Author: Editor

Editorial staff of AAT

New Merger Guidelines fail to revise Rules flaw, but adjust notification threshold upwards

Posted on by Editor
COMESA Competition Commission logo

COMESA publishes new Merger Assessment Guidelines, uses back-door defintion to adjust threshold to >$5 million

On Friday, the COMESA Competition Commission published its 2014 Merger Assessment Guidelines, available here in PDF.  They finally replace the prior Draft Guidelines, which the agency’s Willard Mwemba had predicted would be finalised no later than June 2014.  The new final version fails to put a formal end to the technical zero-dollar notification threshold, but — through a back-door definition of what it means to “operate” in the COMESA region — does achieve the practical effect of terminating what AAT has dubbed the “zero-threshold contagion” – i.e., any transaction between parties with any turnover/revenue whatsoever within the common market of COMESA used to be notifiable.

We invite our readers to take a look at the entire document.  Rather than having the COMESA Board meet and re-draft the actual Rule, the CCC appears to have taken the short-cut solution of ex parte “Commission consider[ation]” of what it means for a company to “operate” in the organisation’s jurisdiction.  Section 3.9 re-defines “operat[ion]” of a COMESA company as follows:

3.9 The Commission considers that an undertaking only “operates” in a Member State for purposes of Article 23(3)(a) of the Regulations if its operations in that Member State are substantial enough that a merger involving it can contribute to an appreciable effect on trade between Member States and restriction on competition in the Common Market. For these purposes, the Commission considers that an undertaking “operates” in a Member State if its annual turnover or value of assets in that Member State exceeds US $5 million.

However, it notably maintains all references to the “Rules on Notification Threshold,” which continue to specify a “U.S. $ zero” threshold:

3.4 The Commission’s Board prescribed such threshold with Council approval in the Rules on Notification Threshold, the scope of which is also limited to mergers having a “regional dimension”(Rule 3). According to the Rules on Notification Threshold currently in force, the threshold of combined annual turnover or assets for the purposes of Article 23(4) is exceeded if:
(a) the combined worldwide aggregate annual turnover or the combined worldwide aggregate value of assets, whichever is higher, of all undertakings to the merger in the Common Market equals or exceeds US $ zero; and
(b) the aggregate annual turnover or the aggregate value of assets, whichever is higher, of each or at least two undertakings to the merger in the Common Market equals or exceeds US $ zero.

It is not as though the CCC’s staff were unaware of the critiques levied against their zero-threshold regime.  Mr. Mwemba stated back in February 2014 that the agency had been setting “the wheels in motion for the threshold to be raised.”  The Commission has been eportedly working with the World Bank’s International Finance Corporation to determine what the proper notification thresholds should be.  AAT also understands that other antitrust advisors — including former FTC Commissioner, Chairman, law professor and competition-law conference mainstay Bill Kovacic — were helping the young enforcement agency to design a more workable and internationally respected merger-review regime.

South Africa: Holcim and Lafarge “cement deal” to be reconsidered by Competition Tribunal

Posted on by Editor

 

 

south_africa

The South African Competition Commission (SACC) recently conditionally approved the intermediate merger between Lafarge and Holcim.

The SACC imposed a condition on the transaction which requires that Holcim sell its share in Afrisam within the next three years. (Afrisam, together with PPC Ltd, is one of the top two cement producers in South Africa).

Over and above the shareholding in Afrisam, up until recently, Afrisam and Holcim had an agreement in terms of which Holcim rendered certain technical assistance to Afrisam. The SACC found that, due Holcim’s shareholding in Afrisam and the afirementioned agreement between Afrisam and Holcim, Holcim had access to commercially sensitive information belonging to Afrisam which could lead to anti-competitive effects. Accordingly, the condition was imposed.

The merger is part of a global integration between Holcim and LaFarge, the world’s top two cement producers, to become the world’s biggest cement manufacturer.

The SACC recently announced that the merging parties have filed a request for reconsideration of the SACC’s conditional approval and accordingly the merger will be considered afresh before the South African Competition Tribunal.

