1(1)(xiii) of the Competition Act.
36
57.3.2 refusing to peer with AT & T, the fourth complainant, and also
refusing to provide facilities that would enable Satellite Networks
(Pty) Ltd (‘SND’) to peer with AT & T (‘peering’ entails a pooling of
services so that each participant in the scheme can utilise the pooled
facilities without charge);
57.3.3 refusing to lease access facilities to VANS providers directly and
insisting on VANS providers acting as agents of their customers in
leasing access facilities from it;
57.3.4 charging more for telecommunication facilities, which connect to the
networks of other VANS providers, than it charges for the same
facilities, which connect to its own competitive VANS networks;
57.3.5 charging other VANS providers and/or their customers for two sets of
end connections (which consist of network terminating units
(‘NTUS’), local leads and Diginet Ports) for a Diginet circuit whilst it
charges its customers for one set only; and
57.3.6 bundling data conveyance, which the complainants contend falls
within the scope of VANS, and voice services in terms of its PSTS
licence, which it is contented creates a service that VANS providers
cannot provide as they are prohibited from the carrying of voice until
a date to be fixed by the Minister by notice in the Gazette (‘the
bundling complaint’).
37
57.4 The Commission investigated the complaints and then resolved to refer
all the complaints except the bundling complaint.21
57.5 The telecommunication facilities to be obtained from Telkom include
leased lines, whether these lines were part of the core network of the
VANS licensees or access lines to their customers.22
57.6 The Commission contends that Telkom is improperly exploiting its
statutory monopoly by the manner in which it provides
telecommunication facilities to VANS licensees. The impropriety
constitutes an abuse of market dominance within the contemplation of
Part B of Chapter 2 of the Competition Act.
57.7 In order to establish this contention, the Commission sets out the
contentions it advances in order to establish and prove:
57.7.1 the nature and scope of the applicable market;
57.7.2 the basis upon which it is right to conclude that Telkom is dominant
in the market;
57.7.3 the nature of the statutory abuses Telkom is alleged to be committing
and the reasons why they constitute such an abuse.23
21 CRA para 7 p 77.
22 Telkom SA Ltd/Business Connexion Group Ltd [2007] 2 CPLR 433 (CT) para 98.
23 CRA para 10 p 82.
38
57.8 The functional market within which Telkom’s conduct is to be assessed
is the market for the provision of VANS services and services that
compete with VANS. This market constitutes a discrete and separate
division of the telephony market (that is, in terms of the Telecoms Act as
it existed at the time of the referral). In part this is because no one can
provide these services unless they do so under licence granted by the
state; and in part it is because of the nature of the services being
rendered, which are distinct from other telephony services, such as the
transmission of voice. This market can be broken down into two
segments or sub-markets.
57.8.1 The first is the upstream telecommunications market for the supply of
telecommunications facilities (i.e. backbone and access facilities) to
VANS licensees. This market segment or sub-market is statutorily
created by the scheme of licensing which made one player, Telkom,
the exclusive supplier of such services.
57.8.2 The second comprises the residue and can be considered as a
downstream market for the supply of VANS and competing
services/products. In this market Telvans competes with VANS
providers such as the complainants.
57.9 The above market definition is consistent with the segmentation of the
relevant market(s) that the Tribunal found to exist in the Telkom SA
39
Ltd/Business Connexion Group Ltd merger (which it prohibited).24
57.10 The geographic scope of the markets, both general and sectoral, is the
whole of South Africa. Telkom and the other VANS providers,
including the complainants, are licensed to provide telecommunications
services, including VANS, in South Africa. The telecommunications
facilities that the VANS providers require from Telkom are for purposes
of providing VANS to South African consumers of VANS.
57.11 In relation to the question of dominance, the Commission submits the
following in the complaint referral to the Tribunal:
‘12.2 Dominance in the segmentalized markets
12.2.1 Telkom, being a monopolist protected by statute in the
provision of telecommunications facilities to VANS
licensees, is by definition dominant in the upstream
market sector referred to above [i.e. the market for the
provision of telecommunication facilities to VANS
licensees]. There is no other participant in this market
and its position of dominance is absolute.
12.2.2 Dominance in the upstream market gives Telkom and
thus Telvans market power in the downstream sector.
This market power is sufficient to make Telvans
dominant in the downstream sector as well. By
threatening to withhold telecommunications facilities or
subject the provision of these facilities to constraints
24 Telkom SA Ltd/Business Connexion Group Ltd [2007] 2 CPLR 433 (CT) para 92 and following.
40
and conditions, Telvans can shape the conduct of its
competitors.’25
57.12 It is common cause that until December 2005 when Neotel was licensed
to provide PSTS, Telkom enjoyed a statutory monopoly as the sole
holder of a PSTS licence. It was the only entity that could provide
telecommunication facilities to VANS licensees.26
57.13 A de facto monopoly by Telkom in the upstream market for the
provision of telecommunication facilities was found by the Tribunal to
continue to exist even after the licensing of Neotel.27
25 CRA p 85.
26 FA para 36.1 p 24; AA para 59 p 373; RA para 100 p 391.
27 Telkom SA Ltd/Business Connexion Group Ltd [2007] 2 CPLR 433 (CT). We quote extensively from what the Tribunal said on the issue:
‘Infrastructure market (ECNS)
[97] The first layer consists of the upstream market for the supply of telecommunications infrastructure. The basic components of a fixed line telecommunications network infrastructure are the access segment, which connects a business premise to a local exchange (POP), the back-haul to the metropolitan switching centre and the trunk segment, which provides long distance connectivity between POPs, including the international trunk. The access segment, which connects the customer to the nearest exchange, is also referred to as ‘the last mile’. Leased lines are used by MNS providers in order to construct their networks and access lines for their clients to connect to the nearest POP. If the MNS provider did not own a network, leased lines were used by their customers to construct a WAN.
[98] Until May 2002, Telkom, a public switched telephone network (‘PSTN’), was the de jure monopoly supplier of infrastructure and leased lines to the industry. All operators and MNS providers that relied on connectivity for rendering services to their clients were obliged to obtain their leased lines from Telkom, whether these lines were part of their core network or access lines. Telkom also provided national and international voice and data services. ...
[101] Neotel a competitor to Telkom, was licensed in 2006 and enjoys the same rights as Telkom does to provide wholesale and retail infrastructure services, leased lines for access and traditional voice and data services. However, despite Neotel’s entry into the market, it seems common cause between the parties, except for Gadlex, that Telkom is still de facto the monopoly provider of fixed telecommunications infrastructure in South Africa.
[102] Dr Federico, the merging parties’ expert, testified that he had assessed this transaction on the basis that Telkom had a near monopoly position in PSTS and he had placed no emphasis on the role of Neotel. He was also of the view that Telkom had significant market power and enjoyed dominance in the markets relevant to this transaction. Even Telkom itself is confident that Neotel will only be able to
41
57.14 As Telkom remains the de facto monopoly provider of the relevant
telecommunication facilities, a VANS licensee (in terms of the
Telecoms Act),28 whether an existing player or a new entrant, has to rely
on Telkom, its major competitor, to provide it with an essential input.29
57.15 The Commission’s contention that dominance in the upstream market
gives Telkom market power in the downstream sector, i.e. for VANS, is
supported by the findings on the likely effects of the proposed Telkom
SA Ltd/Business Connexion Group Ltd merger.30 This market power is
take 10% of its market share. By inference, Telkom anticipates that at the end of the next five years, it will still have 90% of the fixed line market. ...
