for the six months ended 30 September 2012
The contingencies must be read in conjunction with 31 March 2012 Group annual financial statements (pages 267 to 269).
Telkom is a party to a number of legal proceedings filed by several parties with the South African Competition Commission (CC) alleging anti-competitive practices described below. Some of the complaints filed at the CC have been referred by the CC to the Competition Tribunal (CT) for adjudication.
Should the CT find that Telkom committed a prohibited practice as set out in the Competition Act for each of the cases, the CT may impose a maximum administrative penalty of 10% of Telkom's annual turnover in the Republic of South Africa and its exports from the Republic of South Africa during Telkom's preceding financial year. However, Telkom has been advised by external legal counsel that the CT has to date not imposed the maximum penalty on any offender in respect of the contraventions being accused of.
This matter relates to the complaints filed by SAVA on 7 May 2002 and a complaint filed by Omnilink (in August 2002) against Telkom at the CC, regarding certain alleged anti-competitive practices by Telkom. These complaints were referred by the CC to the CT on 24 February 2004.
The CT handed down its ruling on 7 August 2012 and found Telkom guilty of the refusal to provide essential facilities to VANS licensees and of requiring or inducing customers of VANS not to deal with the VANS. The CT made no findings as regards the complaint of exclusionary conduct. As regards the complaint of price discrimination, the CT found no contravention by Telkom on the basis that the CC did not lead sufficient evidence to prove that Telkom's conduct caused consumer harm. The CT imposed a penalty of R449 million on Telkom, 50% of which was payable within six months of the order and the remainder within 18 months of the order. On 29 August 2012, Telkom filed a notice of appeal against the CT's ruling and the CC filed a notice of cross-appeal on 11 September 2012. Telkom is endeavouring to file the record of appeal by 27 November 2012, after which the Competition Appeal Court (CAC) will allocate a date for hearing of the matter.
IS filed a complaint at the CC in December 2007 (which was dealt with by the CC as part of the Multiple Complaints Referral referred to below) alleging certain anti-competitive practices by Telkom.
Certain parts of this complaint were referred to the CT by the CC and these are dealt with in the Multiple Complaints Referral reported on below. The non-referred parts of the complaint were self-referred by IS. Telkom raised various exceptions in relation to certain aspects of the IS self-referral. IS brought an amendment application which ostensibly addressed Telkom's exceptions. This application was heard by the CT on 26 June 2012 and dismissed with costs by the CT on 2 July 2012. In August 2012 IS filed a notice of appeal to the CAC against the CT's order.
The CC served a notice of motion on Telkom in October 2009, in which it referred complaints against Telkom filed by MWEB and IS as well as the Internet Service Providers Association (ISPA), MWEB, IS and Verizon, respectively, to the CT. The CC alleged certain anti-competitive practices by Telkom. The matter is set down for trial during June 2013. Telkom and the CC are busy with preparations for trial and, in this regard, the discovery process is nearing completion.
Telkom was informed by the CC that a complaint was filed by Phutuma at the CC wherein Phutuma alledges that, "Telkom has contravened section 8(c) of the Competition Act, as amended, by abusing its dominant position in engaging in anti-competitive conduct in the telegraphic and telex maritime services market by unilaterally awarding these services to Network Telex". The CC non-referred the complaint on 28 June 2010. However, Phutuma selfreferred its complaint to the CT on 20 July 2010, alleging that Telkom engaged in an exclusionary act by appointing Network Telex in 2007 without any formal procurement process. Telkom filed its answer in which it raised certain preliminary points, and Phutuma filed its reply. Telkom's preliminary points were upheld by the CT on 2 March 2011 and Phutuma's self-referral was dismissed with costs. Phutuma appealed this decision to the CAC and the appeal was heard on 28 May 2012. The parties are still awaiting a ruling from the CAC.
