The company that wanted exclusive rights to the Internet in South Africa

Nearly thirty years ago, Telkom tried to gain monopolistic control over South Africa’s Internet, only to be stopped by a group of industry stakeholders under the umbrella of the Internet Service Providers’ Association (Ispa).

Telkom’s argument to the sector regulator, the former South African Telecommunications Regulatory Authority (Satra), was that its state-sanctioned monopoly over voice services should extend to the Internet.

Ispa was founded on 6 June 1996 to combat the threat posed by Telkom’s entry into the Internet services market as the sole provider of public switched telephony in South Africa.

Independent Internet service providers (ISPs) accused Telkom of anticompetitive practices that threatened a vibrant and growing Internet industry.

These private ISPs alleged that Telkom was abusing its position as the sole telecommunications infrastructure provider to undercut their prices.

ISPs said they had to bear the expense of leasing Telkom lines for clients, whereas Telkom does not have to carry that additional expense in offering ISP services.

Less than a year after Ispa’s original complaint, Telkom hit back at the fledgling ISP industry by trying to monopolise the market entirely.

This sent shockwaves through the commercial Internet service provider industry, which feared this might push them out of business.

A 2007 academic paper by Robert B. Horwitz and Willie Currie quoted Ispa co-founder Ant Brooks to highlight the moment Telkom’s attitude towards the industry shifted.

“Telkom’s stance switched from ‘we aren’t doing anything anti-competitive, really’ to ‘actually, it doesn’t matter whether we are doing something anti-competitive or not, because IP falls within our monopoly rights,’” Brooks said.

“Everyone except Telkom disagreed most vehemently with this position, so Satra decided to hold an inquiry into the matter.”

Part of the debate at the time was that Telkom said allowing private companies to offer Internet services would undermine its ability to supply access to underserved communities.

It claimed that it relied on the opportunity to cross-subsidise its services to roll out basic telecommunications services to currently under-serviced areas.

Ispa disputed Telkom’s argument and said it would be under no obligation to roll out universal Internet access.

“A Telkom monopoly would hinder, rather than promote, universal access,” Ispa said at the time.

“SMME’s are in a better position than Telkom to reach disadvantaged areas, both in terms of speed and efficacy.”

Telkom loss and the liberation of SA telecoms

In October 1997, Satra ruled in favour of Ispa and found that Telkom’s monopoly on fixed-line telecommunications did not extend to the Internet Protocol.

Telkom immediately challenged the ruling in court, but regulatory and market developments ultimately rendered the issue moot.

Among these was that Telkom’s monopoly on telecommunications in South Africa would officially end in 2002 as part of government’s “managed liberalisation” programme.

Predictably, government bungled this, and no competitor to Telkom launched in 2002. The true liberalisation of the sector only began years later with the Electronic Communications Act of 2005.

The promulgation of the law allowed smaller players to challenge government in court in 2007 and win the right to “self-provision” — build and operate their own physical network infrastructure.

It took another seven years from that ruling for Vumatel to break ground in Parkhurst, kicking off a revolution in broadband connectivity in South Africa.

Another five years later, in 2019, Vumatel overtook Telkom as the country’s largest fibre-to-the-home provider.

Years after the battle with Telkom, Ant Brooks told MyBroadband he was unconvinced that there was any reasonable legal argument that Internet services fell within Telkom’s monopoly.

“I believe that Telkom probably knew that too. I am convinced that Telkom’s actions at the time were largely a delaying tactic to avoid scrutiny of their anti-competition activities.”

Brooks explained that Telkom was facing a Competition Board inquiry into their activities in the Internet space, and using the monopoly argument was a strategy to engage in forum hopping.

Ispa’s allegations of anti-competitive behaviour were eventually borne out by a 2013 settlement between Telkom and the Competition Tribunal, in which Telkom agreed to pay a R449-million fine for abusing its dominance.

Today, partly in response to this settlement, Telkom operates a separate wholesale division called Openserve and provides non-discriminatory and competitive services to many ISPs.