Category: dominance

SACC Investigates Port Operator for Monopolisation & Excessive Pricing

Posted on by Editor

Abuse of Dominance & Excessive Pricing in South Africa: Transnet under Unvestigation

south_africaBy AAT Senior Contributor, Michael-James Currie.

On 7 July 2016, the South African Competition Commission (SACC) announced that it has initiated an investigation against Transnet SOC Ltd (Transnet), for abusing its dominance by allegedly engaging in excessive pricing in contravention of the in section 8(a) of the Competition Act as well as for engaging in exclusionary practices in contravention of section 8(c) of the Competition Act in relation to the provision of port services.

The SACC investigation is allegedly based on information received indicating that South Africa’s port charges are excessive relative to global standards. A recent port tariff benchmarking report by the regulator determined that Transnet’s terminal handling charges for the period 2015-2016 were 56% above the global average. Transnet maintains that it is “comfortable and confident that its processes are fair, just, and in line with relevant legal requirements.”

The SACC also indicated that it had received information indicating that Transnet is allegedly giving preferential treatment to certain customers to the exclusion of others, in the form of preferential berthing windows, capped export capacity, minimum export tonnage requirements and preferential lease agreements.

Patel talksThe SACC, as well as the Minister of Economic Development, Mr Patel, as expressly stated that, as part of the SACC’s policy, it will target firms who may be abusing their dominance in the market.

While most respondents in South Africa’s abuse of dominant cases thus far, have been firms who have previously been state owned and, therefore, as far as the SACC is concerned, obtained their significant market share as a result of previously having received state support.  It is thus noteworthy that Transnet is a ‘State Owned Entity’.

Despite having brought a number of abuse of dominance cases against various respondents, however, the SACC has found prosecuting respondents for abusing their dominance challenging.

In relation to excessive pricing, the SACC has found it particularly challenging to successfully prosecute a firm for a contravening section 8(a) of the Competition Act. This is largely due to the definition of ‘excessive pricing’ which is essentially defined in the Competition Act as “a price for a good or service which bears no reasonable relation to the economic value of the good or service”.

What constitutes an ‘excessive price’ was fully dealt with in the recent Sasol Polymers case in which the South African Competition Appeal Court (CAC) overturned a R500 million rand penalty imposed on Sasol by the Competition Tribunal for excessive pricing.

Although the outcome of the Sasol case before the CAC turn largely on a lack of evidence, the case highlighted the difficulties in determining what the ‘economic value’ of a product is. In this regard, however, and as a general starting point, the CAC indicated that the economic value “is the notional price of the respective “good” or “service” under assumed conditions of long-run competitive equilibrium”.

If the price charged for a product exceeds the ‘economic value’, then the inquiry shifts to the second part of the definition – i.e. whether the price charged is reasonably related to the ‘economic value’. Although the CAC in Sasol indicated that this is a subjective inquiry, the CAC indicated that in instances where the actual price charged is not more than 20% of the economic value, it is unlikely that the price charged will be considered ‘unreasonable’.

John Oxenham and the author co-published a paper on excessive pricing, which was presented at the American Bar Association Fall Forum in 2015, providing a comprehensive evaluation of the Sasol case and the legal landscape of excessive pricing in South Africa.

After the Sasol case, Minister Patel has further expressed his intentions to broaden and strengthen the SACC’s powers to prosecute firms who abuse their dominance.

In this regard, Minister Patel had previously made similar averments in relation to combatting cartel conduct, which ultimately materialized in the Minister bring into effect criminal liability for directors or persons with management authority who have engaged in cartel conduct. The criminal liability provisions were enacted in 2009, but were not brought into effect due to numerous concerns regarding the constitutionality and jurisdictional concerns regarding the enforcement of these provisions. Despite the concerns raised, the criminal liability provisions were nevertheless brought into effect from 1 May 2016 without any amendments having been made.

The significance of the Minister Patel’s decision to implement criminal liability provisions should be particularly concerning to firms to have a substantial market share, as the Minister has also indicated that he intends bring into effect the “complex monopoly” provisions as contained din the Competition Amendment Act.

Much like the criminal-liability provisions, the complex-monopoly provisions have also been enacted since 2009, but not brought into effect yet due to various concerns raised as to the how this provision would be enforced.

