for the six months ended 30 September 2014
Phutuma Networks (Pty) Ltd (Phutuma)
Phutuma filed a complaint against Telkom at ICASA's Complaints and Compliance Committee (the CCC) in February 2010. At a hearing in May 2014, it was Telkom's understanding that Phutuma withdrew its complaint against Telkom, and that the CCC intimated that it would recommend to ICASA that certain regulatory issues be addressed by ICASA. In June 2014, Telkom received a document titled Interim Ruling from the CCC. A further hearing was held at the CCC in September 2014. Both parties have made submissions and the CCC will now make its ruling.
End-User and Service Charter Regulations
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. The CCC heard the matter and has ruled that Telkom is not in breach of the Regulations and recommend that ICASA review the regulations. Telkom has initiated administrative review proceedings seeking to set-aside the applicability of the Regulations since the CCC ruling is not binding on ICASA and the risk remains for similar referrals. The review application is in process.
Neotel/Telkom : CCC
Neotel requested Telkom to provide access to Telkom’s local loop in November 2010. Telkom declined the request and Neotel submitted a formal complaint to the CCC which made an order directing Telkom to provide Neotel access to Telkom’s local loop. Telkom launched an interim relief application for an order that the CCC order not be implemented pending a review application in the High Court to review and set aside the CCC order. The parties have since agreed to a court order in terms of which Telkom withdrew its application for interim relief and ICASA in turn undertook not to implement the CCC order pending the outcome of Telkom’s application for review. No date has been set down as yet for the hearing of the review application.
Radio Surveillance Security Services (Pty) Ltd (RSSS)
RSSS sued Telkom for R215 661 866 (incl VAT). Telkom is defending the claim and has filed a plea and counterclaim for R22 million. Preparation for trial is under way.
Phutuma Networks (Pty) Ltd (Phutuma)
In August 2009, Phutuma issued a summons against Telkom, arising from a tender published by Telkom in November 2007, claiming damages in the amount of R5,5 billion. The High Court granted absolution from the instance in Telkom's favour. The Supreme Court of Appeal (SCA) had initially dismissed Phutuma’s application for leave to appeal in October 2014. On 4 November 2014, the SCA rescinded its order granted in October 2014. The application for leave to appeal will again be considered by the SCA.
African Pre-paid Services Nigeria Limited (APSN) v Multi-Links: Arbitration matter
Multi-Links Telecommunications (MLT), a previously wholly owned subsidiary of Telkom in Nigeria, concluded a Super Dealer Agreement (SDA) with African Pre-paid Services (APS). APS ceded and assigned all of its rights and obligations in terms of the SDA to African Pre-paid Services Nigeria (APSN). APSN cancelled the SDA on the basis of an alleged repudiation by MLT of the agreement. APSN launched arbitration proceedings in South Africa against MLT claiming damages in the sum of USD481,199,101. MLT defended the matter and filed a counterclaim in the amount of USD123 million. Telkom sold its shareholding in MLT to HIP Oils Topco Limited (HIP Oils). In terms of an indemnity contained in the Sale and Purchase agreement between Telkom and HIP Oils, Telkom is liable for all amounts in excess of USD10 million in respect of the claim between APSN and MLT. MLT has obtained a High Court order to stay the arbitration hearing pending the outcome of the damages action instituted by Telkom and MLT against Blue Label Telecoms, APSN and others.
HIP Oils Topco Ltd (HIP Oils)
With the sale of Telkom’s shares in MLT to HIP Oils, Telkom provided a taxation indemnity and a creditors indemnity to HIP Oils and MLT where such liability was incurred prior to 3 October 2011 and to the extent that such liability exceeded the amounts set out in the creditors list to the Sale and Purchase Agreement. Telkom has undertaken to indemnify any actual or contingent liabilities, obligations or other indebtedness of any nature owed or owing to trade, financial and other creditors of MLT where such liability, obligation or other indebtedness was incurred and not disclosed to HIP Oils prior to the completion date.
Tax matters
Telkom received an assessment from SARS in respect of the 2010 year of assessment to which Telkom has objected.
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.
As noted in the 2013 consolidated annual financial statements, the 2012 tax return was submitted and has since then been provisionally assessed. In 2014 a similar transaction arose, however the 2014 tax return has not been submitted. Since the tax treatment of the loss arising in 2012 and 2014 is based on a specific set of circumstances and a complex legislative environment, the contingent asset will only be recognised once the matter has been resolved with SARS. The outcome of the SARS process, will determine the recognition of the tax refund of R854 million in relation to 2012, currently included in trade and other payables.