South Africa- Competition Tribunal confirms 10% turnover consent order

Posted on by Editor

The Competition Tribunal confirmed the settlement agreements concluded between the Competition Commission and two small furniture removal companies, Propack Removals and Cape Express Removals. Propack Removals was allegedly involved in over 500 instances of “cover pricing” and received a fine of R454 127, which is equal to the 10% of the firm’s turnover for the 2012 financial year, while Cape Express was allegedly involved in over 1700 instances of “cover pricing” and an administrative penalty of R645 710 has been imposed, which is equal to 10% of its turnover for the 2012 financial year.
The Competition Commission launched an investigation in 2010 against 69 furniture removal companies for colluding on tenders issued by government institutions such as the South African National Defence Force and South African Police Service, as well as corporate companies such as Pretoria Portland Cement. The Commission also conducted dawn raids at the offices of certain removal companies in 2010 to obtain evidence of the collusion.
Furniture removal companies, including well-known removal companies such as Stuttaford Van Lines and Elliott International, allegedly colluded in respect of over 3500 relocation tenders between 2007 and 2012. In terms of the collusive arrangement, the first removal company to be contacted for a quotation would offer to source two or more quotations on behalf of the customer. That removal company would subsequently request two or more of its competitors to provide quotes as “cover prices”. Such a price would have been agreed upon between the colluding bidders and the winner will have been pre-determined amongst the colluding bidders. The competitors would therefore submit a non-competitive quote which is not intended to win the tender for them.
The Commission has indicated that it is currently in discussions with several other removal companies involved in the collusion and it expects to reach settlements by the end of October 2014, which will be considered by the Tribunal.
The imposition of a penalty in the amount of 10% of a companies previous year’s financial turnover is the maximum amount which the Competition Tribunal may impose by way of administrative penalty. It is only imposed for the most serious breaches of the local legislation.

(Belated?) auto-parts cartel allegations sweep S. Africa

Posted on by Editor

south_africa

Following late on the heels of years-old international auto-parts collusion investigations, ZA Competition Commission issues press release

In its press release, the Commission quotes Thembinkosi Bonakele as saying that his agency’s “investigation into this pervasive collusive conduct joins similar investigations launched in other jurisdictions internationally” and states:

The information in the possession of the Commission suggests that from 2000 to
date, 82 automotive component manufacturers have colluded in respect of 121
automotive components. The 121 automotive components affected by the collusion
include, but not limited to, Inverters, Electric Power Steering ECU, Electric Power
Steering and Motors, Glow Plugs, Electric Power Steering systems, Rear
Sunshades, Pressure Regulator, Pulsation Damper, Purge Control Valves,
Accelerator Pedal Modules, Power Management Controller, Evaporative Fuel
Canister systems, Knock Sensors, Spark Plugs and Clearance Sonar systems.

COMESA to media reps: “Dr. Livingstone, I presume?”

Posted on by Editor

COMESA Competition Commission logo

Zambia hosts COMESA Competition Commission workshop to sensitize journalists to antitrust

As many African news outlets are reporting, their journalists were recently invited to take part in a competition-law “sensitization workshop” hosted by high-ranking CCC personnel in Livingstone, Zambia.

In light of COMESA’s currently lackluster merger enforcement and virtually non-existing merger notifications (none since 19 March 2014), this “media sensitization” public relations effort on the part of the CCC leadership comes as no surprise.

Here, we quote from the Seychelles Nation:

 


The Common Market for Eastern and Southern Africa (Comesa) competition commission recently organised a regional sensitisation workshop for business reporters.

The aim of the workshop, held in Livingstone, Zambia, was to enhance the role of the media in exposing anti-competitive business practices and promoting a competition culture in markets. 

The media was explained the role of good reporting on the competition policy within the Comesa, whose prime objective is to promote consumer welfare through encouraging competition among businesses. This objective is achieved by instituting a legal framework aimed at preventing restrictive business practices and other restrictions that deter the efficient operation of the market, thereby enhancing the welfare of consumers in the common market. 

Comesa is a regional economic grouping composed of 19 member states namely; Republic of Burundi, Union of Comoros, Democratic Republic of Congo, Republic of Djibouti, Arab Republic of Egypt, State of Eritrea, Federal Democratic Republic of Ethiopia, Republic of Kenya, Libya, Republic of Madagascar, Republic of Malawi, Republic of Mauritius, Republic of Rwanda, Republic of Seychelles, Republic of Sudan, Kingdom of Swaziland, Republic of Uganda, Republic of Zambia and Republic of Zimbabwe.  The grouping’s objective is for a full free trade area guaranteeing the free movement of goods and services produced within Comesa and the removal of all tariffs and non-tariff barriers.

