Competition Commission
response to inputs on
Broadband Infraco Bill
28 August 2007
Outline
• Effective competition & competitive outcomes
• State participation
• Licencing
Effective competition
• A structure that ensures competition is much better than
post hoc actions to remedy anti-competitive behaviour
• State has recognised the importance of using strategic
state assets for goals in telecomms sector (as per Sentech
submission)
• Neotel needs to be effective competitor
And
• There should be effective competition
• Neotel is a profit maximising private entity & one member
of a duopoly
• Neotel has clearly indicated:
o it does not intend to engage in price competition with
Telkom
o it will cherry pick more lucrative customers and aims
to grow up to a share of 8-10% of fixed-line market
• This is reflected in Tribunal Telkom-BCX ruling
Effective competition (cont)
Issues of Neotel as a competitor to Telkom were set out in the Competition
Tribunal’s ruling on the Telkom-BCX merger, paras:
o 23: likelihood of cooperation between Neotel and Telkom to ward
off threats from deregulation of network services
o 62&63: bigger threat to Telkom is not Neotel as stood currently, but
deregulation of service mkt
o 63: ‘Neotel already having indicated that it does not intend to
compete with Telkom on the basis of price’
o 86: Telkom expects the SNO to cherry pick corporate and business
customers concentrated in metro areas to secure quick and profitable
market share gains
o102: Telkom itself is confident that after 5 yrs Neotel will not have
more than 10% of fixed line market
o 271: Neotel’s marketing plans reveal its limited focus on corporate
and large enterprise market
o ‘Neotel has already indicated that they will stand shoulder to
shoulder with Telkom and will not engage in price competition
at the infrastructure level.. It is highly likely that Neotel and
Telkom will coordinate their efforts’
State participation
• The key issue is about control:
• what are the incentives driving the enterprise?
• a profit maximising state monopoly behaves the same
way as a private state monopoly
• the state participation in other entities does not affect the
incentives – these (apart from Sentech) are profit
maximising entities regardless of state ownership
• in the expansion phase of infrastructure development
SOEs operating on broader public interest objectives are
crucial, as profit maximisation would mean higher priceis
and slower roll-out
• Infraco as SOE has crucial role to play, the challenge is
further to ensure efficient operation through effective
governance
Licencing
• A license that allows Infraco to discipline other
market participants is important, this not to be
confused with the strategic choice to deal with the
network issues that are causing bottlenecks
currently. A threat of entry by Infraco at a
communications network level may be a
disciplining factor.
• Welcome the new proposals to deal with
licensing issues that will fast track the coming into
operation of Infraco without undermining the role
of ICASA
• ‘belts and braces’ approach
• parties should not use licencing as a way of
undermining the core objectives