In terms of the complex monopoly provisions, where five or less firms have 75% market share in the same market, a firm could be found to have engaged in prohibited conduct if any two or more of those firms collectively act in a parallel manner which has the effect of lessening competition in the market (i.e. by creating barriers to entry, charging excessive prices or exclusive dealing and “other market characteristics which indicate coordinated behavior”).

Although the introduction of complex monopoly provisions may appear far off, we would caution firms who operate in a concentrated market that Minister Patel’s efforts to combat abuse of dominance may see result in the expeditious implementation of the complex-monopoly provisions.

Namibia: NaCC issues Guidelines on Restrictive Practices

Posted on by Editor

By Michael-James Currie

In April 2016, the Namibian Competition Commission (NaCC) finalised its guidelines on restrictive practices (Guidelines) in terms of chapter three of the Namibian Competition Act. The Guidelines focus in particular on the investigatory powers and procedures to be utilised by the NaCC during its investigations into restrictive practices.

The Namibian Competition Act contains most of the traditional antitrust prohibitions in relation to restrictive conduct. These include ‘agreements’ or ‘concerted practices’ between firms in a horizontal or vertical relationship which have the “object” or “effect” of substantially lessening competition in the market.

The Competition Act does not, from a plain reading of the language, impose a per se prohibition for ‘hardcore’ cartel conduct. The Guidelines, however, confirm that certain practices such as ‘hardcore cartel conduct’ and ‘minimum resale price maintenance’ will be considered per se to be anticompetitive. It is unclear, however, whether this per se contravention should rather serve as a presumption that the conduct is anti-competitive which may affect the onus of proof, rather, as in the South African context where the Act makes it clear that the effect of hardcore cartel conduct is irrelevant.

Furthermore, there is no express provision which deals with ‘rule of reason’ defences, however, the Guidelines confirm that efficiency or pro-competitive features of the alleged anti-competitive conduct, may outweigh any anti-competitive effect. It should be noted, however, that even if there was no anti-competitive effect, if the objective of the conduct was to engage in an anti-competitive agreement or concerted practice, a respondent may still be liable. Accordingly, conduct must not only be shown not to have an anti-competitive effect, but must also be properly ‘characterised’ as not being anti-competitive, in order to avoid liability.

The Namibian Competition Act also prohibits abuse of dominance conduct. The Act does not contain thresholds or criteria for deterring when a firm would be considered ‘dominant’, however, in term of the Competition Commission’s Rules, a firm:

  • will be considered dominant if it has above a 45% market share;
  • will be presumed dominant if it has between 35-45% market share (unless it can show it does not have market power); or
  • has a market share of less than 35%, but has market power.

Although the abuse of dominant provision is intended to prohibit a broad range of potential anti-competitive conduct, the Act in particular, notes the following conduct which, if a firm is dominant, is restricted:

  • “directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
  • limiting or restricting production, market outlets or market access, investment, technical development or technological progress;
  • applying dissimilar conditions to equivalent transactions with other trading parties; and
  • making the conclusion of contracts subject to acceptance by other parties of supplementary conditions which by their nature or according to commercial usage have no connection with the subject-matter of the contracts.”

Importantly, the Namibian Competition Act does not state that the conduct identified above must lead to a substantial-lessening of competition in the market. Furthermore, in terms of the Guidelines, the NaCC not only considers the conduct of and individual firm, but also considers the conduct of a “number of connected undertakings acting collectively” for purposes of considering whether there has been an “abuse of dominance”.

It should be noted that the Namibian Competition Act does cater for exemptions from the application of Chapter 3 (i.e. restrictive practices) and sets out in some detail the requirements and terms upon which an exemption may be granted.

As noted above, however, the most elements contained in the Guidelines relate to the NaCC’s investigatory powers.

In terms of the Namibian Competition Act, the NaCC may initiate a complaint or may elect to investigate a third party complaint.

The NaCC‘s investigatory powers include the power to conduct search and seizure operations. Importantly, the NaCC may take into possession any evidence which, in its opinion, will assist in the investigation. This is so even if such evidence would not be admissible as evidence in a court of law. For purposes of obtaining witness statements, however, a witness has the same rights and privileges as a witness before a court of law.

The Guidelines also confirm that the NaCC is not entitled to peruse or seize “legally privileged” documents unless privilege is waived. Interestingly, the Guidelines do not appear to protect communication between in-house legal and the firm and refers to legally privileged communication as that between “lawyer and client” only.