But only journalists from Kenya, Malawi, Mauritius, Seychelles, Rwanda, Swaziland, Uganda, Zambia and Zimbabwe were present at the workshop. Seychelles was represented by journalist Marylene Julie from the Seychelles NATION newspaper.

The Comesa competition law is, in this regard, a legal framework enforced with the sole aim of enabling the common market attain the full benefits of the regional economic integration agenda by affording a legal platform for promoting fair competition among businesses involved in trade in the common market and protecting consumers from the adverse effects of monopolisation and related business malpractices.

Among the topics discussed at the meeting were the definition and scope of competitive policy;  the relevance of competition policy in ensuring market efficiency and the protection of consumer welfare; overview of the Comesa competition regulations, its legal basis and implementation modalities.

Mergers and acquisitions were also explained and why competition authorities regulate them. 

The media representatives also learned about their role in ensuring businesses notify transactions with competition authorities to avoid the dangers of anti-competitive business.

Hosting the workshop were the director and chief executive of the Comesa competition commission, George K. Lipimile; the manager for enforcement and exemptions Vincent Nkhoma and Willard Mwemba, manager (mergers & acquisitions).

In a message from the secretary general of Comesa Sindiso Ngwenya which was read by Mr Lipimile, Mr Ngwenya welcomed all media guests in Livingstone for the sensitisation workshop.

He said the gathering means that Comesa is reaching out to one of the most important key stakeholders in the region – the media. 

He also said the media plays a great role in advancing the group’s advocacies in the regions and through it Comesa is creating awareness surrounding the current regional trade order and the need for a competition policy for the region.

“Today our specific governments as well as other economic operators and the general public are appreciating that competition policy has a key role to play in creating conditions of governance for the national, regional and global market place,” read the message.

Explaining why the competition policy is an important instrument, Mr Lipimile said it forces companies to run themselves efficiently, ensures a level playing field, forces economic operators to adjust changes and encourages innovation. Competitions lead to lower prices, greater dynamism in industry and most important of all greater job creation.

He added that competitive markets are needed to provide strong incentives for achieving economic efficiency and goods that consumers want in the quantities they want.

Regarding mergers and acquisitions and why competition authorities should regulate mergers, Mr Mwemba said the regulation of mergers is one of the most important components of any competition legislation and policy. 

He explained that sometimes mergers are effected to eliminate competition. 
“Therefore mergers need to be regulated so as not to injure the process of competition and harm consumers,” said Mr Mwemba.

He highlighted that firms merging just to eliminate competition is detrimental to consumers as it results in poor quality goods, high prices, and fewer choices to them.

He also stressed the media’s role in ensuring firms notify their mergers so that they do not merge for ulterior motives. 

The media can also avoid situations where firms  keep the merger a secret as they are mindful competition authority may reject their application. 
“The media should act as watchdog by reporting mergers that have happened in the country,” said Mr Mwemba.

As for Mr Nkhoma, he said there are several ways in which anti-competitive business practices can harm consumer welfare and derail the gains of intra regional trade. 

He said this during his presentation on anti-competitive business practices and the role of the media in enhancing the competition culture. 

He gave examples of two well established firms in a country or region which are engaged in fierce competition with each other. Such competition leads them to independently introduce innovations aimed at outwitting each other on the market such as offering lower prices, discounts, rebates, etc.  The consumer benefits from this rivalry in terms of low prices, high quality, etc. 

He explained the scenario where two firms decide that rather than compete, they agree on what quantities to supply on the market and at what price and quality.  The two firms will end up maximising profits at the expense of consumer welfare. 

“This is what is described as a cartel, a situation where businesses rather than compete, seek to collude to exploit high prices from the market. Markets dominated by cartels will ultimately become complacent in their business decisions and as a result, consumers lose out by way of poor quality products, high prices, etc.,” said Mr Nkhoma.

He also said consumers may also have experienced scenarios where a firm or a collection of firms become so dominant in the market to the extent of behaving without effective constraints from existing competitors or potential competitors. Such dominant firms have an incentive to charge excessive prices knowing that consumers have no alternative of getting similar goods or services anywhere feasible. 