[106] Hence, even though Neotel’s licence entitles it to provide leased lines to any operators or downstream firms it has been unable to do so. Contrary to Dr Mohapi’s contention that Neotel represents a substantial potential competitor to Telkom, Neotel itself does not regard itself as a formidable competitor to Telkom in the future. According to its business plan, Neotel expects to gain only between 8% and 9% of Telkom’s market share within the next five years. Initially it was projected that Neotel would grow its market share to 10% within five years but in light of the many regulatory delays and its slow entry this will not be achieved. ...
[109] Adequate and appropriate service level agreements which consist of performance obligations and warranties in relation to network reliability, downtime, repairs, etc are crucial for large organisations, in order to ensure that their data is being managed to the requisite standard.
[110] Both Mr Brierley and Mr Wilcocks stated that apart from Telkom they have not been able to find an alternative source of fixed leased lines together with appropriate SLAs, whether these be from Neotel or PTNs and mobile operators. ...
[113] Hence, from a supply side of fixed line infrastructure, there is literally no other provider, apart from Telkom, that can provide leased lines with appropriate SLAs to the downstream MNS providers.’ (Footnotes omitted)
28 The licensing regime changes under the ECA.
29 See also Telkom SA Ltd/Business Connexion Group Ltd [2007] 2 CPLR 433 (CT) para 249.
30 Telkom SA Ltd/Business Connexion Group Ltd [2007] 2 CPLR 433 (CT) paras 259-270. In paragraphs 268 to 270 the Tribunal said the following:
‘[268] Its attitude to competition from MNS rivals is also discernible in its high level internal documents where it records that it seeks to remove arbitrage opportunities and to defend its margins in its core markets, infrastructure and voice, and seeks to eliminate competition from independent ISPs. Defending a margin necessarily means ensuring its continuity as before or regaining it from rivals to whom it may have initially lost some market share. Telkom’s entire business plan envisages an extension of Telkom’s monopoly in the new environment but especially so in its core markets, namely infrastructure and voice in the middle to large enterprise segment of its business. Telkom can only do this by, in the immediate term, gaining customers from its rivals, increasing barriers to entry and expansion for rivals, and in the future raising prices of the VPN services to its customers.
42
sufficient to make Telkom dominant in the downstream sector as well.31
By threatening to withhold telecommunications facilities or subject the
provision of these facilities to constraints and conditions, Telkom can
shape the conduct of its competitors.
57.16 There can therefore be no debate that the requirement to show
dominance in the relevant markets in terms of s 7 of the Competition Act
is satisfied in the referral by the Commission. The allegations that the
Commission relies upon in this regard will be supported by lay and
expert evidence at the hearing before the Tribunal.
57.17 The only remaining real issue as regards the application of the
Competition Act to the conduct complained of is whether the alleged
conduct falls within the provisions of sections 8(a), (b), (c), (d)(i) and 9
of the Competition Act. If it does (as the Commission submits), i.e. if
the allegations against Telkom once proved could constitute
contraventions of these sections, the Competition authorities would have
jurisdiction, unless it can be shown (which the Commission submits
[269] Customers on Telkom’s VPN are unlikely to switch from it in the event of a non-transitory increase in VPN prices post merger, whether this be for the network, leased lines or the component services such as VoIP, because there would be no credible competitors to Telkom in the infrastructure market, limited competition in the MNS market, high barriers to entry in the MNS market and high switching costs for the customer. In addition, because of the likely occurrence of network effects in this market, customers would be reluctant to switch to a smaller but equivalent provider. Countervailing power, if any, on behalf of customers in the face of such dominance and lack of suitable alternatives is negligible.
[270] Hence this merger is likely to result in higher prices for the consumer and a stifling of innovation. It is also likely to lead to the exiting of smaller MNS rivals or limit the expansion of existing rivals due to network effects and increased barriers.’ (Footnotes omitted)
31 See also the EC Notice Part II – Relevant Markets; Part III – Principles – (1) Dominance (Article 86), (2) Abuse of dominance, (2.2) Other forms of abuse.
43
cannot) that the alleged contraventions relate to conduct which Telkom
is obliged by the Telecoms Act, regulations promulgated under it or its
licence to engage in. At best for Telkom, ICASA enjoys concurrent
jurisdiction with the Commission and the Tribunal in respect of the
alleged conduct.
57.18 The Commission submits that Telkom is improperly exploiting its
market power in the ways dealt with below. Telkom can act as it does
because it enjoys a monopoly on the provision of backbone and access
facilities. But for this market power, it would not be able to conduct
itself in the way it does.
57.19 Telkom is accordingly exploiting its power as a dominant actor in the
market and the sectors of the market outlined above. These exploitative
acts, taken separately alternatively taken conjunctively, constitute an
abuse of a dominant position within the contemplation of the sections of
the Competition Act.
58 We turn to deal with each alleged contravention.
59 The first alleged contravention: Contractual restrictions governing the
provision of backbone and access facilities
59.1 Telkom obliges VANS licensees to conclude standard-form contracts for
the supply of the requisite backbone and access facilities that contain
44
limitations on the services the licensee can offer potential users. Telkom
refuses to provide the facilities in question unless the licensee concludes
the contract and thereby submits to the constraints it prescribes. Since
the licensees cannot operate without these facilities and must obtain
them from Telkom, the monopoly supplier, they have no choice but to
subject themselves to Telkom’s dictates by concluding the contracts.
59.2 The contractual provisions that Telkom imposes oblige the licensees
inter alia not to:
59.2.1 provide a private network or private network facilities to any of their
customers, whether to a single customer or in shared mode to more
than one customer;
59.2.2 resell spare capacity thereon, or sublet the facilities to any of their
customers in any manner or form as part of a telecommunication
network on which switched services are provided to their customers;
59.2.3 carry voice on behalf of any customer;
59.2.4 utilize its facilities for the conveyance of data signals between
different premises of any single customer or to connect different
customers to each other, other than through Telkom’s Public
Switched Telecommunication Network (‘PSTN’); and/or
59.2.5 bypass Telkom’s PSTN, i.e. to receive a data signal from a customer
45
and allow that signal to break out of the VANS provider’s private
network at any place or point other than at the first point of entry to
the VANS provider’s private network.32
59.3 Examples of the letters containing the above confirmations that Telkom
requires from VANS licensees as a condition to providing them with
backbone and access facilities for the construction of their VANS
networks are annexed to the referral affidavit.33 Telkom does not contest
the letters and stipulations that they contain. It seeks to justify them.
59.4 Telkom seeks to justify this restrictive practice by arguing that the
contractual terms simply reflect the obligations that are statutorily
imposed in terms of the Telecoms Act and regulations made pursuant to
the statute.34
59.5 The VANS licensees dispute the statutory construction contended for.
They say that the protections given by law are by no means as broad as
those that Telkom seeks contractually to impose. As a matter of
substance, Telkom is, to the extent that it is right, imposing restrictions
on the service VANS licensees can offer to potential users in order to
enlarge its returns in the telephony market generally and the market for
VANS and competing services/products.