Search and seizure operations must be conducted in terms of a valid search warrant.

The Guidelines also contains further guidance on various topics and caters for a number of procedural aspects which must be adhered to (as well as the prescribed forms which should be utilised in certain circumstances) in relation to, inter alia the following:

  • initiating complaint;
  • applying for an exemption;
  • requesting an advisory opinion;
  • handling and the use of ‘confidential information’;

The Guidelines is no doubt a stern indication that the NaCC is preparing to heighten its intensity in terms of investigating and prosecuting restrictive practices. Since inception, the NaCC has dealt with over 450 merger cases, but has only handled approximately 40 restrictive practice complaints.

Furthermore, and in line with the NaCC’s newly adopted 5 year ‘Strategic Plan (2015-2020), the NaCC is growing in confidence and competence and firms should be aware that the NaCC will look to utilise the dawn raids provisions when necessary.

Predatory Pricing & the Competition Act: a False-Positive?

Posted on by Editor

We have previously, on African Antitrust, reported on South Africa’s first predatory pricing case in the Media 24 matter. In light, however, of the recent cases on exclusionary conduct — particularly predatory pricing, which has received significant attention from competition law agencies across a number of jurisdictions of late (see, for instance, the Paris Court of Appeals’ dismissal of the predatory pricing and exclusionary conduct allegations made against Google by an online maps rival.  The Indian Competition Commission has also launched an investigation into alleged predatory pricing in the taxi industry, and the European Commission has launched investigations into predatory pricing in the potato-chips / crisps industry) — a more substantive evaluation of predatory pricing in South Africa is called for. The following article on predatory pricing, in light of the Media 24 case, neatly sets out and evaluates the landscape of predatory pricing in South Africa.

 

Predatory Pricing & the South African Competition Act: a False-Positive?

By Michael J. Currie

Intro & Summary

“From an antitrust perspective, predatory pricing is a particularly difficult problem with which to deal. If we are to prevent anticompetitive monopolization, it is a strategy that must not be permitted. The paradox, however, is that such a pricing strategy is virtually indistinguishable from the very sort of aggressive competitive pricing we wish to encourage.”

D L Kaserman and J W Mayo, ‘Government and Business: The Economics of Antitrust and Regulation’ (1995) Fort Worth, TX: Dryden Press at 128

In September 2015, the Competition Tribunal (“Tribunal”), for the first time in South Africa’s sixteen-year history of competition-law enforcement found, in the Media 24 case that the respondent had engaged in predatory pricing in contravention of the South African Competition Act, 89 of 1998 (“Act”).

The Media 24 case, despite being dragged out for nearly six years, was set to be the leading jurisprudence on the laws pertain to predatory pricing, and in particular, how Section 8(d)(iv) of the Act would be interpreted and applied by the Tribunal. The finding by the Tribunal was, however, based on Section 8(c) of the Act, which is a broader ‘catch-all’ provision, and left some important questions as to the interpretation of Section 8(d)(iv) unanswered. Most notably, whether or not Section 8(d)(iv) permits complainants to utilise cost measurement standards other than Average Variable Costs (“AVC”) or Marginal Costs (“MC”) to prove that a dominant firm has engaged in predatory pricing in contravention of the provision.

Having said that, however, the Media 24 case provides some insight as to the precise relationship between Sections 8(d)(iv) and 8(c) of the Act as they relate to predatory pricing, and may have offered, by way of certain obiter remarks, an indication as to how the Tribunal may interpret and apply Section 8(d)(iv) of the Act in the future.

Continue reading the full article, an AAT exclusive, in PDF format:

Predatory Pricing and the South African Competition Act: a False-Positive?

South Africa – excessive pricing: the end of the road or more to come?

Posted on by Editor

south_africa

By AAT Editor, John Oxenham and Senior Contributor, Michael-James Currie.

During November 2015, the Constitutional Court of South Africa dismissed an application by the South African Competition Commission to appeal the competition Appeal Court’s (CAC) decision that Sasol Chemical Industries (SCI) had not charged excessive prices in contravention of the Competition Act’s abuse of dominance provisions. The CAC reaffirmed its decision in Mittal, which has been the leading authority on excessive pricing in South Africa.

In doing so the CAC confirmed that the first step in an excessive pricing case is to determine the economic value of the product. This is an objective test and must be determined in consideration of a notionally long run competitive environment.

