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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 51/LM/Jun06
In the matter between:
Telkom SA Limited Acquiring Firm
And
Business Connexion Group Ltd Target Firm
Panel : D Lewis (Presiding Member), Y Carrim (Tribunal
Member) and U Bhoola (Tribunal Member)
Heard on : 12-16 March 2007, 28-30 March 2007, 02 April2007,
18-25 May 2007 and 21-22 June 2007
Order issued on : 28 June 2007
Reasons issued on : 20 August 2007
Non-Confidential version of Reasons for Decision
Approval
This transaction constitutes a large merger as defined in terms of the Act. In terms of section 16(2)(c) of the Act, the Tribunal prohibited this transaction on 28 June 2007. The reasons for our decision follow.
The parties
The primary acquiring firm is Telkom SA Ltd (“Telkom”). Telkom is a telecommunications services provider and is listed on the Johannesburg Securities Exchange as well as the New York Stock Exchange.1
[2] The primary target firm is Business Connexion Group Ltd (“BCX”).2 BCX is an Information and Communications (“ICT”) company and is listed on the Johannesburg Securities Exchange. 3
The transaction
In terms of the proposed transaction, Telkom intends to acquire the issued share capital of BCX. 4 The proposed transaction will be implemented by way of a scheme of arrangement in terms of section 311 of the Companies Act No.61 of 1973.
Activities of the parties
Telkom is the incumbent provider of fixed line Public Switched Telecommunications Services (“PSTS”) and it offers fixed line voice and data services. Telkom is also a key player in the market for Value Added Network Services (“VANS”). Until recently, Telkom was the de jure monopoly provider of fixed line infrastructure and services.
BCX is active in the Information and Communications Technology (“ICT”) sector and it provides ICT based services to a broad range of clients, including JSE-listed organizations, government and medium sized companies. BCX describes itself as a “leading integrator of competitive, innovative and practical business solutions based on Information and Communication Technology.”5 BCX provides network related IT services, network design and implementation services, WAN management services as well as business applications to large enterprises. It is a CISCO accredited organisation.6
Background to hearings
The Commission had recommended that the merger be prohibited. A number of objections had been received. Three parties, namely Internet Service Providers Association (“ISPA”), Dimension Data PLC (“Didata”) and Gadlex (Pty) Ltd (“Gadlex”) were admitted as interveners in the Tribunal’s proceedings. ISPA and Didata were opposed to the merger, Gadlex was in support of it.
The hearings in the matter took place on 12-16 March 2007; 28-30 March 2007; 02 April 2007; 18-25 March 2007 and 21-22 June 2007.
The following witnesses gave evidence: Dr Giulio Federico7; Mr Hendrik Arnoldus Matthyser8; Mr Micheal Afred Sewell9 ; Mr Arnold Esias Van Huyssteen10; Mr Peter Anthony Watt11; Dr Angus Hay12; Dr Setumo Mohapi13; Mr Derek Wilcocks14; Mr Micheal Brierley15; Mr Ewan Sutherland16; Mr James Hodge17; Professor Emanuele Giovannetti18 and Mr Stephen Bosman19.
ISPA is a voluntary industry association established to represent the interests of South African Internet Service Providers. ISPA members are competitors of Telkom and, in some cases, of BCX. ISPA members are also customers of Telkom.20
Didata is a specialist IT services and solutions provider that assists and advises its clients in respect of the planning, building, maintenance and support of their IT infrastructures as well as rendering WAN management services. Didata is also a customer of Telkom and competes with it in the downstream MNS market.
Gadlex Holdings is BCX’s black economic empowerment partner and has a 25% shareholding in this company.
The Commission’s investigation revealed that the transaction has horizontal, vertical and portfolio dimensions. In its analysis of the proposed transaction the Commission found that Telkom and BCX overlap in the market for the provision of electronic communications services in the sub-market for managed network services (“MNS”). According to the Commission, the merger will lead to the removal of an effective competitor, and a high market share for the merged entity in the MNS market, which will enable it to act unilaterally without regard to its competitors’ behaviour. ISPA shared this concern.
The Commission, ISPA and Didata also submitted several theories of harm in relation to the vertical and conglomerate effects of this merger. The opponents of the merger argued that post merger, the merged entity will have the ability and the incentive to -
Engage in input foreclosure of its rivals in the downstream MNS and ITS markets, who rely on leased lines as inputs, through raising rivals costs, refusal to supply, margin squeeze, frustration of access, quality degradation and delays in installation and fault repairs;
Engage in customer foreclosure by influencing customers to divert demand away from Neotel’s21 infrastructure and PSTS services;
Engage in mixed bundling of PSTS, MNS and ITS services which will give rise to anti-competitive effects.
In addition the Commission submitted that the merger was taking place in an industry which had until recently been dominated by Telkom’s monopoly. The introduction of competition to Telkom, in the form of Neotel, was in its nascent period and any accretion of market share by Telkom in the MNS market or any competitive advantage it acquired over its rivals across the three relevant markets would have a substantial impact on an industry plagued by high prices and bottlenecks. The Tribunal was asked to protect the first shoots of competition by prohibiting this merger. ISPA argued that the merger was taking place at a time when the industry is moving towards convergence and that the MNS market was the battleground for convergence. Any enhancement of Telkom’s ability to deter entry or expansion of it rivals– through any of the strategies discussed above - would lead to a substantial lessening of competition. Didata submitted that, through this acquisition, Telkom sought to extend its monopoly into the new converged space as well as protecting its current monopoly in infrastructure and PSTS services.
Gadlex, argued that Telkom no longer had a monopoly in the infrastructure market and that in any event there were technical substitutes for fixed leased lines in the MNS market. The merging parties submitted that the vertical theories of harm raised by the Commission and the objectors would not result in the effects claimed by the Commission because inter alia, they were either not merger specific, were mutually exclusive and would not be profitable for Telkom. They argued further that the horizontal overlap between Telkom and BCX was too small to raise competition concerns. In any event, they submitted, if the Tribunal had any concerns about the anti-competitive effects of the horizontal overlap, they would offer a divestiture of BCX Communications (“BCX Comms”)22, a subsidiary of BCX, as a remedy.