32 CRA para 14 p 86.
33 CRA para 14.2 p 88.
34 FA paras 56.2 and 56.3 pp 35-6.
46
59.6 The Commission’s principal submission on the application of the
Competition Act to the alleged contravention is that the complaint does
not concern obligatory conduct in terms of the Telecoms Act, any
regulations promulgated under it or its licence.
59.7 Whereas Telkom is required by section 44(2) of the Telecoms Act to
make telecommunications facilities available ‘pursuant to an agreement
entered into between the parties’, the Telcoms Act does not prescribe
and/or oblige Telkom to include in such agreement any specific terms
and conditions. The terms and conditions are within Telkom’s discretion
and are subject to compliance with relevant law – in this case the
Competition Act.
59.8 The Commission’s second submission is that Telkom’s conduct
complained of cannot be justified even if the corporation is right in the
construction it places on the law. The enforcement of the law is
entrusted to ICASA in terms of the provisions of s 44(3) read with s
43(1) of the Telecoms Act and operates within the compass of the statute
and regulations. These provisions (read with section 100 of the
Telecoms Act) provide for the manner in which infringements should be
prosecuted and the penalties that can properly be imposed for infractions
of the legislation.
59.9 Even ICASA and the South African Telecommunications Regulatory
47
Authority (‘SATRA’, ICASA’s predecessor) have taken up the same
position in their rulings, i.e. that Telkom could not play the role of
regulator and determine when requests for telecommunication facilities
by VANS providers are unreasonable and/or unlawful.35 It is of course
correct that such rulings were the subject of High Court review
applications decided in favour of Telkom, but the basis on which they
were set aside was purely procedural.
59.10 The Commission’s third submission is that, in any event, the contractual
stipulations by Telkom go beyond Telkom’s rights under the Telecoms
Act and its licence.
59.11 Telkom’s requirement that VANS licensees conclude the standard terms
contract goes beyond Telkom’s rights under sections 43 and 44 of the
Telecoms Act. In particular, such a requirement is not premised on
Telkom contending that a request by VANS providers for
telecommunication facilities is unreasonable as contemplated in sections
43 and 44 of the Telecoms Act. Properly construed, the requirement is
based on an apprehension by Telkom that in its opinion VANS providers
are likely to use the telecommunication facilities for an illegal purpose.
Not only is such an apprehension or opinion without a basis, it is also
not an opinion that Telkom is entitled to form and act upon by refusing
to provide telecommunication facilities. It is an opinion which only
35 CRA paras 15.3.1.1-15.3.1.2 p 89.
48
ICASA is entitled to form and to act upon as contemplated in paragraph
13.4.3(c) of Telkom’s licence.36
59.12 In relation to the provisions of the Telecoms Act that Telkom relies
upon, the Commission makes the following submissions –
59.12.1 Section 41(2)(b) of the Telecoms Act permit inter alia a private
telecommunication network provided by means of a
telecommunication system situated on a single piece of land or
contiguous pieces of land owned by the same person.
59.12.2 It is not correct that s 40(4)(a) prohibits under all circumstances the
provision of a PTN by a VANS provider, in the sense of the VANS
providers’ PTN being used by a customer in the course of receiving a
VANS service. It prohibits the VANS provider from ceding or
assigning its rights to telecommunication facilities provided by
Telkom, or subletting any part or control, or otherwise disposing, of
such telecommunication facilities.
59.12.3 Section 40(4)(b) of the Telecoms Act specifically provides that the
provisions of s 40(4)(a) shall not prevent the due and proper use of
such telecommunication facilities by the customers of such person, in
the course of utilising the service in question, i.e. the VANS.
59.12.4 The significance of s 40(4)(b) is that the contractual restriction in
36 Telkom Licence para 13.4.3 p 151.
49
paragraph 14.1.2.1 of the referral affidavit37 is overbroad and is not
authorised by the Telecoms Act when it obliges, in unqualified terms,
VANS providers not to ‘provide a private network or network
facilities to any of their customers, whether to a single customer or in
shared mode to more than one customer’. (Emphasis added)38
59.12.5 Neither s 40(4)(a) of the Telecoms Act nor does paragraph 2.5(b) of
Telkom’s licence deal with the resale of spare capacity by VANS
providers. The contractual restriction referred to in paragraph
14.1.2.2. of the referral affidavit goes beyond the Telecoms Act and
the Telkom licence in this sense.39
59.12.6 Section 36(A)(h) of the Telecoms Act, which Telkom relies upon
plainly does not deal with the contractual restriction imposed by
Telkom against VANS licensees not to ‘utilize [their] facilities for the
conveyance of data signals between different premises of any single
customer’. It only deals with the provision of telecommunication
circuits for links between sites of the same operator or multiple
operators.
59.12.7 It is submitted that the broad restriction in paragraph 14.1.2.4 of the
37 CRA p 87.
38 AA para 81 p 383.
39 AA para 85 p 385.
50
referral affidavit40 is the clearest example of Telkom abusing its
dominance to further increase its monopoly in a manner that
contravenes chapter 2 of the Competition Act.41 Telkom does not
seriously contest this submission in its replying affidavit.42
59.12.8 VANS licensees intend to carry on a VANS service. There is no
evidence to gainsay this. On the contrary, Telkom effectively
concedes that VANS licensees are entitled to utilise the
telecommunication facilities provided by Telkom ‘for the conveyance
of data signals between the different premises of any single customer’
when they render a VANS service, conduct which is specifically
prohibited by the contractual restriction referred to in paragraph
14.1.2.4 of the referral affidavit.43 It is thus not correct for Telkom to
contend that conduct referred to in paragraph 14.1.2.4 of the referral
affidavit in the referral ‘falls squarely within the exclusive domain of
Telkom’.44
59.12.9 Telkom is compelled to concede that VANS licensees are entitled to
convey data signals when they render VANS. The contractual
restriction in paragraph 14.1.2.4 simply does not recognise this right
and seeks to take it away from VANS licensees. The restriction 40 CRA p 87.
41 AA para 90 p 387.
42 RA para 124 p 497.
43 CRA p 87.
44 AA para 91.2 p 388; FA para 62.2 p 40; RA para 124 p 497.
51
referred concerns the utilisation of telecommunication facilities
provided by Telkom to the VANS licensees. Section 41(2)(a) of the
Telecoms Act is irrelevant.45
59.12.10 Section 41(7) deals with a telecommunication which originates in
Telkom’s system and which is intended to be received in that system.
