South Africa’s mobile operators under attack for discriminatory “on-net” pricing

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Cell C (one of South Africa’s top 3 mobile telecommunications providers) has filed a complaint against competitors MTN and Vodacom with the Competition Commission, according to its press statement dated October 9, 2013

What appears to be the crux of the Cell C complaint is a predatory pricing argument against MTN and Vodacom — a type of claim that is, generally speaking, not an easy one to make.  Complaining to an antitrust regulator or a court that a rival is charging too low a price for competing services is generally a no-go of an antitrust argument.  You are essentially telling the judge: “my rivals out-compete me! Help me raise prices!

To make out a successful case for truly anti-competitive predatory conduct, you would normally (e.g., in the U.S. or in the EU) have to prove (1) dominance, (2) true below-cost pricing (the economic measure of which is subject to debate, on top of that), (3) a likelihood of success in the subsequent recoupment of any losses incurred, and potentially, depending on your jurisdiction, (4) predatory intent by the dominant firm.

Interestingly, the complaint may have received well-timed (or perhaps too well-timed?) support from the South African Independent Communications Authority (ICA).  The ICA recently announced plans to reduce the so-called “mobile termination rates” by 75%, from 40 to 10 South African cents within 2 years.  This would, we expect, reduce the current differential between on- and off-rate calls.

This of course bodes well for Cell C, as the company has openly stated its desire, according to another report, for “a flat rate” i.e., termination rates of zero.  In its October 11, 2013, proposal to cut termination rates drastically, the ICA tellingly concludes “that competition in the wholesale voice call termination markets … is ineffective owing to inefficient pricing.”  (Draft Regulation at section 5.)  The regulator purportedly used the hypothetical monopolist test to define and evaluate the relevant markets.  Violations of the proposed rate reductions would carry penalties of Rand 500,000 to R1m.

Vodacom is the largest S.A. mobile carrier by number of subscribers, ahead of MTN and Cell C.  MTN — itself no stranger to these blog pages — is the dominant mobile carrier on the African continent, however, and has been accused previously of leveraging its power elsewhere to gain or maintain dominance in other jurisdictions.

According to an article that appeared in the South African journal MoneyWeb, Cell C’s CEO Alan Knott-Craig has complained publicly at an industry conference that its competitors (Vodacom and MTN) are abusing their purported dominant market positions with far lower on-net call rates than off-net rates (i.e., rates to numbers outside the proprietary mobile network).

According to the complainant’s press statement, the key argument “relates to the manner in which the dominant incumbents discriminate between their on-net and off-net effective prices, which has a dramatic and direct impact on smaller operators’ ability to acquire new customers.  The two dominant incumbents discount their effective on-net prices substantially while charging a premium for their customers to call off-net. This amounts to discriminatory pricing and is without doubt anti-competitive when adopted by dominant operators.”

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