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

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 Tribunal’s ruling on the Telkom-BCX merger, paras: • 23: likelihood of cooperation between Neotel and Telkom to ward off threats from deregulation of network services • 62&63: 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: Neotel’s 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’

5. 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

6. 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