It by no means confers on Telkom the authority to impose the
restriction referred to in paragraph 14.1.2.5 of the referral affidavit.46
Telkom is conferring further rights to itself and abrogating ICASA’s
regulatory authority.47
59.12.11 It is significant to point out that whereas Telkom has sought to
address all the contractual restrictions referred to in paragraph 14.1.2
of the Commission’s referral affidavit, it has not sought to address the
restriction referred to in paragraph 14.1.2.3 which,48 in very broad
terms prohibits VANS licensees from carrying voice on behalf of any
customer, whether in a PTN or otherwise. Section 41(4) of the
Telecoms Act provides that a PTN shall not be restricted to the
carrying of voice only or data only or to any other such limited use.49
59.13 Furthermore, by embodying the legal restrictions in contract, which in
45 AA para 93.2 p 388; FA para 62.6 p 42.
46 CRA p 87.
47 AA para 95.2 p 389.
48 CRA p 87.
49 AA paras 95.2 and 95.3 p 389.
52
material respects exceed its rights under the Telecoms Act and in terms
of its licence, Telkom obtains the benefit of a private action in civil law.
Contractual remedies, such as a refusal to perform in the face of an
actual or threatened breach (the exceptio non adimpleti contractus) or by
way of damages, can now be vindicated in the courts of civil
jurisdiction. In effect Telvans superimposes a second layer of
protections on those that are granted to it under its statutory monopoly.
They travel well beyond the protections that the enactments envisage.
59.14 For the reasons also set out in paragraphs 15.3 and 15.4 of the referral
affidavit,50 Telkom is not actually authorised by the provisions of the
Telecoms Act or its licence to conduct itself in the manner described.
We submit, in any event, that the issue of authorisation is not
dispositive, and is in fact irrelevant, when the contractual stipulations
that Telkom seeks to impose are not obligatory in terms of the Telecoms
Act, any regulations or its licence – but fall within its discretion.
59.15 Telkom’s conduct constitutes a contravention of chapter 2 of the
Competition Act, and the Commission and the Tribunal have authority
and competence to deal with such conduct. It is not conduct which falls
within the exclusive authority of ICASA.51
59.16 The facilities we are concerned with, and which the VANS licensees
50 CRA pp 89-92.
51 AA para 78 p 381.
53
seek from Telkom, are essential facilities within the meaning of s 1(viii)
of the Competition Act since VANS licensees cannot supply a service
without them.52 There is no legitimate reason why Telkom should make
the provision of these facilities conditional on submission to the very
broad terms; at the very least, it is certainly economically feasible for
Telkom to provide the facilities without imposing the conditions. This
exploitation accordingly constitutes an abuse of its dominant position
within the contemplation of s 8(b) of the Act and so a contravention of
the section.
59.17 Telkom’s conduct in requiring acceptance of these terms and policing
their enforcement constitutes an exclusionary act within the
contemplation of s 1(x) of the Competition Act. This conduct limits the
capacity of VANS licensees to expand their penetration of the market,
and this is so even if the terms are no more than a faithful reproduction
of what the statutory enactments prohibit (which is not so). The terms 52 EC Notice paras 87 and 88 state the following:
‘Essential facilities
87. As to the second of the above situations, the question arises as to whether the access provider should be obliged to contract with the service provider in order to allow the service provider to operate on a new service market. Where capacity constraints are not an issue and where the company refusing to provide access to its facility has not provided access to that facility, either to its downstream arm or to any other company operating on that service market, then it is not clear what other objective justification there could be.
88. In the transport field [footnote omitted], the Commission has ruled that a firm controlling an essential facility must give access in certain circumstances [footnote omitted]. The same principles apply to the telecommunications sector. If there were no commercially feasible alternatives to the access being requested, then unless access is granted, the party requesting access would not be able to operate on the service market. Refusal in this case would therefore limit the development of new markets, or new products on those markets, contrary to Article 86(b), or impede the development of competition on existing markets. A refusal having these effects is likely to have abusive effects.’ (Emphasis added)
54
have no countervailing efficiency benefits. Even if Telkom were to
claim any technological, efficiency and/or other pro-competitive gain,
the anti-competitive effects of Telkom’s exclusionary conduct would
outweigh such technological, efficiency or other pro-competitive gain.
Accordingly, Telkom’s imposition and enforcement of the terms referred
to above produces a contravention of s 8(c) of the Act.
59.18 At best for Telkom, the competition authorities and ICASA enjoy
concurrent jurisdiction to deal with the alleged contravention.
60 Second alleged contravention: Refusal to lease access facilities directly to
VANS licensees
60.1 Until September 1999, Telkom leased access facilities to VANS
providers directly, but since that time it has refused to enter into such
leases. Its current attitude is that the facilities must be hired by the
customers of the VANS licensees. The VANS licensees at best can
operate only as the agents of their customers.53
60.2 Telkom refuses to lease access facilities to VANS licensees out of an
apprehension that the licensees will use the facilities for an unlawful
purpose, i.e. facilitating the illegal use of the facilities by permitting the
53 CRA para 16.1 p 92.
55
VANS licensees to operate a private network.54
60.3 The Commission’s principal submission is that the alleged contravention
does not concern obligatory conduct in terms of the Telecoms Act, any
regulations promulgated under it or Telkom’s licence. It concerns
conduct in respect of which Telkom exercises a discretion – it can
choose to lease facilities directly to VANS licensees, as it has done
previously, or lease them directly only to the customers of the VANS
licensees, as it currently insists.
60.4 The Commission’s second submission is that Telkom’s contention that
the refusal is justified in that the provision of telecommunication
facilities directly to the VANS licensees would facilitate the illegal use
of the facilities by permitting the VANS to operate a private network
because it would make it possible for them to provide a PTN other than
through the PSTS supplied by Telkom –
60.4.1 has no factual and/or legal basis; and
60.4.2 usurps the authority of ICASA as envisaged also in paragraph
13.4.3(c) of Telkom’s licence – it is only ICASA which is entitled to
form such an opinion and to act upon it, and not Telkom.
60.5 There is no evidence in Telkom’s founding affidavit which justifies the
contention that VANS licensees wish to provide their VANS services in
54 FA para 64.7 p 44.
56
contravention of s 40(2) of the Telecoms Act. Even if such evidence
was available, it would be for Telkom to submit it to ICASA in
accordance with the provisions of s 100 of the Telecoms Act, and not for
Telkom to usurp the functions of ICASA and to act in an anti-
competitive manner in contravention of chapter 2 of the Competition
Act.55
60.6 Telkom’s refusal to grant such leases to VANS licensees produces
significant anti-competitive effects in the downstream market.
60.7 Telkom recognizes that, by contracting with the customers direct, it can
monitor their conduct and effectively call them to account. It considers
that scrutiny of the VANS licensees is likely to be much less effective.
60.8 Customers who obtain their VANS from a private VANS licensee have
the administrative burden of, and the cost associated with, dealing with
two telecommunications service providers, namely Telkom and the
VANS provider. This is not just wasteful, but also discriminatory, since
Telkom does not require its own VANS provider (and competitive
services/products) and its customers to subscribe to the same regime, but
contracts or otherwise deals with it direct.
60.9 Before September 1999, when VANS providers leased facilities directly
from Telkom, the relocation of an access facility from one customer to
55 AA para 101 p 391.
57
another cost the VANS provider the price of an outdoor transfer. Now
that the customer leases the facility, relocation can only be effected by
the cancellation of the one installation and the establishment of a second.
This process is much more expensive and time-consuming and
consumers suffer significantly in consequence.