Phutuma filed a complaint against Telkom at the Complaints and Compliance Committee of ICASA (CCC) in February 2010. After various amendments to the complaint sheet, Phutuma filed a final complaint sheet which consisted of six complaints. Telkom responded to this amended complaint sheet on 7 December 2011 and Phutuma filed its reply thereto on 19 January 2012. The matter, has been set down for hearing before the CCC from 15 to 18 April 2013.
Allegations have been made at the CCC regarding Telkom's alleged non-compliance with the requirements of the End-User and Service Charter regulations relating to the clearance of reported faults. A hearing has taken place and the CCC has ruled that Telkom is not in breach of the regulations and recommend that ICASA review the regulations which, as they stand, are not capable of implementation. Telkom, however, has already initiated administrative review proceedings seeking to set-aside the applicability of the regulations.
On 2 December 2011, the CCC notified Telkom of having received ICASA's referral of notification of dispute. A dispute was lodged by Neotel that broadly relates to Telkom's alleged refusal to lease its unbundled local loop (LLU) constituting a portion of Telkom's electronic communication network.
The CCC heard arguments from both parties in the above matter in May 2012. At the culmination of proceedings, the CCC ruled that Neotel's request to access Telkom's local loop was a valid request and that Telkom's response to the same was inadequate. However, the CCC also ruled that there currently exists no regulatory framework to give practical effect to LLU. In the circumstance the CCC has ordered that Telkom and Neotel reconsider the issue and revert to ICASA within three months and that ICASA consider the matter within the context of its December 2011 LLU determinations. Telkom is in the process of instituting High Court proceedings to interdict ICASA from implementing the CCC order and further to have the CCC order reviewed and set aside.
During September 2011 RSSS served two summons on Telkom for the sum of R215,661,865.88 (including VAT) and R9,913,782.00 (including VAT), respectively. In the summons for R215,661,865.88 RSSS alleged that Telkom was indebted to it for the rendering and upgrading of 440 alarm systems to be M3010 compliant. Telkom had previously purchased the alarm systems from RSSS.
The claim for R9,913,782.00 related to rentals, monitoring and maintenance costs for alarm systems which were rented and/or purchased by Telkom from RSSS. Telkom defended both summons. During November 2011 RSSS withdrew both actions against Telkom in terms of a settlement agreement. Subsequent to the withdrawal of action RSSS disputed the grounds of the settlement agreement and reissued summons for the same amounts in December 2011. The action instituted against Telkom for R9,913,782.00 was withdrawn recently after a settlement agreement was concluded between the parties. Telkom is defending the action for R215,661,865.88 and has served a notice of exception on RSSS.
On 20 August 2009 Phutuma served a summons on Telkom for damages arising from a tender published on 30 November 2007 for outsourcing of the Telex and Gentex services and for the provision of a solution to support the maritime industry requirements. The tender was cancelled on 10 June 2009, without any award being made, due to the expiration of the validity period. Phutuma has alleged that Telkom had awarded the tender to a third party outside a fair, transparent, competitive and cost-effective procurement process. It has claimed damages of R3,730,433,545.00, alternately R5,513,876,290.00, and further alternatively R1,771,683, 580.00 plus interest at 15.5%per annum to date of payment from April 2008, alternatively from 30 April 2009 being the date of notice in terms of Act 40 of 2002, further alternatively from date of service of this summons plus costs of suite and further and/alternative relief. The matter was originally set down for hearing from 24 October 2011 to 18 November 2011 in the North Gauteng High Court. Phutuma applied for an adjournment of the trial 'sine die' which application was granted subject to Phutuma paying costs which included Senior counsel's fees on trial for two days plus 50% of Senior counsel's costs for preparation for trial. The matter has been set down for hearing on 20 May 2013.
The matter arises from the award of a tender by Telkom in November 2008 after the validity period had expired. Telkom successfully applied to the North Gauteng High Court to set aside its award. Bihati's application to the North Gauteng High Court to review and set aside the Telkom Board's decision and for an order compelling Telkom to commence with the negotiations in respect of the award, was dismissed with costs. Merid and Bihati were granted leave to appeal against the judgements granted in favour of Telkom. The appeals which were set down in August 2012 were withdrawn by Bihati and Merid after they concluded confidential settlement agreements with Telkom.