BACKGROUND TO THE TRANSACTION
This transaction takes place in the ICT industry which is currently undergoing rapid regulatory changes.
A common thread that runs through the opposing parties’ submissions is that the telecommunications sector has only recently experienced the introduction of competition through the licensing of Neotel and the de-regulation of the industry. However to a large extent, Telkom still remains the de facto monopoly supplier of infrastructure and domestic and international PSTS services. It is also a dominant player in the MNS market. All three parties suggest, in different permutations, that if Telkom were permitted to acquire BCX, this would lead to a lessening of competition in the MNS and ITS markets. In addition it would enable the merged entity to utilize a number of strategies in order to retard Neotel’s expansion into the PSTS and MNS markets and hence retard competition in the telecommunications sector. They do not suggest that the merger will prevent Neotel’s entry into the market, but argue that its expansion and therefore the introduction of competition in the sector, across all three markets, will be reduced or retarded.
It is now generally accepted that the industry is moving towards convergence. This trend towards the convergence of voice and data services, broadcasting and telecommunications, and fixed and mobile services – with a single integrated receiver and number that allows the subscriber to move seamlessly between networks – paves the way for a new complex and integrated value chain of services and service bundling opportunities which has supplanted the classically linear value chain. It is anticipated that in future all services will originate from infrastructure that may be composed of multiple and distinct networks that seamlessly integrate to create a modern information backbone known as Next generation Networks, NGNs.23 NGNs allow for lower-cost, IP-based services to be transmitted over single platforms. These developments require that any value-chain analysis of operators, services or ICT companies be dynamic, flexible and open-ended.
A major implication arising from these trends is the huge increase in available transmission capacity, historically a scarce resource. This effectively means that the marginal cost of the network capacity that is required to provide carriage services is insignificant and may even be approaching zero. Network infrastructure is increasingly being characterized as a fixed cost. The implication of these trends for the global telecoms industry is that networked business models will increasingly be based on services rendered rather than on basic connectivity. Basic connectivity in the context of convergence is the transmission of bits and bytes and is regarded as a commodity. In conjunction with the changing dynamics of the telecoms industry, to the role of regulation has extended from concentrating on consumer disputes, universal services issues and price setting to much broader role of regulating the sector to enable competition.
An important factor to bear in mind is that while the industry is moving towards convergence it continues to remain a network industry characterized by network externalities. In such industries, initial market leaders – whether these are in technical innovation or in high value subscribers - tend to be favoured. The communications sector, as much is it driven by rapid technological developments still remains a network industry, a factor which seems to have been completely overlooked by the merging parties in their arguments and expert testimony.24 Whether the industry is moving towards an information industry or convergence, driven by changes in technology, the applicable economic laws do not change. Technological advances may result in new markets or require that we define the boundaries of those markets differently, but the basic economic principles in relation to network industries remain durable over time.25
In this transaction we have concluded that the merger will result in a substantial lessening or prevention of competition in the MNS market, which has been described as the battleground for convergence. In our view this transaction is an attempt by an erstwhile monopolist to thwart the beneficial impact of de-regulation in the form of greater economies of scale and scope for rival MNS providers and lower costs for customers. It is also an attempt by an erstwhile monopolist to stifle innovation in order to maintain its hitherto monopoly margins in infrastructure and voice services
While we note that the merger, if it had been approved, could have had some detrimental impact on Neotel in it’s entry or expansion in both the infrastructure and MNS market, we signal our concern that the merger is, in part for this very reason, likely to result in co-operation between Neotel and Telkom in relation to warding off the threats posed by the de-regulation of the MNS market and the consequent growth in competition and innovation in that market. We express the concern that the acquisition could have provided Telkom with an unregulated subsidiary through which it would seek to evade regulation.
We also find that the merger is taking place in a pivotal segment of the ICT sector which has a significant impact on the international competitiveness of South African firms generally, and that the merger is likely to impact negatively on the public interest.
We turn now to consider the impact of the de-regulation announced by the Minister in September 2004 and some recent regulatory developments in the sector. However as a prefatory remark, we suggest that the word “convergence” be used with a degree of caution. Convergence is the new buzzword and those that are familiar with the ICT industry tend to use it as shorthand for many things, which may not necessarily translate easily into competition law analysis. For example, in this transaction, it was often remarked that the MNS and ITS markets are converging. While there is a technological convergence of voice and data in the telecommunications sector which is resulting in a new integrated offering in the MNS or ITS market, this is not equivalent to saying that the MNS and ITS markets are converging into one market.
The de-regulation of VANS by the Minister is also referred to as convergence, not wholly inaccurately. What is meant here is that the technical convergence of voice and data, which was commercially available previously but was restricted by regulation, can now be deployed. However the sharing, sub-letting, and ceding of infrastructure is not necessarily convergence but is now possible as a result of de-regulation. Convergence of the sector does not necessarily translate into consolidation of the sector, which denotes a specific economic concept in relation to market structure.
Convergence may result in an expansion of the services that constitute the MNS market, and would include services that were previously located in the ITS market, but the markets for purposes of competition law analysis are themselves not necessarily converging. There will always be IT companies who provide equipment and hardware and utility applications but who do not provide MNS solutions to enterprises.
For ease of convenience and purposes of completion, we have included in annexure A a glossary of terms used by us in these reasons.
Dynamic regulatory environment
Until recently the telecommunications sector was dominated by a fixed line monopoly in the form of Telkom with limited competitive activity in the MNS market.
Telkom SA Ltd started out in 1991 as a state owned enterprise housed in the then Department of Posts and Telegraphs.26 Under the old Apartheid regime, it provided services to the residential and corporate market on the basis of the policies of that regime. Hence it was rare indeed to find residential telephone services in black townships. The Postmaster General and the Department of Posts and Telecommunications, retained general regulatory functions and continued to regulate the telecommunications industry until the Telecommunications Act 103 of 1996.