60.10 Since Telkom has direct access to the customers of private VANS
licensees, it can compile, collate and exploit information provided by
them. Telkom’s credit-vetting requirements, which must perforce be
more complex and intrusive now that so many customers have to be
screened, oblige VANS consumers to provide information in
considerable detail. The information so garnered, once collated, gives
Telkom’s VANS provider (and competitive services/products) a
considerable competitive advantage over private licensees.56
60.11 Copies of letters from attorneys acting for some of the complainants, in
particular SAVA, addressed to ICASA and the Commission
respectively, in which the attorneys set out the anti-competitive effects
of Telkom’s refusal to lease access facilities directly to VANS providers,
are attached to the referral affidavit.57
56 CRA para 16.3.1 pp 93-94.
57 CRA, annexures ‘F9’ and ‘F10’, AA para 16.3.2 p 94.
58
61 Third alleged contravention: Price discrimination
61.1 Telkom engages in price discrimination and/or excessive pricing in
contravention of sections 9 and 8(a) of the Act respectively. There are
two aspects to this complaint.
61.2 The first aspect of the complaint is that Telkom provides Diginet and
Diginet-Plus line rental services to customers of Telkom in respect of
services/products that compete with services of private VANS providers
at prices which are cheaper than those charged to private VANS
providers and their customers. Private VANS licensees and/or their
customers pay a charge per kilometre of information transmitted on top
of a flat rate. Telkom’s customers of VANS and competing
services/products, on the other hand, are charged the flat rate by Telkom
for the rental of the lines and, as a result, the charge is significantly
lower.
61.3 The second aspect of the complaint is that Telkom charges its customers
of VANS and competing services/products about half what it charges
private VANS providers and/or their customers for the rental of the end
connections - network terminating units, local leads and Diginet Ports
for a Diginet circuit – that must be acquired in order to obtain access to
VANS and competing services/products. The disparity results from the
fact that Telkom charges private VANS providers and/or their customers
59
for two sets of end connections.58
61.4 The nub of the complaint relates to the prices at which the services are
provided to Telkom’s customers of VANS and/or competing
services/products and those provided to competing VANS providers
and/or their customers. It does not relate to a contention that Telkom
does not make the Diginet and Diginet Plus services available to its
VANS customers or that it refuses to make available the FrameExpress
service to VANS providers and/or their customers.59
61.5 Telkom contends that the Commission’s understanding of the true
factual position is incorrect. It then seeks to justify the differential
treatment in pricing. The nub of its contentions is that the Commission
has got the facts wrong and thus the referral does not have merit. It also
relies on the pricing regulation through ICASA, i.e. that ICASA
approves the tariffs at which it charges, and contends on that basis that
the referral has been wrongly made.60
61.6 The Commission contests Telkom’s assertions and submits that it is
technically false that VANS providers require two sets of Diginet ports
and two sets of local leads. Private VANS providers use high capacity
broadband links to their points of presence and their customers share the
58 CRA para 17 p 95.
59 AA para 106.1 p 396.
60 FA paras 65.4-65.17 pp 46-52.
60
capacity of these links. When a new customer joins the service, the
VANS provider appropriates capacity on the line by a simple
reconfiguration of its software.
61.7 The equivalent result would be achieved if Telkom permitted VANS
providers to co-locate their networks within Telkom’s exchanges. No
second connection is needed under such a system. Telkom does not
permit this.61 This submission by the Commission does not constitute a
re-allocation of access facilities in contravention of the Telecoms Act, in
particular s 45(5)(a)(1) cited by Telkom. It is common cause that no
such section exists and Telkom has not identified the applicable section
in its replying affidavit.62
61.8 The Commission submits firstly that the contentions that its conclusions
underlying the referral are wrong are in fact irrelevant. The test on
review (to the extent that the referral is found to be reviewable on the
wide grounds under PAJA – which the Commission does not concede) is
not whether or not the Commission’s conclusions are wrong. This is not
an appeal.63
61 CRA paras 17.1.3.1-17.1.3.2 p 96.
62 RA para 132.2 p 413.
63 Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Tourism and others 2004 (7) BCLR 687 (CC) para 45.
61
61.9 Whether the Commission’s contentions in paragraphs 17.1.2 and 17.1.3
of the referral64 are right or wrong, or whether they are supported by
evidence, is a matter to be determined by the Tribunal after hearing
evidence in the complaint proceedings. Telkom cannot be permitted to
avoid the complaint proceedings by advancing this contention.
61.10 In any event, the Commission submits that there is a price difference of
about 50% in respect of the relevant facilities provided to Telkom’s
customers as opposed to those provided by Telkom to VANS providers
and/or their customers. It submits further that the Diginet and the
Diginet Plus services provided by Telkom to its customers of VANS
and/or competing services/products and those provided to VANS
providers and their customers are equivalent and/or of like grade and
quality as contemplated in s 9 of the Competition Act.65 The dispute that
exists between the Commission and Telkom in this regard is not one that
can and should be resolved by this Court. It should be resolved by the
Tribunal upon the hearing of evidence. If the dispute should be resolved
by this Court it should, with respect, be resolved on the version put
forward by the Commission in accordance with the Plascon Evans test.66
61.11 Secondly, Telkom can also not avoid the adjudication of the complaint
on the basis that the prices that it charges are approved by ICASA in
64 CRA p 95.
65 AA para 103.2 p 394 and para 105.2 p 395.
66 Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd 1984 (3) SA 633 (A) at 634H-I and 635A-C.
62
terms of the Telecoms Act and its PSTS licence.
61.12 Although Telkom is required by the Telecoms Act and its licence to file
tariffs in respect of its basket of services it is, however, entitled to
discount the prices in the basket of services provided it rebalances the
prices in such a way as not to exceed the approved prices for the basket
of services as a whole. Thus Telkom has scope to discount in such a
way as to disadvantage its competitors for VANS services and impede
and/or prevent them from entering and/or expanding in the market for
the provision of VANS services.67
61.13 It is Telkom’s behaviour of price discrimination, as opposed to the prior
approval of tariffs by ICASA, which is the source of the complaint
against it. The provisions of s 9 of the Competition Act are applicable in
this regard. The approval of the tariffs by ICASA does not preclude the
application of s 9 where it is the autonomous or discretionary conduct of
Telkom that leads to a complaint of price discrimination against it. The
Commission was entitled to investigate and refer the complaint and the
Tribunal is likewise entitled to adjudicate it.
61.14 Section 8(a) prohibits a firm in a dominant position from charging an
excessive price to the detriment of consumers. Since the prices at which
private VANS licensees and/or their customers are being charged are
67 AA para 108 p 397; RA para 140 p 504. Telkom SA Ltd/Business Connexion Group Ltd [2007] 2 CPLR 433 (CT) paras 260-263.
63
higher than the price Telkom charges its customers of VANS and
competing services/products in respect of equivalent goods and services,
the price at which the private licensees and their customers are being
charged is excessive. Telkom has no justifiable rationale for charging the
higher price and it operates to the commercial detriment, not just of the
private VANS licensees, but also of their customers, who must
ultimately carry the burden of the extra charge.
