for the six months ended September 30, 2009
March 31 |
September 30 |
September 30 |
|
|---|---|---|---|
Rm |
Rm |
Rm |
|
| Contingencies | |||
| Supplier dispute | |||
| Supplier dispute liability included in current portion of provisions | 664 | 603 | 565* |
| * USD75 million | |||
| There is a dispute between Telkom and Telcordia arising from the development and installation of an integrated end to end customer assurance and activation system, which was supposed to have been supplied by Telcordia. | |||
| The agreement was terminated in the 2001 financial year and the dispute was taken to arbitration where Telcordia was seeking approximately US $130 million plus interest at a rate of 15.5% per year for money outstanding and damages. | |||
| A number of hearings took place during the 2008 and 2009 financial year without success. | |||
| Telkom has in the interim also requested a referral to the independent third expert of the technical issues arising from the systems integration amendment. A hearing surrounding the technical issues has been held during the period November 3 - 21, 2008 where the independent expert released his report and recommended that some aspects fo Telcordia's claim be reduced. The abritrar has not made a final decision in this regard. | |||
| The parties have agreed to argue the issue of systems integration at an experts-only hearing before the independent expert, which hearing commenced on October 2, 2009. The final evidentiary hearing will be held over a two week period in January 2010 and February 2010. | |||
| A provision has been recognised based on management's best estimate of the probable payments in this regard. | |||
| Competition Commission | |||
| Independent Cellular Service Providers' Association of South Africa (“ICSPA”) | |||
| In 2002, the Independent Cellular Service Providers' Association of South Africa (“ICSPA”) filed a complaint against Telkom at the Competition Commission (the “CC”) in terms of the Competition Act, alleging that Telkom had entered into contracts with big corporations, providing large discounts with the effect of discouraging the corporates from using the “premicell” device installed by their members. ICSPA also alleged various contraventions of the Competition Act by Telkom. | |||
| Telkom provided the CC with certain information requested, and also referred the CC to Telkom’s High Court application in respect of utilisation of the “premicell” device. The CC declined to refer the matter to the Competition Tribunal (the “CT”). The complainant itself then referred the matter to the CT on September 18, 2003 but has done nothing since, notwithstanding the fact that Telkom filed its answering affidavit on November 28, 2003. | |||
| The South African Value Added Network Services ('SAVA') | |||
| Telkom's application for review against the CC and the CT in the High Court was successful and the decision of the CC to refer the SAVA Main Complaint to the CT, was set aside. | |||
| On July 3, 2008 the CC filed an application for leave to appeal the decision of the High Court on the basis that the judge erred on the issue of bias as well as his finding that issues surrounding the extension of time to investigate the issues constitutes a ground for review. | |||
| Telkom then filed an application for leave to cross-appeal on July 11, 2008. The main basis of Telkom's cross-appeal is that Telkom believes that the judge erred in failing to make a decision as to whether ICASA or the CC and CT should deal with this type of complaint. | |||
| The application for leave to appeal as well as the application for leave to cross-appeal were granted by the Pretoria High Court on October 9, 2008. The appeal and cross-appeal will be argued before the Supreme Court of Appeal on November 2, 2009. The judgement was reserved including the issue whether ICASA or the CC and CT should with this type of complaint. | |||
| If the Supreme Court of Appeals find that the CT does have jurisdiction to hear the SAVA main complaint and the CT finds that Telkom committed a prohibited practice as set out in the Competition Act, the CT may impose a maximum administrative penalty of 10% of Telkom's annual turnover in the RSA and its exports from the RSA 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. | |||
| Omnilink | |||
| Omnilink alleged that Telkom was abusing its dominance by discriminating in its price for Diginet services as against those charged to VANS and the price charged to customers who apply for a Telkom IVPN solution. The CC conducted an enquiry and subsequently referred the complaint, together with the SAVA complaint, to the CT for adjudication. This matter is currently being dealt with together with the SAVA matter as discussed above. | |||
| Orion / Telkom (Standard Bank and Edcon): Competition Tribunal | |||