After 1994 the democratic government embarked on the formulation of a democratic policy process for the telecommunications sector. This process culminated in the 1996 White Paper and the subsequent Telecommunications Act 103 of 1996 (“Telecommunications Act”) and led to the modernization of telecommunications in South Africa. The government adopted a policy of managed liberalization in which it envisaged that Telkom would be partially privatized and be granted a period of exclusivity in return for universal service obligations. In 1996, 30% of Telkom was sold to the Thintana Consortium LLC (“Thintana”), a partnership between Malaysia Telecom and SBC Communications (“SBC”). SBC is an experienced American telecommunications company which cut its teeth in the AT & T stable. 27 Telkom was granted a five-year period of exclusivity in its license with an option to extend it for a further year if certain conditions were met. In return Telkom was under an obligation to roll out a certain number of lines to underserviced areas (which at that stage constituted the vast majority of South Africa) and to make contributions to the Universal Service Fund. In negotiation with the then Minister of Communications, Telkom agreed on a rate regime28 which regulated some aspects of its retail tariffs. As part of the agreement with government Telkom also invested in the SAT-3/WASC/SAFE submarine cable system, which provides increased fibre optics transmission capability between South Africa and international destinations. It also concluded a shareholders agreement with government, the provisions of which are still secret.
In that same year, in accordance with international best practice, an independent regulator, the South African Telecommunications Regulatory Authority (“SATRA”) now Independent Communications of South Africa (“ICASA”) was established to regulate the telecommunications sector. Part of its legislative mandate was to set standards, issue spectrum and service licenses, produce an annual frequency plan, approve equipment (all of which was previously done by the department), arbitrate disputes between licensees and prescribe fees and tariffs for markets in which there was insufficient competition.29
The effect of Telkom’s exclusivity rights was that it continued to be the sole supplier of domestic and international PSTS services in South Africa. All other telecommunications operators and service providers were required to obtain their facilities from Telkom and no other licensee could provide local, national and international voice services. The only area of competition (apart from competition in customer premises equipment) was in the provision of value added network services but this was also restricted by legislation.
Value Added Network Service (VANS) was a license category in the 1996 Act. Many services could be provided under this license category, including managed network data services and internet services. VANS providers would purchase infrastructure from Telkom and render services to enterprises over networks designed and constructed by them in accordance with their clients needs. However, in terms of s40(3) of the Telecommunications Act VANS could not provide voice, could not use Voice over Internet Protocol (VoIP), and could not resell, sublet or cede the infrastructure leased from Telkom.
By 2002, Telkom had rolled out some 2.8 million lines but had disconnected some 70% of these.30 While access to telephony had improved for previously disadvantaged South Africans and the country experienced improvements in teledensity, this was largely due to the success of mobile services. At the end of Telkom’s five year exclusivity, South Africa had experienced a net decline in fixed line penetration and internet. Telkom’s pricing structure was considered to be excessive and was widely thought to be adversely impacting growth in the South African economy. 31
In 2002, the Minister issued an ITA32 for a second national operator, a competitor to Telkom. Telkom elected not to extend its exclusivity period.33 The licensing of the SNO as it was known then began in 2002 and ended on 09 December 2005.
Neotel has the same rights in its license as Telkom does34 but in addition has the right to use Telkom’s infrastructure for a period of two years. In preparation for its entry and to enable it to compete in a market dominated by Telkom, ICASA promulgated a number of regulations which set out rights and obligations in relation to number portability and carrier pre-select between Telkom and Neotel.
Neotel’s licensing process has been extremely drawn out and at the time of the writing of these reasons, it seemed to have experienced numerous internal and external hurdles to launching its commercial operations. 35
In September 2004, several announcements made by the Minister of Communications propelled the industry into probably its most dynamic phase ever. In terms of these announcements, mobile operators could utilise any fixed lines that may be required for the provision of the service including fixed lines made available by Telkom or any other person providing a PSTS. Value Added Networks Services could carry voice using any protocol; they could render their services by means of telecommunications facilities other than those provided by Telkom and the Second National Operator. They and PTNs were now entitled to cede or assign the right to use, or to sublet or part with control or otherwise dispose of telecommunications facilities used for the provision of value added network services. All of these were to be effective on 1 February 2005. The Minister explained that the two important policy objectives driving the announcements were the need to lower the cost of doing business in South Africa and to liberalise the ICT sector. In furtherance of these objectives, she was promoting choice for service providers, efficient usage of bandwidth and growth in the value added network services. 36
The Electronic Communications Act (“ECA”) came into effect on the 19th of July 2006. The ECA repealed the Telecommunications Act. The ECA is part of the new converged regulatory framework for the ICT sector aimed at lowering costs of access to the ICT sector and increasing the efficiency of telecommunications services provisioning in the country. The ECA seeks to inter alia, promote convergence in the broadcasting, broadcasting signal distribution and telecommunications sectors, provide the legal framework for convergence of these sectors, make new provision for the regulation of electronic communications services, electronic communications network services and broadcasting services, provide for the granting of new licences and new social obligations, provide for the control of the radio frequency spectrum and provide for continued existence of the Universal Service Agency and Universal Service Fund.
However, despite the recent regulatory initiatives designed to liberalise the telecommunications sector, we must not lose sight of the fact that, to date, Telkom has a virtual monopoly of fixed line South African subscribers, whether these are corporate or residential. This should come as no surprise since until recently it enjoyed a de jure monopoly status and for all intents and purposes continues to remain the overwhelming dominant supplier of infrastructure in this market, and provider of local, national and international telecommunications in the country. Equally important, and as a consequence of its monopoly status, Telkom has the largest footprint of infrastructure in the country. Its network runs to some thousands of kilometres and it is able to access every small and large town through its extensive local loops. It has been, and still remains, on the one hand the sole supplier of infrastructure and connectivity to other players such as mobiles, PTNS and VANS, and, on the other hand, a competitor of VANS.
We turn now to consider the impact of the de-regulation on the MNS market.
De-regulation: Dynamic MNS market
The MNS market consists of a range of services rendered by service providers to large organizations, whether these are private or public bodies. Managed network service providers as they are called provide managed data communications services to enable organizations to communicate between head offices and their branches over a wide area network (WAN).
Services that would typically be transmitted over WAN would include intranets, data communications, internet access and business applications.