In Seychelles the competition regulator is the Fair Trading Commission (FTC). In a recent press release, FTC said it is setting up a National Competition Policy which comes at a time when Comesa is seeking to harmonise the Comesa competition regulations with domestic competition law. 

The National Competition Policy aims at guiding governments on applying laws, regulations, rules of policies that will allow businesses to compete fairly with one another in order to foster entrepreneurship activity and innovation. 

The policy will also guide the commission in the enforcement of the Fair Competition Act 2009 and will provide a platform upon which national policies can be harmonised with the existing competition law.

Antitrust enforcer subjects mobile payment operator to central bank oversight

Posted on by Editor

kenya

CAK settles with Safaricom, requires non-exclusivity of outlets and forces Central Bank oversight of payment operator

The mobile payments sphere, particularly growing in African countries as we reported previously, is abuzz with news that a competition regulator has now expressly subjected Safaricom (a prominent Kenyan operator) to oversight by the country’s Central Banking authority.  It also cements the (already preemptively and unilaterally undertaken) commitment by M-Pesa to remove the exclusivity provision that previously requred its 85 thousand network members to operate exclusively on the Safaricom mobile-payment network.

The official Kenyan Gazette notice 6856 contains the full, if short, language of the agreement:

IT IS notified for public information that in exercise of the powers conferred by section 38 of the Competition Act, the Competition Authority of Kenya, after an investigation into an alleged infringement of Part III of the prohibitions set out in the Act by Safaricom Limited and its Mobile Money transfer agents, entered into a settlement with Safaricom Limited on the following terms-

(a) that all restrictive clauses in the agreements between Safaricom Limited and its Mobile Money Transfer Agents be expunged immediately, but in any event not later than 18th July, 2014;

(b) that the Mobile Money Agents be at liberty to transact the Mobile Money Transfer Businesses of any other mobile money transfer service providers;

(c) that oversight by Safaricom Limited be thereafter limited to its business with the Agentsl and

(d) that each Mobile Money Service Provider be responsible for ensuring compliance with Central Bank of Kenya Regulations.
Dated the 22nd September, 2014.
WANG’OMBE KARIUKI. Director-General.

MobileWorld Live has reported the following on the settlement between the recently rather active CAK and Safaricom:

A settlement between the Competition Authority of Kenya and Safaricom leaves M-Pesa agents free to work with rival mobile money providers.

An announcement, made in the Kenya Gazette, follows a CAK investigation into an alleged infringement by the operator under the country’s Competition Act.

Back in July, the watchdog said all restrictive clauses in agreements between Safaricom and its agents must be expunged no later than 18 July (actually the operator pre-emptively removed exclusivity ahead of the CAK’s decision).

As we noted in our prior reporting on Safaricom’s troubles with the Kenyan Competition Authority (CAK):

Safaricom offers a product named “M-Pesa” to its customers in Kenya and Tanzania.  M-Pesa is a mobile-phone based money transfer and micro-financing service, launched in 2007 for Safaricom and Vodacom, the two largest mobile network operators in Kenya and Tanzania. The service enables its users to deposit and withdraw money, transfer money to other users and non-users, pay bills, purchase airtime and transfer money between the service and, in Kenya, a bank account.  Users of M-Pesa are charged a service fee for sending and withdrawing money.

By 2010, M-Pesa became the most successful mobile-phone-based financial service in the developing world.

In light of the imminent launch of the Airtel product, Airtel has lodged a complaint with the Competition Authority of Kenya on the basis that Safaricom currently holds 78% of the voice market in Kenya, 96% of the short message service market and 74% of the mobile data market.  In addition, Airtel is of the view that these market shares make it impossible for Kenyan consumers to have a choice in operators. By 2012, 17 million M-Pesa accounts were registered in Kenya alone, which has a population of over 40 million.

There are a total of approximately 31 million mobile-phone subscriptions in Kenya in 2013, of which Safaricom accounted for 68%, Airtel 17%, Essar Group’s “yuMobile” 9% and Telkom Kenya Limited 7%.