61.15 Section 9 of the Competition Act prohibits price discrimination by a
dominant firm, such as Telkom, if it is likely to have the effect of
substantially preventing or lessening competition.
61.16 The pricing preference, which is discretionary, given by Telkom to its
customers of VANS and/or competing services or products, is price
discrimination within the meaning of s 9 of the Competition Act. It
relates to the sale, in equivalent transactions, of goods or services of like
grade and quality to different purchasers and it involves discriminating
between those purchasers in terms of: the price charged for the goods or
services; any discount, allowance, rebate or credit given or allowed in
relation to the supply of goods or services; the provision of services in
respect of the goods or services; or payment for services provided in
respect of the goods or services.
61.17 By charging the higher prices, therefore, Telkom is abusing its
64
dominance in the markets outlined above in contravention of s 8(a)
and/or s 9 of the Act.
62 Fourth alleged contravention: Refusal to peer
62.1 Peering, it will be recalled, is the process by which communication
facilities are pooled so that each member of the pool may utilize the
facilities of the others free of charge. Peering agreements are typically
concluded between VANS providers if each has substantially the same
volume of traffic since what is lost on the swings is gained on the
roundabouts.
62.2 Telkom willingly peers with some VANS providers, but despite request
refuses to peer with AT&T, the fourth complainant, and refuses to
provide facilities to enable SDN, the fifteenth complainant, to peer with
AT & T. These are VANS providers whose traffic is comparable with
Telkom’s provider of VANS and competing services/products. They can
therefore legitimately expect to be peers with Telkom’s provider of
VANS but Telkom rejects their proposal to peer.
62.3 No justifiable reason is given by Telkom for its obdurate attitude, but it
is generally assumed that Telkom is acting against AT&T in a spirit of
retaliation. AT&T is currently embroiled in a dispute with Telkom
before ICASA over a matter that, at the level of substance, bears no
65
relation to the present problem.68
62.4 The contention advanced by Telkom in its founding affidavit is simply
that the issue of peering is one which falls solely within the technical
competence of ICASA. It alleges that the issue concerns the respective
parameters of the licences and Telkom’s statutory obligations, which
matters the legislature reserved for ICASA.69
62.5 This contention by Telkom does not help it. Peering is a discretionary
matter.
62.6 Whilst the Telecoms Act regulates to whom and under what
circumstances Telkom is to provide telecommunication facilities,
Telkom does not have unconstrained choice in that regard.
Significantly, as a dominant firm, Telkom’s conduct is also subject to
chapter 2 part B of the Competition Act. To this extent the Commission
and the Tribunal have concurrent authority with ICASA to oversee
Telkom’s conduct in the provision of telecommunication facilities.70
62.7 Whatever the reason, the result of Telkom’s stance is that AT&T is
compelled, at considerable cost, to reroute its traffic. This places AT&T
at a considerable disadvantage and makes its VANS uncompetitive.
68 CRA para 18 p 99.
69 FA paras 66 and 67 p 52.
70 AA para 115 p 400.
66
62.8 No countervailing technological, efficiency or other pro-competitive
gain can be invoked to justify Telkom’s refusal to peer. Telkom’s refusal
to peer with AT&T and facilitate its desire to peer with SDN amount to
exclusionary acts in contravention of s 8(c) of the Competition Act and a
refusal to provide access to an essential facility in contravention of s
8(b) of the Competition Act respectively.
63 Conclusions on the contraventions
63.1 For the reasons advanced above, we submit that:
63.1.1 the Competition Act applies to the alleged conduct;
63.1.2 the alleged conduct is prohibited by the relevant provisions of chapter
2 of the Competition Act and if proved would constitute
contraventions of the relevant sections – it does not constitute mere
technical licensing disputes falling within the exclusive jurisdiction of
ICASA;
63.1.3 the alleged contraventions are not obligatory in terms of the Telecoms
Act, any regulations and Telkom’s licence – but relate to conduct
perpetrated by Telkom in the exercise of a discretion;
63.1.4 the relief sought by the Commission before the Tribunal will not
enjoin the complainants to breach the Telecoms Act and their licenses
but will put a stop to abusive conduct by Telkom – in any event,
67
Telkom will have recourse to ICASA in the case that the VANS
providers breach the Telecoms Act and/or their licenses;
63.1.5 in the circumstances, the Commission and the Tribunal have
competence and/or jurisdiction to deal with the complaints.
64 The declaratory relief and the review application must fail for these reasons.
THE JURISDICTION OF THE TRIBUNAL IS TO BE DETERMINED IN TERMS OF THE
TELECOMS ACT AND NOT THE ECA
65 The contention by Telkom in its heads of argument for the first time that the
jurisdiction of the Tribunal should be determined by reference to the ECA is
incorrect.71
66 At the time when Telkom deposed to and filed its supplementary and replying
affidavits the ECA was already in force.72 It failed to raise the provisions of
the ECA in support of its case in any of these affidavits. It is trite that a party
ought to make out its case in its founding affidavits. Since the point now
raised was not taken in the review papers, the Commission has as yet had no
opportunity to respond to it. But, assuming without conceding that it can now
be raised, the Commission submits as follows.
71 Telkom heads para 65.2 p 37.
72 On 19 April 2007 and 31 July 2007 respectively.
68
66.1 The jurisdiction of the Tribunal to consider the complaint referred was
fixed by the law as it stood at the moment when the referral was made,
and such law was the Telecoms Act.
66.2 The question of jurisdiction is to be determined at the commencement of
proceedings. Jurisdiction having thus been established in terms of the
Telecoms Act continues to exist to the end of the complaint proceedings
before the Tribunal even though the ground upon which the jurisdiction
was established may cease to exist (which the Commission does not
concede).73
66.3 In this case the commencement of proceedings before the Tribunal was
the referral of the complaint to it. From that moment on the Tribunal
was seized of the complaint proceedings. Its jurisdiction is to be
determined at the point of the referral, being February 2004 when the
Telecoms Act was in force.
66.4 At most, the ECA can be brought into account only for the purpose of
considering whether relief operating in futuro (an interdict, for example)
should properly be granted. This is a matter entrusted to the decision of
the Tribunal and its decision, if impugnable on the grounds of an
irregularity in failing to take the ECA into account, can only be reviewed
once it is made.
73 Pistorius Pollak on Jurisdiction 2 ed (Juta, Cape Town 1993) at 12 and the authorities referred to at fns 1 and 6.
69
66.5 In any event, the Commission submits that s 67 of the ECA depends for
its effect on the promulgation of regulations;74 and can have no force and
effect until such regulations are promulgated as the regulations are a
necessary jurisdictional requirement for the exercise of jurisdiction by
ICASA.75 No such regulations have yet been promulgated and Telkom
does not suggest otherwise.
66.6 We submit accordingly, with respect, that section 67 of the ECA is of no
help to Telkom.
THE REVIEW UNDER PAJA
67 As submitted above, the Commission investigates and evaluates alleged
breaches of Chapter 2 of the Competition Act. It then refers such alleged
breaches to the Tribunal if it finds that there is evidence of such breaches.