WANS are constructed as physical private networks from dedicated leased lines. The infrastructure that constitutes a WAN was obtained exclusively from Telkom, and by far the overwhelming majority are still currently provided by Telkom. The manner in which infrastructure was supplied was also controlled by Telkom.37
Prior to 1 February 2005, MNS services were provided to an organization in two ways. WAN service providers such as BCX did not provide their services in terms of a VANS licence (they did not provide a network) but provided these services to customers on their premises.38 Such a WAN provider provided both network related and IT services for enterprises in relation to their WAN, as well as other IT services in the form of business applications and equipment. These WANS are referred to as enterprise owned WANS.
Service providers known as VANS,39 also provided WAN services to organizations but rendered these over their own networks. This is why they required a license from ICASA. Internet access services constitute a large part of the business of VANS.
The price of the leased line, whether this was an access line or a core network line, was regulated as a retail price to VANS40 and constituted approximately 60-65% of the cost of the services rendered by VANS.41 VANS obtained the leased lines from Telkom and recovered the costs thereof from their clients, making no margin on the cost of bandwidth. The cost of leased lines for enterprise owned WANS was borne directly by the client itself.42
The manner in which these lines could be utilized by VANS or the clients themselves was restricted by the Telecommunications Act which led to underutilized capacity and high communications costs. Since Telkom owned the infrastructure and to a large extent retained control over it,43 service level agreements, which regulated the services associated with the bandwidth and dealt with issues of network performance levels, downtime, fault repairs etc, were also limited by the extent of the service levels Telkom would offer together with the bandwidth. VANS provided their clients with a back to back service level agreement, being limited to Telkom’s undertakings and performance.
During this period, organizations obtained their communications services from a number of providers. An enterprise could - and in terms of the restrictions was compelled- to buy different components from different suppliers. All infrastructure and access lines had to be obtained from Telkom (whether the MNS service was provided by a VAN or not), certain services could be obtained from an ITS provider, others such as internet access could be purchased from a VANS provider. In addition other communications needs, such as fixed line voice services could only be purchased from Telkom. If a large organization decided to outsource all or some of its communications requirements, it generally tended to appoint a single service aggregator, who would manage all the other service providers on behalf of it.44
Developments in technology in the VANS segment gradually permitted services to be provided in the form of shared networks.45 The technology was known as VPN technology.46 The early developments in this technology were legally challenged by Telkom on the basis inter alia that it constituted an infringement of Telkom’s exclusivity and the restrictions that were in place on value added network services in terms of the Telecommunications Act of 1996.47 In 2002, ICASA ruled that VPN technology was a value added network service, could be provided by a licensed VAN provider and was not in contravention of the Act.48 Despite challenging ICASA’s decision in the High Court and refusing to connect AT&T until a court order was sought against it, Telkom itself launched its VPN Supreme product in 2003.49 However, the regulatory restrictions and the unfriendly framework remained in place until 1 February 2005.50
On 1 February 2005, following the announcements by the Minister of Communications, the aforesaid restrictions on VANS were removed.
The de-regulation brought about regulatory certainty and immediate benefits to enterprises. VANS51 are now able to sublet, cede and re-sell infrastructure leased from Telkom and are also allowed to use VoIP, leading to economies of scale and scope. Organisations can still have their own private network but the costs of that investment could be shared with others. In addition they can transmit voice in the form of VoIP over their network. Obviously the more enterprises that can share a network the cheaper it would be. They would also benefit from the network effects of on-net calls. The consequence of this reduction in costs is that enterprises are more willing to outsource their WAN needs in order to obtain the benefits of sharing it with others.
This has led to a movement away from the strings model of WAN – where each branch of the organisation had to be connected to the other branch and head office in linear fashion - to a cloud model of WAN, ie the VPN. In the cloud model, the service provider builds a core network to which each branch connects to a VANS POP52, as opposed to connecting directly together. Branches and head office can then talk to each other through the core network. In addition more than one organisation can use the provider’s VPN. Significantly, in addition to all the traditional services that could be transmitted over the WAN, organisations can now transmit voice in the form of VoIP.
It is not surprising therefore that the VPN model is demonstrating phenomenal growth not least because it represents an immediate cost benefit to enterprises long suffering under high communications costs. According to BMI-T53 the enterprise market is ripe for a migration from WAN to outsourced VPN solutions. BMI-T estimates that the VPN sector will grow by 24% annually and that by 2008, will constitute 67% of the MNS market. Migration usually occurs at a time when a company is scheduled to upgrade its legacy network (due to large switching costs involved). The International Data Corporation (“IDC”)54 estimates that “in the coming years a number of large contracts that drive growth rates sky high in the beginning of this millennium will be renewed”.55 However not all enterprises will necessarily move to an outsourced VPN offering. Some very large enterprises may still desire to maintain a PTN/enterprise WAN or have some measure of control over their network because of security or reliability concerns.56 Telkom’s own staggering growth in VPN suggests that this will be the predominant form of the new WAN, a more cost effective, outsourced integrated WAN.
Furthermore, growth in data revenue and more so now that the convergence of voice and data is legal over the internet, is seen as the future growth segment in the telecommunications industry. Internet access and value added services such as managed data network services continue to exhibit the strongest growth rates, a trend that will continue over the forecast period.57
Since economies of scale can be achieved the cost of bandwidth for enterprises has declined and fewer leased lines need to be purchased from Telkom. Due to this, enterprises are now likely to spend more on their ICT value added services than on connectivity. However greater economies of scale and scope have also improved margins for MNS providers. With declining costs of connectivity and the consequent increase in outsourcing and spend on value added services, MNS providers have had to re-consider their offerings in the market in order to meet the challenges of de-regulation. This has encouraged entry by companies that have been involved in the MNS market into the VPN segment.
Prior to the de-regulation in the MNS market, when an enterprise decided to outsource its communications and data services, such outsourcing took place in various permutations. The enterprise could outsource any component or all of its data communications needs whether this was the network, the management thereof and its IT services. Very large organizations, such as national government departments, would issue a tender in relation to such outsourcing. The more outsourcing an enterprise did, the larger the number of service providers, the more it required the services of a single service aggregator.
The development of an integrated package such as the VPN in the converged market now enables an MNS provider to approach its customers with an offering that would include all of the components of that integrated package. The MNS provider can now offer infrastructure, managed data services, internet, voice and any other number of services that could be integrated into a VPN. A service provider could of course, continue in the same old way and procure or sub-contract those elements in the package which it itself could not provide from others. However such sub-contracting would cut into its margins.
