Notes to the condensed consolidated provisional annual financial statements
for the year ended 31 March 2014
Competition matters
Competition Commission Multiple Complaints Referral
In 2009 the Competition Commission (CC) referred complaints against Telkom by MWeb and IS as well as the Internet Service Providers' Association, MWeb, IS and Verizon respectively, to the CT (the Multiple Complaints Referral). Telkom and the CC signed a settlement agreement on 14 June 2013, in settlement of the Multiple Complaints Referral. In terms of this settlement agreement, Telkom admitted that its conduct during the complaint period amounted to a contravention of sections 8(c)(margin squeeze) and 8(d)(iii)(bundling and tying) of the Competition Act. The settlement agreement was confirmed by the CT on 18 July 2013 and made it an order of the CT. In terms of the settlement agreement, Telkom has agreed to pay an administrative penalty of R200 million, payable in three equal instalments, payable in 2013, 2014 and 2015. Telkom furthermore committed to certain price reductions in the 2014, 2015 and 2016 financial years as well as to certain behavioural remedies.
Matters before ICASA
Phutuma Networks (Pty) Ltd (Phutuma)
Phutuma filed a complaint against Telkom at ICASA's Complaints and Compliance Committee (the CCC ) in February 2010.
The matter was ultimately heard during May 2014, during which Phutuma withdrew its complaint at the
CCC. The CCC intimated that it would recommend to ICASA that certain regulatory issues should be
addressed by ICASA. Phutuma's complaint at the CCC is thus finalised.
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. 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 since the CCC ruling is not binding on ICASA and the risk remains for similar referrals.
The review application has not been finalised as yet.
Telkom / ICASA, Neotel and CCC
Neotel requested Telkom to provide access to Telkom's local loop in November 2010 in terms of the Electronic Communications
Facilities Leasing Regulations of 2010. Telkom declined the request and Neotel submitted a formal complaint to ICASA.
ICASA referred the complaint to the CCC, which made an order (the "CCC 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 the
review application) and a review application in the High Court to review and set aside the CCC Order.
The parties have since agreed to a court order by consent 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.
Supplier dispute
Radio Surveillance Security Services (Pty) Ltd (RSSS)
RSSS served two summonses on Telkom for the sums of R215 661 866 (including VAT ) and R9 913 782 (including VAT )
respectively but Telkom has settled the lesser amount. Telkom is defending the larger claim and has filed a plea and
counterclaim for R22 million. Pleadings have closed and preparation for trial is under way.
High Court
Phutuma Networks (Pty) Ltd (Phutuma)
In August 2009 Phutuma served a summons on Telkom, claiming for damages arising from a tender
published by Telkom in November 2007 for the outsourcing of the Telex and Gentex services and
for the provision of a solution to support the maritime industry requirements. Phutuma has
claimed damages of R3,730,433,545, alternatively R5,513,876,290, and further alternatively
R1,771,683,580 plus interest at 15.5% per annum to date of payment from April 2008,
alternatively from 30 April 2009 being the date of a notice in terms of Act 40 of 2002,
further alternatively from date of service of this summons plus legal costs. At the trial
during May 2013 the court granted absolution from the instance plus costs. Phutuma has filed
a notice of appeal against the judgement but has not yet set down its application for leave
to appeal.
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 and APSN launched arbitration proceedings in South Africa against MLT claiming damages (9 claims) in the total sum of USD 481 199 101. MLT defended the matter and filed a counterclaim in the amount of USD 123 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 USD 10 million in respect of the claim between APSN and MLT . APSN has since reduced its claim to USD 457 million. MLT has obtained a High Court order to stay the arbitation hearing pending the outcome of the damages action instituted by Telkom and MLT against Blue Label Telecoms, APSN and others.
Contingencies (continued)
CONTINGENT LIABILITIES (continued)
HIP Oils Topco Ltd (HIP Oils) 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 exceeded the amounts set out in Schedule 4 ("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 Multi-Links where such liability, obligation or other indebtedness was incurred and not disclosed to HIP Oils prior to the completion date. In October 2013, Multi-Links and HIP Oils ceded the balance of the proceeds of their claim which was instituted against Blue Label Telecomms and others by Multi-Links, to Telkom, in terms of an out and out cession, which balance will be determined after consideration of all amounts due by Telkom to Multi-Links and vice versa.
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.
In April 2013 Telkom issued a summons against a former senior executive of Telkom, claiming an amount of USD 6 million, for damages suffered as a result of certain irregularities. The matter arises from the former executive's conduct whilst at Multi-Links. The matter is being defended and is set down for hearing on 2 September 2014.
Blue Label Telecoms Limited and 5 Others
In May 2013 Telkom (and Multi-Links Telecommunications, Nigeria) issued a summons against Blue Label Telecoms
Limited, certain subsidiaries of Blue Label and certain individuals, including a former senior executive of Telkom, claiming
an amount of USD 528 071 116. The claim is for damages suffered by Telkom arising out of a Super Dealer Agreement
(SDA ) concluded between African Pre-paid Services (Pty) Ltd (a subsidiary of Blue Label) and Multi-Links as well as
for a breach of fiduciary duties owed to Telkom and Multi-Links. In October 2013, HIP Oils (the holding company of
Multi-Links) and Multi-Links ceded the balance of proceeds of its claim against Blue Label and others to Telkom by way
of a cession, which balance will be determined after consideration of monies due by Telkom and itself under the Share
Sale Agreement concluded between Telkom and HIP Oils. In November 2013 APSN filed its plea and a counterclaim for
damages against Telkom for USD 451 million or so much of it as APSN does not recover from Multi-Links arising from
Telkom's alleged unlawful interference in the contractual relationship between APSN and Multi-Links causing Multi-Links
to repudiate the SDA . APSN also filed a counterclaim against Multi-Links for USD 457 million. Both Telkom and Multi-Links
have opposed the counterclaim.
Multi-Links (MLT)
Telkom is claiming an amount of US$ 20.9 million from MLT in respect of amounts due by MLT to Telkom with regards to the provision of resources, legal costs and an interest free loan. In October 2013, MLT signed an out and out cession of its claim against Blue Label
and 5 other defendants in favour of Telkom, which made provision for the payment of monies due by MLT to Telkom and vice versa from the proceeds of any monies recovered in the Blue Label action, by way of an accounting and deduction process.
As noted in the 2013 consolidated annual financial statements, the 2012 tax return was submitted and has since then been provisionsally assessed on the basis of opinions obtained from Senior Counsel. In 2014 a similar tranasction 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 Telkom interpretation has been given final acceptance by SARS (or in the case of a dispute has been positively resolved in the Tax Court). The Company still awaits the outcome of the SARS process, which will confirm the recognition of the tax refund of R854 million in relation to 2012, currently included in trade and other payables.