 

Kenya competition landscape active

Posted on by Editor

kenya

Zuku pay-TV launched complaint against DStv in Kenya

As we reported in “Your Choice“, MultiChoice has been an active (if unwilling) player in African antitrust news.  Zuku pay-TV has recently requested the Competition Authority of Kenya (CAK) to impose a financial penalty on DStv for refusing to re-sell some of its exclusive content like the English Premier League to its rivals.

In its letter to the CAK, Zuku pay-TV accuses MultiChoice, the owners of DStv, of abusing its dominance and curbing the growth of other, competing pay-TV operators. Furthermore, Zuku pay-TV requested the CAK to compel DStv to re-sell some of its exclusive content and impose a financial penalty, which can be up to 10 per cent of a firm’s annual sales, on the South Africa firm. According to Zuku pay-TV, DStv has a market share of 95% in Kenya.

The CAK has not indicated whether it is investigating the complaint yet.

Mr Wang’ombe Kariuki, director of the CAK
Kenya to get leniency policy

In addition to the ongoing pay-TV antitrust dispute, the CAK has drafted a law (the Finance Bill of 2014) which will create a Kenyan cartel leniency programme in order for whistleblower companies and their directors to get off with lighter punishment, for volunteering information that helps to break up cartels, as AAT reported here.

To recap the leniency programme will either grant full immunity for applicants or reduce the applicant’s fines, depending on the circumstances. The Finance Act 2014 is awaiting its third reading in Parliament.

The introduction of a leniency programme in Kenya is a pleasing sight due to leniency programmes’ proving to be an integral and vital tool for uncovering cartels in every jurisdiction in which it has been deployed.

Unfair competitors or clever innovators? Lessons from the sharing economy.

Posted on by Editor

new multi-part seriesInnovators face unfair competition claims

Our AAT multi-part series on innovation & antitrust is being continued by Professor Sofia Ranchordás. The AAT author just published a new paper on the ubiquitous “Sharing Economy” we are witnessing not only in the United States and Europe but also on the African continent (UBER has seen significant successes in Johannesburg and Cape Town, for instance).

Below is the abstract — for the full 45-page PDF article, to be published in the Minnesota Journal of Law, Science and Technology please go to SSRN here.

Sharing economy practices have become increasingly popular in the past years. From swapping systems, network transportation to private kitchens, sharing with strangers appears to be the new urban trend. Although Uber, Airbnb, and other online platforms have democratized the access to a number of services and facilities, multiple concerns have been raised as to the public safety, health and limited liability of these sharing economy practices. In addition, these innovative activities have been contested by professionals offering similar services that claim that sharing economy is opening the door to unfair competition. Regulators are at crossroads: on the one hand, innovation in sharing economy should not be stifled by excessive and outdated regulation; on the other, there is a real need to protect the users of these services from fraud, liability and unskilled service providers. This dilemma is far more complex than it seems since regulators are confronted here with an array of challenging questions: firstly, can these sharing economy practices be qualified as “innovations” worth protecting and encouraging? Secondly, should the regulation of these practices serve the same goals as the existing rules for the equivalent commercial services (e.g. taxi regulations)? Thirdly, how can regulation keep up with the evolving nature of these innovative practices? All these questions, come down to one simple problem: too little is known about the most socially effective ways of consistently regulating and promoting innovation. The solution of these problems implies analyzing two fields of study which still seem to be at an embryonic stage in the legal literature: the study of sharing economy practices and the relationship between innovation and law in this area. In this article, I analyze the challenges of regulating sharing economy from an ‘innovation law perspective’, i.e., I qualify these practices as innovations that should not be stifled by regulations but should not be left unregulated either. I start at an abstract level by defining the concept of innovation and explaining it characteristics. The “innovation law” perspective adopted in this article to analyze sharing economy implies an overreaching study of the relationship between law and innovation. This perspective elects innovation as the ultimate policy and regulatory goal and defends that law should be shaped according to this goal. In this context, I examine the multiple features of the innovation process in the specific case of sharing economy and the role played by different fields of law. Electing innovation as the ultimate policy target may however be devoid of meaning in a world where law is expected to pursue many other — and often conflicting — values. In this article, I examine the challenges of regulating innovation from the lens of sharing economy. This field offers us a solid case study to explore the concept of “innovation”, think about how regulators should look at the innovation process, how inadequate rules may have a negative impact on innovation, and how regulators should fine tune regulations to ensure that the advancement of innovation is balanced with other values such as public health or safety. I argue that the regulation of innovative sharing economy practices requires regulatory “openness”: less, but broader rules that do not stifle innovation while imposing a minimum of legal requirements that take into account the characteristics of innovative sharing economy practices, but that are open for future developments.