In order for an MNS provider to compete effectively in the dynamic MNS market and to reap the benefits of de-regulation (in the form of lower connectivity costs) it needs to “own the customer” and earn as much margin as it can. MNS providers that have credibility in outsourcing and a closer client-vendor relationship are likely to more easily gain entry to a client’s decision makers. A company such as BCX with its range of skills is likely to win an outsourcing contract and own the customer. However, it would need to ensure that it keeps as much of the margin it can. BCX acquired Bidnet for precisely this reason – as long at didn’t own a VPN network itself it would always have to rely on Telkom or other VPN players to partner with, hence giving up margin that it could otherwise retain.
In the context of the dynamic MNS market, rather than a static one, the acquisition by BCX of Bidnet can be seen, not as a move by an ITS company into the telecommunications space but rather as an expansion by an MNS provider, with ITS capabilities, in the MNS market.
Needless to say the de-regulation of VANS represents the greatest threat to Telkom, as it does to Neotel. It has created “arbitrage” in the market for fixed line connectivity (bandwidth) and voice. 58 MNS providers can now sell shared bandwidth, VoIP, internet and other data services. The legalization of VoIP has also introduced retail price competition in national and international voice services, which were previously part of Telkom’s PSTS monopoly services.
The combination of a loss, on hitherto extremely high margins on leased lines and voice revenue in Telkom’s most lucrative market59 – the large enterprise market – poses a far greater threat to Telkom than the entry of Neotel does. Telkom has been able to assess, on its own calculations, that Neotel is expected to gain some 8-10% of Telkom’s total fixed line market. However the loss to Telkom attributable to de-regulation in the MNS market is is more difficult to predict and would be a function of the number of high value subscribers and the relative network size of its rivals in the MNS market. Telkom also stands to lose revenues in the most profitable segment of the MNS market namely internet services. This is because enterprises, once they decide to migrate to a VPN, and in order to maximize savings, are likely to also migrate to an internet service provided by their VPN service provider.60 This is also the segment of its business in which Telkom will experience significant retail price competition, Neotel already having indicated that it does not intend to compete with Telkom on the basis of price.61
This is why Telkom needs to “own the customer” and dis-intermediate the market ie it needs to swiftly remove as many MNS rivals as possible.
Mr Matthyser, on behalf of Telkom, certainly appreciates the impact of the de-regulation when he states:
“The VANS deregulation in my opinion, has a bigger impact on the success of Neotel than what the acquisition of BCX would have on the feasibility of Neotel”.62
While Mr Matthyser was making this statement to suggest that the merger will have minimal impact on Neotel, the impact of the de-regulation applies equally to Telkom.
Rationale for the transaction
We start our enquiry by considering Telkom’s rationale for the transaction. In its filing papers the merging parties state that:
“Telkom’s main reason for proposing the transaction is that the proposed transaction will diversify Telkom’s revenue streams into new revenue streams that Telkom can grow in order to replace voice revenues which are expected to decline as a result of increasing competition. Telkom expects revenue in the IT services sector generally to grow, and that a presence in the IT services sector will enable Telkom to benefit from this. Telkom also believes that there are ancillary benefits to be obtained from extending its range of existing services to complementary services in the IT sector. The proposed transaction will enhance Telkom’s ability to offer its customers end-to-end solutions across the ICT value chain. Telkom’s strength has to date been in voice, managed data networks and internet access, while BCX offers a complementary service offering.” 63
Mr Matthyser on behalf of Telkom, who has been integrally involved in the acquisition of BCX, submits that Telkom anticipates that it will lose revenue as a result of Neotel’s entry, convergence (de-regulation of the industry) and further price regulation of Telkom by ICASA. Telkom estimates that it will lose approximately 10% of its total market share of the PSTS market to Neotel, its newly licensed competitor and needs to diversify and find alternative streams of revenue. According to Matthyser, the acquisition will enable Telkom to plug some of the revenues losses it expects with the entry of Neotel. The loss of revenue as a result of competition from Neotel is estimated at R5bn over 5 years. Matthyser says that Telkom expects to lose more revenue as a result of increased regulation by ICASA but the acquisition of an IT company will at least plug some of the revenue lost. Telkom also claims that many PSTS operators internationally have had to diversify their revenue streams in the face of de-regulation and competition and have vertically integrated into IT companies.
Mr Matthyser also claims that Telkom has been trying to build its internal ITS unit with very little success.
However, throughout the hearing, we were told by a number of witnesses, including the merging parties’ expert witness that the margins in the ITS sector were very low. These low margins were used as a basis by the merging parties’ expert witness to demonstrate why input foreclosure would not be a profitable strategy for Telkom to pursue in the downstream ITS market for which leased line is an input. We were also told by the merging parties and their expert witness that barriers to entry were very low in the ITS market and that the market was highly fragmented.
Given these two factors – low margins and low entry barriers- it is difficult to believe that Telkom couldn’t, with its enormous resources and deep pockets, enter the ITS market organically and why it was willing to pay a premium of approximately 25% for the acquisition of a company for such small margin gain. Mr Matthyser, when asked to explain this, could not provide a satisfactory answer but testified that “even when the deal was contemplated, it was on the basis of covering revenue losses at the acknowledgement of making very little new margin or getting small incremental margin benefits from the deal over three years”.64
Mr Wilcocks on behalf of DD testified that he was not persuaded by the reasons Telkom had provided for the acquisition of BCX. In his view, the ITS industry’s profits constituted only R1.3 billion, and was a low margin, highly fragmented industry.65 This translated into a fraction of Telkom’s own revenues, i.e. Telkom’s return on sales is approximately 30% as opposed to that in the ITS sector of only 2.5%.