68 The resolution by the Commission to refer alleged breaches to the Tribunal
for adjudication is in the nature of a resolution to institute legal proceedings.
In referring a complaint to the Tribunal the Commission is only instituting the
initial procedural step on the road to a hearing before the Tribunal. Such a
procedural step does not constitute administrative action.76
74 Section 67(2).
75 Special Investigating Unit v Nadasen 2002 (1) SA 605 (SCA) para 15.
76 AA para 21 p 358. See Smith v Kwanonbuqela Town Council 1999 (4) SA 947 (SCA) para 10.
70
69 In this case the relevant resolution of the Commission, acting in terms of s 50
of the Competition Act, records simply that:
‘The Competition Commission has decided to issue a Notice of Referral
…’77
70 Once the alleged breaches are referred to the Tribunal, Telkom will have a full
and fair hearing.
71 A referral to the Tribunal is done on affidavit, customarily accompanied by a
notice of motion which sets out the orders sought. The process is a hybrid
between ordinary action and motion proceedings. After the exchange of
affidavits, there are pre-trial procedures which are then followed by the
hearing of oral evidence. The pre-trial procedures include the exchange of
witness statements. The process is properly regulated by rules and orders of
the Tribunal which ensure a fair hearing. The relevant Tribunal rules are rules
14 to 25.
72 It is only the Tribunal which will make a determination, after hearing all the
parties in terms of the process regulated by its rules and orders, on whether or
not Telkom is guilty of a contravention of the Competition Act. Until the
Tribunal makes a determination against Telkom there is no finding which
77 Record p 1842.
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adversely affects the rights of Telkom or has the capacity to affect such
rights.78
73 Telkom contends that the decision of the Commission to refer the complaint
‘has the capacity to affect Telkom’s rights’ because a referral ‘launches a
plethora of administrative consequences for the person being referred, for
instance, it is compelled to provide evidence under oath, it has to submit its
private business affairs and documentation to the scrutiny of the public and
possibly even its competitors, culminating in a decision (by the Tribunal) on
an administrative penalty.’79
74 All the processes prior to a decision by the Tribunal are not materially
different to any pre-trial procedures that a party has to comply with in court
proceedings. The level of scrutiny by a court in trial proceedings cannot
convert what is in reality a procedural step as set out in Smith’s case80 referred
to above into administrative action that is reviewable under PAJA. The same
applies to the submission of evidence under oath.
75 The decision of the Tribunal stands on a different footing. Such a decision
will constitute administrative action. It is for this reason that Telkom will
enjoy all the safeguards for fair administrative action in the proceedings
before the Tribunal.
78 Grey’s Marine Hout Bay (Pty) Ltd v Minister of Public Works 2005 6 SA 315 (SCA) para 23.
79 Replying Affidavit (‘RA’) para 47 p 474.
80 Smith v Kwanonbuqela Town Council 1999 (4) SA 947 (SCA) para 10.
72
76 It is accordingly submitted that the Commission’s discharge of its
investigative functions, which culminated in a referral of alleged
contraventions of Chapter 2 of the Competition Act against Telkom, does not
constitute administrative action which is reviewable under the wide grounds
of review in s 6 of PAJA. The Commission’s conduct can only be reviewed
and set aside in cases of ill-faith, oppression, vexation or the like. This was
confirmed in Simelane NO and others v Seven-Eleven Corporation SA (Pty) Ltd
and another, in which the Court said clearly that the Commission’s conduct does not
constitute administrative action. 81 PAJA does not alter this position.
77 To the extent that Telkom seeks a review of the Commission’s decision to
refer the alleged breaches against it to the Tribunal in terms of the wide
grounds under PAJA, the application cannot succeed.
78 We submit, with respect, that Telkom has not made out a case that the
decision to refer the complaint to the Tribunal, and the referral itself, should
be reviewed on the basis that the Commission’s conduct was actuated by ill-
faith; that it was oppressive; or vexatious. Telkom only attempts to make out
such a case in reply. Even then it simply states without any proper
substantiation the following:
‘72 Ad paragraphs 24 and 25
81 Simelane NO and others v Seven-Eleven Corporation SA (Pty) Ltd and another 2003 (3) SA 64 (SCA) para 16 and 17 in which reference was made to, inter alia, Chairman, Board on Tariffs and Trade, and Others v Brenco Inc and Others 2001 (4) SA 511 (SCA); Norvatis SA (Pty) Ltd v Main Street 2 (Pty) Ltd (2) [2001-2002] CPLR 470 (CT) and Brassey et al Competition Law at 301.
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For the reasons stated at paragraphs 43 to 47 above, the contents of
these paragraphs are denied. It is submitted that the Commission’s
conduct can be reviewed in cases of, inter alia, ill-faith, oppression and
vexation and the like. The papers filed by Telkom make out that case.
Moreover, the relief sought by Telkom is also of a declaratory nature,
namely that the Tribunal does not have the power to adjudicate the
complaints.’82
79 Paragraphs 43 to 47 of Telkom’s replying affidavit addresses the contentions
by Telkom that the Commission’s decision to refer the complaint to the
Tribunal is reviewable under PAJA. They do not make out a case that the
decision to refer the complaint is reviewable on the grounds of ill-faith,
oppression or vexation.
80 The Commission submits, in any event, that the grounds relied upon for the
review of the referral under PAJA have no merit. We deal with each of them
below.
The extensions of time period for investigation
81 Telkom contends that the referral should be set aside for the reason also that it
was done outside the time periods permitted by s 50(2) of the Competition
Act.
82 RA p 484.
74
82 Section 50(2) requires a referral to be done within a period of one year after
the complaint was submitted to the Commission.
83 However, s 50(4) of the Competition Act provides that:
‘(4) In a particular case –
(a) the Competition Commission and the complainant may agree to
extend the period allowed in subsection (2); ...’
84 Firstly, the Commission submits that this is an issue as to the validity of the
referral. This is not an issue for review. It is an issue to be decided by the
Tribunal on the facts presented by the Commission. If its decision is
impugnable on the grounds under PAJA, it would be open to judicial review.
85 Secondly, the Commission has submitted proof under oath that the
complainants agreed timeously with it to extend the time periods within which
to refer the complaints to the Tribunal. The extensions allowed the
Commission to refer the complaint by the end of February 2004.83
86 Confirmations under oath from the representatives of the complainants who
testify that they were duly authorised to agree with the Commission to the
extensions of time have been provided to this Court.84 No evidence is placed
83 Form CT1(1), annexure ‘BMN3’ p 61.
84 AA paras 32; 124-127 pp 361 and 404-408; Affidavit of Michael John van den Bergh p 445; Confirmatory affidavit of Edwin John Thompson p 450.
75
under oath by Telkom to contradict this evidence on oath. On the Plascon
Evans test,85 the Commission’s averments should be accepted.
87 The contention regarding a decision of the Commission’s Exco which,
according to Telkom, only extended the time for referral to 31 January 2004 is
of no legal consequence. It is extensions concluded between the Commission
and the complainants which have legal effect in terms of the provisions of the
Competition Act and not decisions of Exco. It is important to point out that
Exco is not a body created by the Competition Act and clothed with any
powers by it. Its decisions can therefore not override acts performed in terms
of the provisions of the Competition Act. The Commission under the
Competition Act comprises the Commissioner and Deputy Commissioners
and not Exco.86 Exco thus has no powers under the Competition Act to bind
the Commission, let alone the complainants.
