Telkom series of abuse of dominance cases

Genesis was specifically selected by the Competition Commission of South Africa to provide expert reports and testimony in the prosecution of a series of abuse of dominance cases brought against the fixed-line incumbent, Telkom. The multi-faceted complaints focused on exclusionary and exploitative practices designed to inhibit downstream competition in internet access and corporate virtual private networks, including margin squeeze, inducement and excessive pricing.

Combining our deep understanding of telecommunications markets with a meticulous evaluation of the strategy and pricing documents, Genesis was able to determine that Telkom priced its own downstream services below the cost of the necessary wholesale inputs it provided to its competitors and, in so doing, was engaged in a deliberate margin-squeeze strategy. This evidence, and the effective rebuttal of the Telkom defence, was instrumental in the Competition Tribunal finding against Telkom on margin squeeze in the first case, and ultimately imposing a fine of over R400-million.

In the second case, Genesis used a sophisticated financial model to demonstrate that if Telkom’s own downstream services paid wholesale inputs charged to competitors, then it would be loss-making. A thorough analysis of market data also revealed that this had an exclusionary effect on competitors. Genesis also demonstrated that pricing for certain transmission products was excessive relative to the costs.

The Genesis report was material in moving Telkom to settle the second complaint. Genesis was asked to take a lead role in the settlement negotiations, which fundamentally reshaped the market by bringing about a functional separation between wholesale and retail services, cash fines of R200-million and price reductions of almost R900-million. In approving the settlement, the Competition Tribunal described it as the most sophisticated and far-reaching settlement it had ever seen.