During 2011, Telkom awarded a tender to Huawei Technologies Africa and Alcatel-Lucent. In January 2012, an unsuccessful bidder, ZTE, brought an interdict application on Telkom, in which it sought an order for an interim interdict, to restrain and interdict Telkom from implementing the tender and concluding any service level agreements with the successful bidders, pending the finalisation of the dispute resolution process between Telkom and ZTE. In March 2012 the High Court granted the interim interdict in favour of ZTE. Telkom has filed an an application for leave to appeal to the Supreme Court of Appeal, which was granted on 23 May 2012. Telkom has filed its notice of appeal and copies of the record in the SCA. ZTE has until 16 November 2012 to file its opposing heads of argument.
Multi-Links, a previously wholly-owned subsidiary of Telkom in Nigeria, concluded a Super Dealer agreement with African Pre-Paid Services (APS), in December 2008 in terms of which APS was appointed for an initial period of ten years to sell, market and procure customers for Multi-Links range of products and services in Nigeria (the agreement). On 29 May 2009, APS ceded and assigned all of its rights and obligations in terms of the agreement to APSN. On 26 November 2010 APSN cancelled the agreement on the basis of an alleged repudiation by Multi-Links of the agreement. On 13 June 2011 APSN launched arbitrational proceedings in South Africa (as per contract) against Multi-Links claiming damages (nine claims) in the total sum of USD481,199,101.00. Multi-Links is defending the matter and has filed a counterclaim in the amount of USD123 million. Telkom sold its shareholding in Multi-Links to HIP Oils Topco Limited (HIP Oils) during October 2011. In addition, in terms of an indemnity contained in the sale and purchase agreement between Telkom and HIP Oils concluded in August 2011, Telkom has indemnified Multi-Links/ HIP Oils for all amounts in excess of USD10 million in respect of the claim between APSN and Multi-Links. Recently APSN filed an amendment in which it abandoned some of its claims and reduced its total claim to US$457,638,256.00. The arbitration will be heard from 5 November to 14 December 2012.
With the sale of Telkom's shares in Multi-Links to HIP Oils, Telkom provided a taxation indemnity and a "creditors" indemnity to HIP Oils and Multi-Links where such liability or obligation was incurred prior to 3 October 2011 and to the extent that such liability was not disclosed or exceed the amounts set out in Schedule 4 (creditors list) to the Sale and Purchase Agreement.
On 25 August 2011 the NCC served compliance notices on Telkom for both fixed-line and mobile services to be brought in line with CPA. The NCC alleges that Telkom's terms and conditions for fixed-line and mobile services (8ta) were, at that stage, not compliant with the CPA. Telkom has filed an objection to these compliance notices. On 28 September 2011, Telkom submitted its revised terms and conditions to the NCC. Telkom is of the view that the revised terms and conditions are in compliance with the provisions of the CPA. The NCC is not in agreement with Telkom's interpretation of the CPA in respect of certain clauses of our standard terms and conditions. Telkom has further amended those clauses to give the NCC more comfort and has implemented its revised/compliant terms and conditions. Telkom has met with the NCC to ascertain how the matter can be settled.
Telkom has applied for a new date for set down but to date has not received a response from the Consumer Tribunal. On 9 October 2012, Telkom made an application to the National Consumer Tribunal to consolidate the fixed line and 8ta matters. To date, the Tribunal has not advised as to the outcome of the application.
The Group is regularly subject to an evaluation, by tax authorities, of its direct and indirect tax filings. The consequence of such reviews is that disputes can arise with tax authorities over the interpretation or application of certain tax rules applicable to the Group's business. These disputes may not necessarily be resolved in a manner that is favourable to the Group. Additionally, the resolution of the disputes could result in an obligation to the Group.