Conditional approval of Telkom and Business Connection merger, following Dimension Data intervention

On 4 August 2015, the Competition Tribunal approved the large merger between Telkom SA SOC Limited (Telkom) and Business Connection Group Limited (BCX) on a number of conditions.

The merger entails Telkom, a telecommunications service provider, acquiring BCX, an information and communications technology (ICT) service provider with six operating divisions which operates six business divisions offering services ranging from cloud infrastructure, communications, security and network services, workspace services, professional services, application services and service integration and management. The Commission found that the transaction would give rise to vertical anti-competitive effects in that Telkom, with its extensive fibre network it uses to provide wholesale fixed lease lines, had market power in the upstream market for the supply of wholesale fixed-leased lines. The merger would enable Telkom to engage in an input foreclosure strategy. Furthermore, Telkom would be the only service provider capable of offering wholesale connectivity and a full suite of downstream services (including the supply of managed network services (MNS), value-added network service (VANS), hosting, Information Technology Services (ITS) and the retail supply of mobile services) without having to procure additional components from a third party, therefore allowing it to potentially exclude competitors which do not have the benefit of being vertically integrated.

To ameliorate the competition concerns raised by the Commission, with which Dimension Data Proprietary Limited, an intervening party in the matter concurred, certain merger conditions were imposed.

These include the implementation of a pricing programme to ensure non-discriminatory pricing of its network and bundled services and a behavioural remedy to ensure that the quality of fixed network products are provided by Telkom’s wholesale division to other licenced operators, electronic communications network service and electronic communications service licensees is equivalent to those provided to Telkom’s retail division.

Merger specific job losses were also considered and limited to 20 employees per year for 3 years in respect of the identified employees affected by the merger in terms of a merger condition.