Says Wilcocks:66
“In my view if Telkom is faced with a reduction in profits that in my view are monopoly profits that is has enjoyed for many years, it really has two choices. One is that it could try and find other profits in other areas, substitutes if you will for this. And my understanding is that Telkom has publicly announced that is the reason why it wishes to acquire Business Connexion to diversify its earnings base. Now from the figures that I submitted previously it would seem to me that that is going to be incredibly difficult to achieve. It doesn’t seem to be a logically coherent argument to me, because if you look at the spreadsheet that shows the company’s earnings you will notice that Telkom’s earnings are about R9.8 billion, Business Connexion earnings in its last reporting period were about R110 million, so even a miniscule reduction in Telkom’s profits can’t possibly be substituted by Business Connexion’s profits.”
He therefore believes that Telkom’s main objective is to retard the rate at which this reduction of its monopoly profits will take place.67
Mr Watt, the CEO of BCX did not testify initially, as was expected. He only appeared before the Tribunal after his retirement and resignation from BCX had been announced. In his stead Mr Sewell, testified on behalf of BCX. However Mr Sewell had not been involved in any of the negotiations around the transaction and could not provide us with any firm view of BCX’s rationale for the transaction.68
When Mr Watt eventually appeared before this Tribunal he denied any involvement by the Board in Telkom’s offer to BCX and indicated that this was a direct approach to shareholders. According to him the Board was now simply implementing a decision taken by shareholders. Accordingly he expressed no view about the strategic rationale for the transaction for BCX. However correspondence between Telkom and BCX’s deputy CEO show that Mr Watt, contrary to his evidence, under oath before the Tribunal, had personally indicated his willingness to negotiate a higher offer from Telkom and was familiar with the content of the discussions between Telkom and BCX shareholders.69
A strategic document prepared by the deputy-CEO of BCX indicates that BCX considered three options for its future, in light of convergence which had increased competition in the market. It had the option to go it alone, merge with Didata or go in with Telkom. Whether or not this was presented to the BCX board was unclear. Mr Watt however conceded that “some of those issues had been discussed”. 70
Telkom’s own internal high level strategy documents paint a different picture of why it seeks to acquire BCX.
A constant theme that is found in Telkom’s strategic documents is that it seeks to defend its core market against competition and convergence by offering end to end solutions, consisting of bundled products to clients, on a long term basis, at discounts. Its aim is to own the customer and to increase the costs of customers switching to rivals. 71
In its internal document, Corporate Strategy document titled “2006 Update of Telkom’s 2010 Strategic Plan”, it states:
“We aim to counter arbitrage opportunities, defend fixed to mobile revenue stream and counter revenue erosion to the SNO and other competitors such as VoIP providers, through strategies including long term contracts, bundled discounts packages, calling plans as well as volume and term discounts.” (Our emphasis)72
In its document “Corporate Strategy Telkom’s 2010 Strategic Plan”, Telkom identifies as one of the benefits to be gained from acquiring an ITSP “ cross- selling opportunities: An ITSP will allow for cross selling and bundling opportunities in the Telkom segmented markets”.73.
In its VPN Supreme Product Plan Telkom also identifies its weaknesses in customer relationship skills as well as in network administration, network support and systems integration and the urgent need to acquire these.
In addition, Telkom, in anticipation of further regulation by ICASA and more competition seeks to evade regulatory scrutiny. It seeks to locate the acquired ITSP in a separate subsidiary for the following purpose --
“A separate subsidiary will allow for more flexibility in pricing as it will not be subjected to the rules of regulatory accounting and costing. This entity would also not be under close scrutiny from the Competition Commission. This will allow for more room on bundling of products and services.” 74 (Our emphasis)
Further we see that all discussions of acquiring an IT company are located in Telkom’s data strategy, identified as a major driver of future growth in the convergence space, for its corporate or middle to large enterprise customers. 75
It identifies that the government segment is where Telkom is most at risk of losing significant market share and says that :
“It is expected that government will pass as much of their business as possible to the SNO to strengthen the new entrant and to facilitate attracting an SEP for the remaining 25% warehouse equity stake.”
And further it expects the SNO to “cherry pick corporate and business customers that are concentrated in the metropolitan areas to secure quick and profitable market share gains.”76
Dr Federico, under cross examination, agreed that Telkom’s objective was not so much the ITS margins themselves, but what IT can do in combination with what Telkom already has.77
A picture thus emerges of the real rationale for the merger. Telkom is not seeking to find alternative streams of revenue.
Under cover of an unregulated subsidiary, employing a range of strategies, Telkom seeks, through this transaction, to remove arbitrage opportunities in leased line and voice segments. It wants to defend its monopoly revenues in its core markets, namely fixed line voice and infrastructure, from the impact of de-regulation (convergence), competition and further price regulation in the corporate and middle to large enterprise segments of its business.
Telkom, identifies that convergence presents it with the threat of arbitrage and declining voice revenues and that it needs to “own the customer” in order to defend and grow its margins. It identifies the need to remove these disruptive rivals that pose the greatest threat to its margins and “dis-intermediate” the MNS market.78 In addition, it seeks to increase the cost of switching by its customers to its rivals with various strategies.
The speed with which Telkom needs to respond to convergence is crucial for it, in light of the pending entry of Neotel and the expansion of firms in the MNS market. If Telkom does not remove credible MNS competitors and gain access to their customers, it stands to lose the most lucrative segment of its business. Alternatively it will be providing Neotel with an opportunity to partner with any of these enterprises and take a greater share of the MNS market than that predicted by Telkom.
Relevant Market Definition
The industry
Markets defined for purposes of Competition Law analysis are not necessarily the same as those understood by lay persons. Nor are they necessarily the same as those found in license categories that may be identified by regulators. In this particular transaction for example, the ECA identifies various categories of licenses, which would require authorization and a degree of regulatory oversight, depending on the nature of that license. ECNS79 are licensees that are authorized to roll-out infrastructure. The equivalent license category in the Telecommunications Act would be both fixed line and mobile operators. ECS80 are licensees who provide value added services over facilities ostensibly obtained from an ECNS. A sector specific regulator may elect to licence certain categories of services or equipment above others for a number of reasons such as maintaining technical standards, quality of services, universal service obligations, environmental or health issues and spectrum requirements. However for purposes of competition law analysis market definition relies on a number of factors inter alia demand side substitution, supply side substitution, functionality and nature of the product.