The creeping public-interest factor in antitrust: Still creeping or racing yet?

Posted on by Editor

south_africa

Race to bottom: dilution of competition-law factors in South Africa?

As we have reported numerous times, both on the global policy front as well as in individual case reports, the South African competition regulators and their superiors in the economic development ministry have had their sights on placing a stronger emphasis on the “public interest” element inherent in the SA competition legislation — thereby diluting pure competition-law/antitrust analysis, as some might argue.

Recently, Minister Patel commended his “independent” team at the Competition Commission for not only doing a good job overall, but also in particular on the public-interest front, encouraging the systematic consideration of public interest by the Commission and the Tribunal.

His prepared remarks from the 8th Annual Competition, Law, Economics and Policy Conference in Johannesburg are now uploaded here.  In them, he emphasizes that competition policy is “rightly”…:

“… a subset of broader competitive policies, which in turn are part of our industrial policy framework. … Our law provides an opportunity, and indeed an obligation, to align corporate strategy (by which I refer to mergers or takeovers) with public interest considerations. … The increasing use of the public-interest requirements in evaluating mergers has been critical in ensuring that competition policy has a growing developmental impact, saving thousands of jobs and providing millions of rands to support small and emerging enterprises.”

On the independence of the enforcers, Mr. Patel had this to say:

This kind of alignment must in future, as in the past, respect the independence of the regulator. But all our agencies, however independent, work within the framework of national policies.

These remarks are fairly strong, indeed!  We leave it to our AAT readership to infer the consequences of these observations on future merger enforcement and on the true degree of independence of the Commission — you can read between the lines.

In a companion paper, entitled “What is competition good for – weighing the wider benefits of competition and the costs of pursuing non-competition objectives”, AAT’s own John Oxenham (Nortons) and Patrick Smith (RBB Economics) argue as follows:

Over the past five years, the South African competition authorities have increasingly struggled to balance a competition test with defined public interest criteria (Metropolitan, Kansai, Walmart). Other agencies (ICASA, NERSA), and government ministries more generally, have also wrestled with how competition policy might fit into wider government policies and even broader concepts of the “public interest”, including notions of equality, fairness and access. In this paper we discuss some of key events in this ongoing debate, and we anticipate some of the battles that are likely to come. Furthermore, we set out a rigorous framework and provide a review of the available research and literature to discuss the effects of competition (both positive and negative) in multiple dimensions, in order to assess how far a “pure competition” test might go in achieving a broad range of efficiency, growth, and employment objectives. Such a comprehensive and evidence based approach is essential in understanding the costs and benefits of the existing pursuit of multiple (and often apparently conflicting) objectives, and will allow decision makers to more logically assess the trade-offs that they will continue to be confronted with.

Patel commends his competition team

Posted on by Editor

south_africa

Minister finds praise for competition agencies, having increased fines “1000%”

The official South African news agency reports that Economic Development Minister Ebrahim Patel has lauded the country’s competition authorities as “remarkably effective over the past 15 years.”

“The competition authorities have done solid investigations as they have stepped up actions against cartels and promoted public interest consideration when conducting investigations,” he is quoted as saying at the 8th Annual Competition, Law, Economics and Policy Conference in Johannesburg. “The remedies and fines imposed by the competition authorities climbed ten fold compared to the previous five years, call it 1000 percent, reaching over R6 billion.”

Minister Patel said the competition authority had come into their own with solid pipelines of anti-cartel investigation, the systematic consideration of public interest and issues in merger acquisition.

Setting aside the unorthodox phraseology (“merger acquisition”) in the quoted paragraph, the Minister’s remarks indeed echo what we at AAT have observed for well over a year now, namely the renewed and increased focus of the competition agencies on so-called “public-interest” factors, in lieu of (or in addition to) traditional, classic antitrust considerations, such as market power, concentration/HHIs, and prediction of unilateral/coordinated effects of proposed mergers.