Telkom receives approval to buy BCX with conditions

South Africa's Competition Commission announced that it has recommended to the Competition Tribunal that Telkom's ZAR 2.7 billion deal to acquire the IT services group Business Connexion be approved with conditions. The Competition Commission found that Telkom, as the largest provider of wholesale leased lines to downstream customers, has the ability to foreclose its downstream rivals from access to wholesale leased lines which are essential inputs for the provision of downstream services including managed network services, value-added network services, hosting and IT services. The commission also found that the merger will result in the merged entity having the ability and incentives to engage in bundling strategies that may result in anticompetitive effects. On public interest issues, the commission found that the merger will result in employment losses of up to 60 employees over a three-year period. 

To address its concerns, the commission has recommended to the tribunal that certain behavioural and employment conditions be imposed. Among the behavioural conditions, is that Telkom's application and implementation of the transfer pricing programme should explicitly include fibre access, and remain in force for the duration of the condition period. Consequently, the tenure of the transfer pricing programme will be extended from 18 July 2018 to 31 December 2020. 

In relation to competition concerns, the commission said Telkom will among other things ensure that the prices for wholesale leased lines are based on actual lines utilised and priced at the non-discriminatory transfer price for common components and ensure that the prices for the other services and/or components included in the bundle are based on actual costs incurred. Furthermore, it must not set prices for its bundled offerings using wholesale leased lines at levels less than the sum of the costs of components in the bundle. When providing any bundled offering which includes wholesale leased lines, the price complements for each individual service included in the bundle must be clearly reflected in the overall price for the bundle.

Telkom and BCX welcomed the recommendation by the Competition Commission. In a statement, Telkom and BCX said they remain committed to the proposed transaction and will engage and work with the necessary regulatory bodies as required. They now await the Competition Tribunal to set a hearing for the case. Telkom first announced in May 2013 plans to acquire BCX.