The Competition Commission has referred its findings of abuse of dominance against Telkom to the Tribunal for adjudication, it said on Wednesday.

It had asked the Tribunal to levy an administrative penalty of 10 percent on Telkom's annual turnover for its financial year ended 31 March 2009, it said in a statement.

"The investigation follows five complaints that were lodged by the Internet Service Providers' Association (ISPA) and other internet service providers or ISPs, namely, Verizon. Multichoice Subscriber Management Services, and Internet Solutions.

"These complaints were lodged at different times during the period 2005 and 2007, but for purposes of investigation the Commission combined the complaints as they raised overlapping issues."

Telkom abused its near-monopoly position

During the investigation, the Commission engaged with and received cooperation from the Independent Communications Authority of South Africa (ICASA), in accordance with the memorandum of understanding between the two regulators, it said.

"The cooperation of the two regulators will continue during the prosecution of this matter, particularly with respect to remedies for the conduct," the Competition Commission said.

In its investigation it had found that Telkom abused its near-monopoly position in the market for the provision of telecommunications network facilities.

"It did this by charging excessive prices for the basic infrastructure needed by its downstream competitors, the ISPs, to access a range of telecommunications services, while keeping its own ISP service charges low.

Telkom charged excessive prices

"In this way, Telkom also raised its downstream competitors' costs, making it difficult for them to on sell cost-effective services to end consumers."

The Commission's conclusion was that Telkom had charged excessive prices after comparing Telkom's prices to its costs, prices in other countries, prices of other operators offering similar services and prices to customers of Telkom who posed a competitive threat to it.

"These comparisons indicated, amongst other things, that in 2006 Telkom's prices were more than double the average of South Africa's major trading partners.

"Furthermore, in 2007, Telkom's prices were 30 percent more expensive than the average of a basket of 14 countries."

The Commission also noted that Telkom's downstream competitors had been consistently losing market share, while Telkom's share had been increasing over time, pointing to an inability on their part to compete effectively with Telkom.

Hinder economic development

"The excessive prices charged by Telkom affect the prices which ISPs charge their customers.

"Given the widespread use of the internet and the extensive use made of virtual private networks or VPN's by medium to large businesses to link various locations of a single enterprise, there is no doubt that these high prices detrimentally affect consumers and hinder economic development in South Africa."

Telkom said in response that the Commission had engaged with it over an extended period of time in the last two years while it was completing its investigations with regard to various complaints filed with it by a number of parties.

"The Commission has clearly finalised its investigations and, in terms of the relevant provisions in the Competition Act, the Commission has decided to refer certain aspects of the various matters to the Competition Tribunal for adjudication," Telkom said.

"Telkom will prepare its response to the referral in accordance with the relevant rules and procedures applicable to proceedings before the Competition Tribunal," the company said.