It was common cause between all the parties that the transaction involves three relevant product markets all of which fall within the broader market for the provision of information and communications technology services to corporate or middle to large enterprises or organisations in South Africa.81 The three markets involved are the supply of telecommunications infrastructure or basic connectivity, which would correspond with the ECNS license category in the ECA and the two downstream markets referred to as the Managed Network Services Market (“MNS” market) and Information technology services, (“the ITS market”). While MNS in the form of VANS is regulated by ICASA,82 IT services are unregulated. 83
It was also common cause that the relevant product markets were in relation to the provision of infrastructure and services rendered to large enterprises or oganisations, whether private or public bodies, with multiple sites and which utilized wide area networks for their managed data communications.
The Commission, in the course of the proceedings indicated that it wanted to define an additional downstream product market, namely hosted data centres. The Commission requested information from the merging parties in the course of the hearing. The merging parties eventually, after being ordered to do so by the Tribunal, provided the Commission with the information requested. At the end of the proceedings and after argument was heard, the Commission did not pursue the competition implications of the horizontal overlap between Telkom and BCX in relation to off—site data centres but made its analysis available to the Tribunal. We deal with the issue of hosted data centres later in these reasons.
We deal with each of the relevant product markets, taking into account the dynamism and changes being brought about by regulatory initiatives.
Infrastructure market (ECNS)
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 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.
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.
Dr Mohapi, on behalf of Gadlex, argued that Telkom was no longer a monopoly provider of leased lines. According to him there were large competitors such as Neotel that had entered the market with a nation-wide network and could provide fixed leased lines, whether these be access or trunk. The recent de-regulation by the Minister of the supply of fixed lines meant that PTNs such as Transnet and Eskom, and mobile operators could also provide spare leased line capacity to MNS providers.84 In addition there were a range of alternative technologies (substitutes) for fixed leased lines which should be taken into account by the Tribunal. Furthermore, both Telkom and Gadlex submitted that in their opinion ECS providers would in the future be able to self-provide leased lines and that ICASA was currently engaged in an inquiry to determine this matter. 85
Hence it was argued that the market for the supply of infrastructure should include fixed leased lines such as Diginet, which could be supplied by both Telkom and Neotel (which had already entered the market) and possibly PTNs and mobile operators, as well as wireless alternatives such as WiMAx and Sentech’s Biznet, and last but not least the self-provisioning of such lines by ECS providers themselves. We consider each of these in turn.
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.
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.86 Even Telkom itself is confident that Neotel will only be able to take 10% of its market share.87 By inference, Telkom anticipates that at the end of the next 5 years, it will still have 90% of the fixed line market.
Dr Hay, in his evidence, confirms that Neotel was not yet present in any substantial way as a competitor to Telkom. He states:
“Look, I think in broad terms if one looks at the access network capabilities, essentially what one has available in the market is Telkom. There is simply no other player, ourselves included, who is able to substitute services and without making any commercial statement, Sentech is also similarly unable to do it on any scale.” 88
Neotel at this stage mainly offers wholesale services in the form of wholesale Internet and a global voice transit service through Teleglobe. Neotel’s geographic coverage presently is approximately 0.5% of South Africa’s land area which includes the four main cities Johannesburg, Pretoria, Cape Town and Durban. It aims to reach 15% coverage within ten years.89 Neotel currently employs 120 people as opposed to Telkom’s 26000 employees. He testified that Neotel has secured a national and metropolitan backbone network entirely independent of Telkom’s network. However Neotel is not currently able to provide country- wide access to large organisations with multiple business sites and that if it is approached for such services it would have to use Telkom’s infrastructure.90 Dr Hay testified further that despite Neotel having access to Eskom’s and Transtel’s network, through the process of integrating the various shareholdings, these networks were not appropriate for cities and metros. This is because historically those networks serviced their internal needs. Eskom’s network for example is typically connected to power stations and does not go anywhere near cities or end customers. Eskom and Transnet have been building over the last few years, a backbone within the metros with very few end points.91 Furthermore, while Neotel has the right to obtain network services from Infraco, the terms of that access had not yet been finalized.92
In addition, Neotel has no local or “last mile” infrastructure. The last mile or the local loop represented a greater barrier to entry for any new entrant. It is much more difficult to roll out a local loop than it is to roll out trunk or national capacity in the telecommunications.93 While Neotel has a right to access Telkom’s last mile infrastructure for a period of 2 years, it had as yet not been able to conclude a framework agreement with Telkom for access to its local loop.
Hence even though Neotel’s license 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 doesn’t regard itself as a formidable competitor to Telkom in the future. According to its business plan, Neotel expects to gain only between 8-9% of Telkom’s market share within the next 5 years. Initially it was projected that Neotel would grow its market share to 10% within 5 years but in light of the many regulatory delays and its slow entry this will not be achieved.
Furthermore, MNS providers do not currently regard Neotel as an alternative supplier of last mile access to Telkom’s monopoly. Mr Brierley of MTNNS says that if had he any choice he would buy from alternative suppliers but that to date he had not found such supplier yet:94
“….As soon as someone can offer me a competitive service of the right price, with the right SLA and the right reliability, I will buy such services, but what I don’t see in this market and I should know this market, I’ve been in this market a long time, and buying transmission is a huge part of my business. I mean in our business the cost of transmission is the cost of our business. So any saving I can make in cost of transmission is very favourable to my business. I just haven’t found any alternate suppliers that I can either trust, fibre price right or fibre quality of the service that they’re providing correct.”
This was confirmed by Wilcocks when asked to assess the ability to migrate from Telkom to Neotel:95
“Part of the difficulty I have in answering this particular question is to the best of my knowledge Neotel has yet to provide a single service to any enterprise customer. I can speak from personal experience around Internet Solutions that we have approached Neotel on several occasions with a view to obtaining services from them and we have yet to obtain such services…”
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
Both Mr Brierely 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 SLA’s, whether these be from Neotel or PTNs and mobile operators.
Dr Mohapi testified that various municipalities, such as Ekurhuleni, Tshwane, Johannesburg and Cape Town, were currently upgrading their infrastructure and are planning to provide fixed line services to businesses in competition with Telkom as well as looking for opportunities to establish wireless broadband networks. It was submitted in the press that Cape Town Municipality would not provide last mile services directly but would be providing the backbone so that other telecommunications providers can lease from them. It is therefore not clear exactly what services Municipalities will in future be offering or when this will be available.
