Competition Commission comments to Parliament on Broadband Infraco Bill 1 August 2007

Outline The importance of effective competition Anticompetitive practices investigated or being investigated by the Commission in broadband and related markets, and the importance of the Broadband Infraco Act Infraco’s relationship with Neotel The role of Transtel and Esitel Ensuring that Infraco achieves its objectives

Importance of effective competition BPO and ICT sector more broadly highlighted as key target areas under ASGISA South African broadband prices are widely reported as high by international comparison Growth of broadband use in South Africa is very slow, especially for a ‘catch-up’ country Effective competition is key is in promoting more affordable broadband and more rapid take-up

Anti-competitive outcomes? A range of complaints against Telkom being investigated or having been referred to the Competition Tribunal relating to broadband Cases highlight competition concerns arising in internet access environment, and show the need for the Infraco intervention Merger prohibited by the Tribunal in a related market (Telkom / BCX) indicates concern with market power of Telkom

Complaint: SAVA – Telkom The Commission referred South African Value Added Network Services (VANS) Association vs. Telkom to the Competition Tribunal based on Telkom inter alia: Refusing to supply backbone and access facilities unless VANS meet Telkom conditions Refusing to ‘peer’ with AT&T, and refusing facilities for AT&T to ‘peer’ with Satellite Networks Refusing to lease access facilities to VANS directly; insisting VANS be agents of customers Charging more for telecommunications facilities connecting to independent VANS networks than for same facilities connecting to Telkom’s own VANS network

Complaint: ISPA - Telkom The Commission has received a complaint against Telkom from the Internet Service Providers Association relating inter alia to Telkom: Subjecting ISPs to a margin squeeze in the retail ADSL market Excluding ISPs by engaging in unjustified delays in giving access, giving access under disadvantageous conditions, charging prices for access that bear no reasonable relationship to cost

Complaint: Multichoice - Telkom The Commission has received a complaint against Telkom from the Multichoice Subscriber Management Services and Internet Solutions relating to ADSL access: Allege inter alia that Telkom designed ADSL architecture and priced access to its facilities in such a way that it excludes competitors Multichoice has since filed another complaint on similar grounds and also sought interim relief from the Tribunal

Merger: Telkom - BCX The Commission recommended a prohibition of the merger based on: Horizontal overlap in the market for electronic communication services, particularly managed network services Raising the costs of its rivals by increasing its prices for or frustrating access to network infrastructure Bundling and cross-subsidising its services The Competition Tribunal has subsequently prohibited the merger

Relationship: Infraco - Neotel Exclusivity between Infraco and Neotel: Trade-off between Neotel becoming an effective competitor, and protecting a duopolist with limited incentive to compete Effective competition in the market would be furthered by Infraco supplying other customers Agreement between Neotel and Infraco should ensure that Neotel passes on lower prices

Role of Transtel and Esitel Trade off: Transtel and Esitel focusing on core activities versus maximising efficient use of assets and taking advantage of low costs Transtel and Esitel should be allowed to explore: External sale of excess bandwidth Rolling out additional network assets, given their very low costs in doing this

Achieving Infraco’s objectives In order for Infraco to achieve its objectives it: Should be allowed to borrow money in order to finance its investments and operations Should be deemed to have an individual electronic communications network licence