“We won’t compete on price!” — Telco CEO makes blatant antitrust admission

Today, the East African reported on a stunning admission by the Chief Executive Officer of Kenyan mobile telco heavyweight Safaricom (itself no stranger to AAT telco competition reporting and proprietor of the massive M-Pesa mobile money network across East Africa). In the article, fittingly entitled “Safaricom rules out price war in Ethiopian market“, the business report quotes Mr. Peter Ndegwa as saying:

“From a pricing perspective, our pricing strategy is generally to be either in line or just slightly at a premium, but not to go for any price competition. The intention is actually generally to be closer to what the main operator is offering, especially on voice.”

Safaricom’s senior exec made his curious confession on a recent investor call. Says Andreas Stargard, a competition attorney with Primerio: “On these investor conference calls, there are usually several analysts and reporters on the line, listening in, and they commonly are also recorded. This would mean there exist clear prima facie evidence and several witnesses to these statements, as reported by the East African source.” He adds: “It remains to be seen whether any of the several competent authorities will investigate Safaricom’s express statement of a de facto ‘non-compete’ between the Ethiopian incumbent and the Kenyan upstart,” with the former (Ethiotel) boasting 54m subscribers, as opposed to the latter’s mere 1m users in-country.

POSSIBLE INVESTIGATIONS

When asked which government authorities would be authorized to investigate Safaricom’s “no price war” policy expressed by Mr. Ndegwa, according to the newspaper, Mr. Stargard noted that, beyond the domestic Ethiopian telecoms regulator, there existed at least two (2) competent antitrust bodies with jurisdictional authority: “For any potentially anti-competitive conduct occurring in Ethiopia that may have a cross-border effect (as mobile telephony usually does — especially with a foreign, here Kenyan, operator involved as well), I could see either the Ethiopian Trade Competition and Consumer Protection Authority (“TCCPA”) or the supra-national COMESA Competition Commission (“CCC“) under Dr. Mwemba’s reinvigorated leadership stepping in.”

As the latter has made clear in several public pronouncements recently, the CCC is poised to continue its non-merger enforcement streak, that is: investigating and prosecuting restrictive business practices, such as cartels and cartel-like behaviour. “We call it, CCC 2.0,” Stargard adds half-jokingly. He notes that both the TCCPA and CCC have all the necessary legislative instruments in hand to proceed with a preliminary investigation on the basis of the above quotes published by the East African:

In Ethiopia, the TCCPA could argue that “expressly avoiding a price war” is possibly in violation of Article 7(1) of the Ethiopian Trade Competition and Consumer Protection Proclamation (“Article 7(1)”), which provides that “(1) An agreement between or concerted practice by, business persons or a decision by association of business persons in a horizontal relationship shall be prohibited if:…(b) it involves, directly or indirectly, fixing a purchase or selling price or any other trading condition, collusive tendering or dividing markets by allocating customers, suppliers territories or specific types of goods or services”.

For COMESA, the CCC has conceivably two legislative tools at its disposal: First, Art. 16 of the Regulations (“Restrictive Business Practices”) prohibits all agreements between undertakings, decisions by associations of undertakings and concerted practices which (i) may affect trade between member states, and (ii) have as their object or effect the prevention, restriction or distortion of competition. Provision is then made (in Art. 19(4)) for the Article to be “declared inapplicable” if the agreement, decision or concerted practice gives rise to efficiencies and the like. Importantly, even though Art. 16 also applies to by-object practices, provision is made for an efficiency defence. Second, the CCC could resort to Art. 19 (“Prohibited Practices”), which focusses on “hard-core” cartel-like practices. Art. 19(2) provides that Art. 19 applies to agreements, arrangements and understandings, while sub-sections (1) and (3) provide that it is an offence for (actual or potential competitors) to fix prices, to big-rig or tender collusively, to allocate markets or customers, and the like. 

DEFENCES

Safaricom and its domestic competitor (the government-owned, former absolute monopolist, Ethiotel) may of course offer — preemptively or otherwise — a pro-competitive explanation for their alleged “non-compete” agreement. However, in attorney Stargard’s view, such defences must be well-founded, non-pretextual, and they would be well-advised to have contemporaneous business records supporting any such defences at the ready, should an antitrust investigation indeed ensue.

“Indeed, it may appear to the authorities that Mr. Ndegwa’s quoted concession of ‘We won’t compete on price’ may be a sign of capitulation or at least a ‘truce’ between Safaricom and Ethiotel,” he surmises, “because as recently as mid-December [2022], the incumbent monopolist [Ethiotel] had threatened legal action against the Kenyan newcomer, claiming that Safaricom had ‘harrassed’ the incumbent’s customers and caused loss of service due to its actions.” An incoming competitor’s attempt at avoiding a civil lawsuit between it and would-be competitors would, of course, not constitute a legal defence to forming a (formal or informal) non-compete agreement on pricing, he adds.

“We have extensive experience counseling clients on how to successfully — and aggressively — defend against accusations of price-fixing, whether the allegations involve tacit collusion or express price or market-allocation cartel behaviour. While the parties here would likely not have a formalistic statute-of-limitations argument at their disposal, given the recent nature of the conduct at issue, I could imagine there being eminently reasonable ways of showing the harmless nature of the conduct underlying the, perhaps misleading, investor-call statements made by the executive,” he concludes.

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