Some municipalities have been awarded PTN licenses and can thus build their own private telecommunication networks. The recent announcement by the Minister suggests that PTNs can resell their spare capacity to MNS providers. A particular example of the Cape Town municipality was used by Gadlex to support both the fact that municipalities are rolling out PTNs but that they were doing so with Wi-Max to become completely “independent” of Telkom. However, the Cape Town tender has already been legally challenged by Telkom.96 Very little detail concerning the Municipalities’ future commercial plans was submitted.
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.
The question remains whether there are any substitute products available in the market that could offer downstream service providers an alternative choice to Telkom’s fixed line infrastructure, i.e. access to the last mile.
Dr Mohapi testified that wireless, in the form of WiMAX, presented a viable alternative to last mile fixed line access, for Diginet lines. The fundamental advantage of wireless technology is that it creates a local loop without the need to “dig up the earth” and lay multiple cables. Telkom, Neotel, Sentech and iBurst have been issued with a license for WiMAX services. Dr Mohapi lists these entities as competitors to Telkom or alternative suppliers of leased lines, albeit wireless.
There is however, considerable uncertainty as to the ability of wireless technologies to provide reliable business class capacity on a scale that will satisfy the increasing demand of large corporate clients who need dedicated reliable links of more than 2 Mbps to connect their WANs or VPNs.
Mr Brierley, Mr Wilcocks and Dr Hay all disagreed that WiMax was a suitable alternative for the needs of large organizations. They submitted that WiMax was used mainly as a complementary technology to fixed leased lines and was usually deployed in small offices and home use (SOHO) or for limited internet access. Telkom itself uses WiMax as an alternative to ADSL which is deployed as a service for SOHO organizations and consumers as opposed to Diginet lines which are used for large organisations.97.
Dr Mohapi, under cross examination, agreed that WIMAX is not comparable in quality and reliability to fixed line as far as large corporate and their need for bandwidths of more than 2 Mbps, i.e. 155 Mbps, are concerned.98
There seems to be some consensus that currently WiMax, does not offer a viable alternative for fixed line infrastructure at the top end of the corporate market, i.e. where 155 Mbs is required.
Other factors that render WiMAX an unsuitable substitute for fixed line access lines are limited availability to establish high sites, limited bandwidth availability, reliability and quality and large capital investments into infrastructure. WiMax also operates on the basis of a shared base station. Hence the ability for it to serve large organization’s needs is limited by the number of users utilising the base station at the same time. While radio engineering can ameliorate that problem to some extent this is limited.
Significantly, WiMax is not offered with the same level of warranties and Service Level Agreements that Diginet is offered because as Sewell points out:99
“Wireless is generally not as reliable as VIVA.100 It’s affected by weather to some extent. So it wouldn’t be one’s first choice as the main link that you would use in an online environment.”
Mr Brierley explained that because wireless is transmitted through the air it is affected by weather and climate in ways that would not happen with a piece of copper that runs underground.101 Telkom, in its own documents, indicated that it does not consider, for instance, iBurst a competitive threat in the corporate market due, largely, to the WiMAX technology involved.102
From all of the above statements it is clear that WiMax is not an appropriate service for connecting the multiple sites of large corporate customers and that it would only, as technology stands today, be used as a back-up to fixed lines. Hence we do not consider it to be a substitute for the relevant market under consideration namely the large enterprise or organization.
However even if we were, for purposes of argument, to share Dr Mohapi’s views and assume that Wi-Max is a suitable technical alternative to fixed line connectivity for large organizations, a further barrier to entry in relation to such alternative technologies is the availability of spectrum. To date the bulk of this spectrum has been allocated to Telkom, Neotel, Sentech and WBS. It remains to be seen how ICASA will allocate the remainder of the spectrum. Municipalities such as Cape Town who are desirous of rolling out WiMAx networks face the same difficulty of obtaining spectrum. Didata has been lobbying ICASA to allocate the entire remaining spectrum to one entity, namely itself.103 However if ICASA did so, this would amount to granting DD the right to self-provide its infrastructure albeit in the form of wireless connectivity, which brings us to the issue of self provisioning.
ICASA has been asked by the Minister to conduct an enquiry into which of the ECS licensees, if any, are to be granted the right to self-provisioning. In the hearings held by ICASA in this inquiry, Telkom made extensive submissions to ICASA opposing the granting of such rights to ECS. It was therefore surprising and downright dishonest of Mr Matthyser to submit to this Tribunal that Telkom supported self-provisioning by ECS licensees.104 Dr Hay on behalf of Neotel testified that Neotel would challenge such a decision by ICASA.105 Hence any granting of Wi-Max spectrum to an ECS licensee is likely to be challenged by a number of operators, including Telkom and Neotel, and ECS rivals in the event that ICASA chose to grant rights only to some and not others.
As far as Sentech is concerned, it only offers one product called BizNet as an alternative to Diginet or similar fixed leased lines. However, Mr Brierley and Mr Wilcocks testified that Sentech could not provide an alternative to Telkom.106 The product did not come with equivalent warranties and SLAs. So even if Biznet was a technical substitute to fixed lines, Sentech was not able to provide large customers with appropriate SLAs. Mr Wilcocks testified that Sentech in fact was in disarray and was still attempting to obtain funding from government for migration to digital broadcasting in preparation for 2010.
We were urged, during argument, to also take judicial notice of various public statements made by mobile operators indicating their intention to enter the fixed line market. In our view, if we are to have regard to them at all, those statements confirm that wireless connectivity is not a complete substitute for wire-line connectivity –especially so in a converging market –and that mobile operators in fact did not have spare capacity to supply to MNS providers. Their decisions also confirm that Neotel was not a credible alternative supplier of fixed infrastructure.107 Even if we were to consider their intentions as potential entry into the infrastructure market, such entry would hardly be timely given the length of time it takes to roll out fixed line infrastructure and provide access lines with appropriate SLAs.
Dr Mohapi, himself acknowledges that despite all the theoretical possibilities of alternatives and substitutes argued by him, there was no certainty as to their actual availability.108
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