Reliance on the Link Centre Report and alleged bias
88 Telkom’s contentions are that:
88.1 the Commission unduly relied on the report by the Link Centre in
arriving at its decision to refer the complaint to the Tribunal; and
88.2 that the Link Centre was biased against Telkom.
85 Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd 1984 (3) SA 633 (A) at 634H-I and 635A-C.
86 Section 19(2) of the Competition Act.
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89 The Commission has stated under oath that, in addition to the Link Centre
report, it conducted its own investigations and obtained legal advice from
outside counsel, all of which were among the considerations relied upon in
making its decision to refer the complaints against Telkom.87 Telkom has no
evidence to gainsay this, save to argue that it is simply the say-so of the
Commission. It has placed no credible evidence before this Court to show
that the Commission simply rubber stamped the Link Centre report.88 On the
contrary, Telkom’s submissions reveal an appreciation that the Commission
applied its mind to the contents of the report – as it even commented on a
draft report before the finalisation of the report which has been placed before
this Court, albeit on a confidential basis.89
90 The period of time that it took the Commission to investigate and then to refer
the complaints against Telkom is evidence enough of the Commission’s
statements under oath that it conducted investigations and sought outside legal
advice. The Commission does not wish to waive legal professional privilege
and disclose the outside legal advice. It is entitled to do this.
91 The Commission submits that the material in the Link Centre report reveals
no manifest bias, whatever the bias of the authors might otherwise be. Any
alleged bias on the part of the authors is explained away and fully
contextualised in the affidavit from the Link Centre. It is related to its
87 AA para 130.6 p 411.
88 The proper test for abdication is set out in Minister of Environmental Affairs and Tourism and another v Scenematic Fourteen (Pty) Ltd [2005] 2 All SA 239 (SCA) para 20.
89 Record p 1849.
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functions as a research institute. Its reputation as such is not seriously
challenged by Telkom.
92 No proper basis has been laid for any alleged apprehension of bias on the part
of Telkom. The Commission has addressed such allegations in its answering
affidavit and proved that they have no substance.90 It has also placed before
this Court an affidavit by the Link Centre which shows that its source of
funding could hardly serve as a basis for a contention of bias by Telkom.91
These allegations are without merit, and they should be dismissed.
93 There is no justification to set aside the complaint referral on the basis of an
alleged apprehension of bias which is not based on the correct facts and is not
reasonably held in accordance with the test crystallised in the authorities
referred to by the applicants, which we do not repeat.92
94 The Commission is in any event not precluded from taking partisan material
into account in arriving at its conclusions – its function is to weigh up
whatever material it rationally and reasonably regards as germane. Telkom
nowhere properly suggests that the Commission’s conduct in considering the
report reveals ‘ill-faith, oppression, vexation or the like’.
90 AA para 130-137 pp 409-416.
91 Affidavit of Alison Gilwald pp 438-444.
92 See footnotes 90-92 of Telkom’s Heads of Argument p 60.
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Memorandum of understanding between the Commission and ICASA
95 Telkom appears to contend also that the referral should be set aside on the
basis that the Commission failed to manage the complaint in accordance with
the Memorandum of Understanding between it and ICASA. This ground has
no merit at all.
96 Firstly, the allegation is not factually correct as there is evidence in the record
of meetings and correspondence between the Commission and ICASA in
relation to how, to the extent possible, the complaint was to be dealt with.93
This is sufficient compliance with the Memorandum of Understanding.
97 Telkom was informed in writing that the complaint would be dealt with in
terms of the Competition Act. This was sufficient.94
98 Secondly, and most importantly, s 3(1A)(b) requires that management of the
complaint between the Commission and ICASA be effected ‘to the extent
possible’. Failure to manage the complaint in accordance with the
Memorandum of Understanding would not, on its own, deprive the
Commission of its concurrent jurisdiction to deal with the complaint.
99 Contentions by Telkom that non compliance with the Memorandum of
Understanding makes the referral a nullity as such compliance is peremptory
fails to have proper regard to the provisions of s 3(1A)(b) of the Competition
Act. The provisions are not peremptory. The section requires the exercise of 93 AA paras 146; 149; 152; 156; 164; 169; and 172 pp 419; 421; 422; 425; 428; and 431.
94 AA para 152.2 p 423.
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concurrent jurisdiction in terms of the Memorandum of Understanding to be
managed ‘to the extent possible’.
100 Thirdly, the Memorandum of Understanding is res inter alios ICASA and the
Commission, and thus provides Telkom with no basis for complaint.
101 The referral can therefore not be set aside on the basis simply that the
Commission and ICASA failed to manage the exercise of jurisdiction by the
Commission strictly in accordance with the provisions of the Memorandum of
Understanding.
PRELIMINARY MATTERS
102 We have submitted above that the referral is not reviewable under PAJA.
This deals with the Commission’s first preliminary point.
103 The second preliminary point is not an objection to the jurisdiction of this
Court as Telkom understands it. It is a submission that, given the technical
and complex nature of the question whether the complaints referred to the
Tribunal would constitute contraventions of the Competition Act if proved, it
would be preferable for this question to be determined by the Tribunal. It is
significant for this purposes that parliament has conferred the authority to
investigate, evaluate, refer and adjudicate complaints relating to alleged
contraventions of Chapter 2 of the Competition Act to specialist bodies
80
comprising the Commission, the Tribunal and the Competition Appeal Court
(‘the CAC’).
104 The determination of whether or not a matter involves the contravention of
Chapter 2 of the Competition Act may, in certain instances such as the
present, be complex and technical. In those instances the Court should not
lightly deprive the Tribunal of the authority to determine whether the
complaints referred in fact involve possible contraventions of Chapter 2 of the
Competition Act. Due deference ought to be accorded to the expertise of the
Commission and the Tribunal in this regard.95 It is in this sense that the
Commission submits that it would have been appropriate, perhaps preferable,
for Telkom to raise the objection as to the Tribunal’s jurisdiction at the
commencement of the complaint proceedings before the Tribunal. Exercising
its specialist authority under the Act, the Tribunal would determine whether or
not the matters fall within its authority, i.e. whether or not, technical and
complex as they are, they involve possible contraventions of Chapter 2 of the
Competition Act. To assist it in the determination, the Tribunal would be
entitled to receive expert evidence and input, which the Court has not been
favoured with at this stage. Its decision would then be subject to review under
PAJA to the extent that it is impugnable.
95 TWK Agriculture Ltd v Competition Commission & others [2007] JOL 20764 (CAC) para 32 (not yet reported in the printed version of the SALR and the ALL SA). See also Chairman, Board on Tariffs and Trade v Brenco Inc 2001 (4) SA 511 (SCA) para 17.
81
CONCLUSION
105 We respectfully submit for all the reasons set out above that the application
should be dismissed with costs, including the costs of two counsel.
MSM Brassey SC
NH Maenetje
Sandton Chambers
3 April, 2008
