Lawyers sharpen their wits
Lengthy battle ahead over Telkom/Business Connexion deal
LENGTHY COMPETITION Tribunal hearings like those into the proposed Telkom/ Business Connexion (BCX) merger must be manna from heaven for lawyers and advocates such as David Unterhalter, Alfred Cockrell and Arnold Subel. In fact, if you’ve been to a few, you’ll have seen them in action, vociferously arguing for and against matters as convincingly as if they believed them to be the gospel truth.
For any layman it’s difficult to judge from the hearings which way a decision is going to go – both sides are often equally convincing due to the expertise of expensive senior counsel.
To take a position on the outcome based on having attended some of the hearings and reading the documentation would appear to be a 50:50 gamble. But the market has for some time not been confident the deal will go ahead – Business Connexion shares are trading well below Telkom’s offer price.
At least one can be assured of a legally sound and well-considered verdict in the hands of Tribunal chairman David Lewis and his team. Lewis has built up a solid reputation for fairness and fearlessness when tough decisions need to be made.
Neither can anyone be accused of rushing through the process. The Telkom/BCX hearings are scheduled to last a month. And bearing in mind the amount of work that’s gone into preparing for oral presentations, the process has gone on much longer.
In addition to the company witnesses the various parties will call to back up their positions, there are also a number of expert reports that have been commissioned by the parties to lend weight to their views on the anti-competitive or otherwise effects of the deal.
These include reports by London-based anti-trust consultants CRA International (as an expert witness statement for Telkom and Business Connexion), economics consulting firm Genesis Analytics (prepared for the interveners), Sally van Siclen (prepared for Dimension Data) and economist Emanuele Giovannetti (prepared for the Competition Commission).
Most of the reports are available in a non-confidential format, with blacked-out bits that inevitably leave one feeling like a reader of the Rand Daily Mail back in the bad old days. Understandably, this is done to protect the various players’ competitive information, and doesn’t detract from the conclusions the various parties draw.
The arguments are undoubtedly complex and cannot be distilled into a single page. But, in essence, it’s all about whether Telkom buying Business Connexion would prevent other IT services companies from competing effectively.
There’s no debate about the merits of Telkom’s strategy of wanting to enter the IT services market and establish a presence quickly by acquisition – this echoes strategies adopted by international companies including France Telecom, Deutsche Telekom, BT, Bell Canada and many others.
But, while Telkom wants to do so with a bang – by buying the biggest player in this space – others believe it should be forced to build its ITS capacity organically.
The Competition Commission recommended that the merger be prohibited because it would “substantially prevent or lessen competition and have a negative effect on the public interest…without any efficiencies to outweigh the negative effects”. Neither were there any remedies – such as requiring Business Connexion to sell its Communications business (the old Bidnet), for example – that could lessen the anti-competitive effects, it said.
The Genesis report backs this up, saying that allowing Telkom to merge with BCX would strengthen its position before liberalisation and effective regulation had the opportunity to create a more competitive communications market. “Permitting Telkom to grow organically into the IT service areas and IT companies to grow organically into the telecoms arena is far more likely to result in pro-competitive outcomes than a merger of the largest companies in both parts of the market.”
The CRA report, however, tries to rebut all of the various concerns, claiming the deal wouldn’t have anti-competitive effects: “The services offered by the two firms are largely complementary, implying that there would be only a minor direct loss of competition arising from the transaction.”
Technically, CRA (and Telkom and BCX) may – or may not – be correct. That’s up to Lewis and his team to decide.
But, various participants pointed to Telkom’s track record of litigation against those seeking to challenge its position.
Scutinising the arguments. David Lewis