Presentation Template

1
Competition Commission response to inputs on
Broadband Infraco Bill 28 August 2007
2

• Outline
• Effective competition competitive outcomes
• State participation
• Licencing

3

• 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
• it does not intend to engage in price
  competition with Telkom
• 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

4

• Effective competition (cont)
• Issues of Neotel as a competitor to Telkom were
  set out in the Competition Tribunals ruling on
  the Telkom-BCX merger, paras
• 23 likelihood of cooperation between Neotel and
  Telkom to ward off threats from deregulation of
  network services
• 6263 bigger threat to Telkom is not Neotel as
  stood currently, but deregulation of service mkt
• 63 Neotel already having indicated that it
  does not intend to compete with Telkom on the
  basis of price
• 86 Telkom expects the SNO to cherry pick
  corporate and business customers concentrated in
  metro areas to secure quick and profitable market
  share gains
• 102 Telkom itself is confident that after 5 yrs
  Neotel will not have more than 10 of fixed line
  market
• 271 Neotels marketing plans reveal its limited
  focus on corporate and large enterprise market
• 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

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• 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

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• 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