| In April 2003, Orion filed a complaint against Telkom, Standard Bank and Edcon at the CC concerning Telkom offering discounts on public switched telecommunication services to corporate customers. The CC completed its investigation and decided that there was no prima facie evidence of any contravention of the Competition Act by Telkom. However, in terms of section 51 of the Competition Act, a party may also refer a matter to the CT. Orion, simultaneously with filing its complaint at the CC, filed an application CT, for an interim order interdicting and restraining Telkom from offering reduced rates to Orion’s corporate customers. | |||
| Telkom has not yet filed its answering affidavit in the main complaint before the CT and it appears as if Orion is not actively pursuing this matter any further. | |||
| Cape Chamber of Commerce | |||
| The Cape Chamber of Commerce laid a complaint at the CC due to Telkom's refusal to offer HomeDSL to business customers. Telkom replied to the CC on November 3, 2005. Telkom also met with the CC for an informal discussion and provided them with certain information. Due to the nature of Telkom's ADSL product offerings since August 2006, Telkom requested asked the CC on November 15, 2006 to finalise the matter since the activity complained of has been addressed. There has been no further activity on this matter. | |||
| ValueCard | |||
| A complaint was lodged at the CC regarding the Telkom Closer Package. ValueCard, as a small business, wants to receive the Telkom Closer Package which is only available for residential customers. The complaint was served on Telkom on March 19, 2008. Telkom is still awaiting investigation of this complaint by the CC. | |||
| Competition Commission referrals | |||
| The CC served a notice of motion on Telkom on 26 October 2009, in which it referred the complaints by ISPA, MWEB and IS, Verizon, MWEB, and IS respectively, to the CT. | |||
| In the notice of motion the CC requests an order against Telkom in the following terms: | |||
| 1.Declaring that over the complaint period (2005 – 2007): | |||
| - Telkom charged excessive prices to first tier ISPs for high bandwidth national leased lines (namely leased lines with bandwidth above 2 Mbps); | |||
| - Telkom charged excessive prices to first tier ISPs for international private leased lines (IPLC's); | |||
| - Telkom set its prices for Diginet lines, high bandwidth leased lines and IP Connect as charged to other first-tier ISPs (or, in the case of Diginet access lines, to end customers using the IP networks of such first tier ISPs) "at levels which, in relation to the prices charged by Telkom for the same services to its own retail and wholesale customers acquiring bundled Diginet or ADSL access and IP network services from Telkom, made it impossible for such other ISPs to compete cost-effectively with Telkom" (this essentially relates to Telkom’s VPN Supreme product); | |||
| 2. Interdicting Telkom from continuing with the conduct referred to in paragraph 1 above; | |||
| 3. In respect of the certain of the contraventions above, an order directing Telkom to pay a penalty equal to 10% of its turnover for the financial year ended 31 March 2009. | |||
| 4. An order in terms of which Telkom would be discouraged to perpetuate the conduct referred to in paragraph 1 above, by having the CT direct Telkom to provide the CC on an annual basis with such data and information as is necessary to enable the CC to assess whether Telkom is charging prices for the services mentioned in paragraph 1 above such that it prevents other ISPs from competing cost-effectively with Telkom. The form and nature of such data is to be agreed to between Telkom and the CC or, in the event that no agreement can be reached within two months of an order by the CT, in a form directed by the CT. | |||
| In respect of the order requested from the CT directing Telkom to pay a penalty equal to “10% of Telkom's turnover for the financial year ended 31 March 2009”, we have been advised by external legal counsel that the CT has not to date imposed the maximum penalty of 10% on any offender. | |||
| External legal counsel has further confirmed that, in terms of the Competition Act, the CT must consider a number of factors before deciding to impose the full 10% penalty. These factors include issues such as whether the guilty party is a repeat offender, the extent to which the party has co-operated with the CC and the CT, the nature, duration, gravity and extent of the contravention, etc. | |||
| Telkom must file its opposing papers within 20 days of receipt of the notice of motion | |||
| Telkom has commenced preparations for opposing the referral. | |||
| Negative working capital ratio | |||
| At each of the interim financial periods ended September 30, 2009 and 2008 and the year ended March 31, 2009 the Company had a negative working capital ratio. A negative working capital ratio arises when current liabilities are greater than current assets. Current liabilities are intended to be financed from operating cash flows, new borrowings and borrowings available under existing credit facilities. | |||