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How Telkom tried to hijack the Internet2007-08-27 A new academic paper highlights Telkom’s attempt to monopolize the Internet. Unbeknownst to many people Telkom tried to gain exclusive rights to Internet Service Provisioning in the nineties. A recently released academic paper by Robert B. Horwitz and Willie Currie, from the Department of Communication at the University of California-San Diego and the Association for Progressive Communications respectively, sheds light on the matter. The paper, entitled “Another instance where privatization trumped liberalization: The politics of telecommunications reform in South Africa—A ten-year retrospective”, discusses various issues related to the local telecoms space. Some of the pertinent topics in the paper are SBC’s detrimental shareholding in Telkom, the failed telecoms reform process, Government’s sabotaging of the regulator & general obstruction of competition and realizing monopoly rents. One instance where Telkom did not get its way is in its attempt to ‘hijack the Internet’ by asking the regulator to amend its license to recognize the Internet as part of its PSTS monopoly. The paper by Horwitz and Currie says that the controversy over Internet access provides a window into how Telkom “exploited its exclusivity claims to engage in anti-competitive practices and, beyond that, to use litigation to impose costs and delay.” Early Internet days The Internet was started in South Africa in the early nineties by private ISPs using network infrastructure leased from Telkom. According to a paper by Charles Lewis from the WITS Link Centre the idea of establishing an ISP was proposed to Telkom, but they found the proposal “too undisciplined”. “Telkom failed utterly to understand what the Internet could do for their business,” said Mike Lawrie, one of South Africa’s Internet pioneers. Many reasons were given for Telkom’s reluctance to enter the Internet space in the early nineties, ranging from their view that ISPs were not a threatening revenue stream to a lack of understanding regarding the potential impact of the Internet on their revenue. Telkom however soon woke up to the potential of the Net and launched SAIX, its own Internet Access Provider, in June 1996. Later that year Telkom also launched Intekom, its own dial-up ISP. Telkom behaving anti-competitively According to the IAPs and ISPs of the time Telkom started behaving anti-competitively by unfairly leveraging its control of basic voice and data networks to engage in predatory pricing, and the Internet Service Providers Association (ISPA) was born. According to Lewis’ paper, further allegations began to surface that Telkom’s leased line installation teams were actively trying to poach customers for SAIX. The newly formed ISPA launched a Competition Commission complaint, but after the Competition Board initiated a process to define a policy framework for the Internet industry, Telkom refused to provide audit information on the cost structure of SAIX and rejected the Board's jurisdiction in favor of the newly established SATRA (SA Telecommunications Regulatory Authority). Telkom try to hijack the Internet Telkom then filed a counter-complaint with SATRA ‘that commercial ISPs were in contravention of its sphere of exclusivity, and asked the Regulator to amend its license to recognize Internet as part of its PSTS monopoly’. This would effectively give Telkom exclusivity rights over the Internet. Well known Internet expert Ant Brooks, who was freelancing at that stage and was asked to serve on the Advisory Committee which debated the merits of Telkom's claim, recalls Telkom’s turnaround (at that stage they were in negotiations regarding ISPA's original 1996 unfair competition complaint): “Telkom's stance switched from ‘we aren't doing anything anti-competitive, really’ to ‘actually, it doesn't matter whether we are doing something anti-competitive or not, because IP falls within our monopoly rights’. “Everyone except Telkom disagreed most vehemently with this position, so SATRA decided to hold an inquiry into the matter,” Brooks said. According to Horwitz and Currie “SATRA decreed in October 1997 that access to the Internet would be applied under VANS licenses and that Telkom had no claim to exclusivity with regard to the provision of Internet access.” Brooks point out that while ISPA played a key role in heading off Telkom's efforts, it wasn't alone in lobbying SATRA. “Dozens of submissions were made to the regulator on the matter, and almost all of them were strongly against Telkom's monopoly extending to Internet services.” This was however not the end, and Telkom took the matter to the Pretoria High Court claiming that SATRA had no legal basis for its decision. Horwitz and Currie say that the court found in favour of Telkom because of procedural violations on the part of SATRA, but Telkom and the ISPs came to a commercial modus vivendi and Telkom declined to proceed further legally. Not stopping Telkom’s anti-competitive behavior Brooks said that while the SATRA ruling could be seen as a victory for ISPA, it didn't do much to stop the wide variety of anti-competitive practices that Telkom was engaging in at the time. “Telkom's attempt to extend their monopoly rights was primarily a stalling tactic to prevent the Competition Board or SATRA from interfering any further into Telkom's business practices in the Internet sector,” Brooks points out. After the dust settled all South African Internet providers still had to lease lines from Telkom and dial-up access was subject to high, metered call tariffs. The result was that local Internet usage has weakened, and that South Africa fell from 14th in the world regarding connectivity to 37th a decade later – a trend that is continuing. ISPA currently has another complaint pending with the Competition Commission, this time regarding anti-competitive behavior by Telkom in the provisioning and pricing of ADSL. Source: My Broadband |
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