Telkom settlement agreement – a higher standard of conduct is expected from dominant firms

The remedies proposed in the settlement agreement between the Competition Commission (Commission) and Telkom go to show that the competition authorities indeed expect a higher standard of conduct from dominant firms.  This is according to Kayley Keylock, an Associate in the Competition Practice at Cliffe Dekker Hofmeyr.

“In this regard, a particularly noteworthy remedy is Telkom's introduction of a separation between its retail and wholesale operations as well as a transfer pricing programme to regulate transactions in its provision of network services between its wholesale and retail divisions,” she says.

“There have however been cases before the competition authorities where the settling parties have similarly agreed to separate the firms' upstream and downstream operations as a means of ensuring that the firm's (now separate) operations will in the future not be treated any differently to that of the firms' competitors. 

“A case in point is the settlement agreement entered into between the Commission and Senwes, which was confirmed by the  Competition Tribunal earlier this year.  The Commission's complaint against Senwes alleged that Senwes' practice of charging differential tariff fees for storage was exclusionary and had an anti-competitive effect as it impeded grain traders who compete with Senwes from expanding within the downstream market for grain trading.  Part of the remedies proposed by the Commission included Senwes being ordered to sell either its grain trading division or its storage division to a separate registered company (which may be a subsidiary of Senwes) in order to guard against it treating its own operations differently from those of its competitors,” Keylock explains. 

Keylock says that settlement before the parties enter into litigation proceedings is often the more attractive alternative for a company.  From the settling company's perspective, settlement is generally the more feasible and timeous approach to bring finality to a matter, as it does away with litigation proceedings which are often protracted and costly for companies.  The finality of the matter between the parties brought about by the settlement also brings a level of certainty which is certainly beneficial for the company, particularly from a shareholder perspective.  A further "pro-settlement" argument is that a settlement agreement requires the consent of the parties to the agreement and in this way the process involves negotiation between the parties to the point where both sides are satisfied, or at least agreeable, with the terms of the settlement. 

“It remains to be seen in practice whether the remedies in the latest settlement agreement between the Commission and Telkom are actually going to alleviate the concerns that caused three internet service providers, together with the Internet Service Providers Association, to lodge the complaints that led to the settlement in the first place,” she adds.