Once the economic value has been determined, it is then necessary to establish whether the price was reasonably related to the economic value.

While this is a subjective test, the CAC confirmed the origin of a firm’s dominance and ‘degree of dominance’ is not particularly relevant. The CAC went even further and held that it is unlikely that a price will be deemed “unreasonably related” to the economic value if the price is not greater than 20% of the economic value.

For a comprehensive examination of the SCI case and what it means for excessive pricing cases in South Africa, please see the authors’ paper on Excessive Pricing.

In light of the Constitutional Court’s dismissal of the leave to appeal and coupled with Minister of Economic Development Ebrahim Patel’s recently stated desire to use the Competition Act to promote industrial policies goals, South Africa’s antitrust legislation may be amended in order to assist the Competition Commission in prosecuting abuse of dominance cases, in particular, excessive pricing.

First predatory pricing case before the Competition Tribunal

Posted on by Editor

Media24 excludes GNN, Tribunal finds

By Julie Tirtiaux

A year ago, we at AAT reported on the intervention by competitors in the merger between Media24 and Paarl Media.  Today, we want to highlight a “one-year-later” feature about that same company, which has now been found liable of predatory exclusion of its rivals by the South African Competition Tribunal (the “Tribunal”).  The Tribunal found on 8 September 2015 that Media24 had engaged in exclusionary conduct due to predation by removing a rival community newspaper publication, Gold Net News (“GNN”), out of the market. [1]

Two routes explored by the South African Competition Commission’s (“SACC”) to sanction Media24’s predation conduct

In 2009, GNN exited the newspaper community market. Within 10 months of the exit of GNN, Media24 closed down one of its titles, Forum. From then until today, Vista which is another title owned by Media24, is the only title to survive in the Welkom market.

According to the SACC:

  • If Vista is the only local paper operating in the Welkom market, it is because Forum was used as a predatory vehicle to exclude its competitor, GNN.
  • The strategy consisted in pricing Forum’s advertising rates below market cost despite repeated loss making and failure to perform to budget forecasts.
  • Media24 operated Forum as a fighting brand, meaning that Media24 sacrificially maintained Forum in the market to exclude its competitor.

For the SACC the reduction of choice of community newspapers during the period January 2004 to April 2009 can only be explained by Media24’s predatory pricing conduct. In order to condemn this conduct as predation, the SACC relied on two provisions of the Competition Act 89 of 1998 (the “Act”) which respectively lead to different sanctions.

  • First and ideally, the SACC alleged that Media24 should be sanctioned for its predatory behaviour in terms of section 8(d)(iv) of the Act, which is the explicit predation provision and enables the Tribunal to impose a fine for a first offence.
  • Second, should the predation not be captured by the express predation provision of section 8(d)(iv), Media24 should at least be found responsible for engaging in general exclusionary conduct, prohibited by section 8(c) of the Act which only gives the Tribunal the power to impose remedies. No fine is available for a first contravention. Only a repeated offence may be subject to an administrative penalty.

Following the Commission’s investigation after the allegations brought by Hans Steyl, who ran GNN from 1999 until its eventual closure in 2009, the Commission referred the case to the Tribunal in 2011.

The denial of predation conduct by Media24

Media24 (whose slogan is, somewhat ironically perhaps: “Touching lives through the power of media“) denied any casual link between the fates of the Forum and the GNN’s papers. Forum was not used as a predatory vehicle to exclude GNN. Media24 attributed the closure of Forum to the 2008 recession, on-going downsizing in Media24 as a whole, and to the problem of publishing two newspapers, Forum and Vista, in the Welkom area. It further argued that GNN had exited because it was not viable.

The difficulty to prove a direct predatory pricing conduct

For the first time in the sixteen years in which the new Competition Act has been in operation[2], the Tribunal assessed a predatory pricing case.

Predatory pricing means that prices charged by a dominant firm are not market related but below what would be expect to be a market price. Predatory pricing is only a transient pleasure for consumers as once competitors are eliminated or new entrants are deterred from entering, then the low price honeymoon is over and the predator can impose high prices to recoup the losses sustained in the period of predation.

In terms of section 8(d)(iv) of the Act, to find an express predation contravention, the Commission is required to prove that Media24 priced below “its marginal or average variable cost” (“AVC”) (our emphasis)[3]. The Commission argued that this wording is broad enough to include pricing below average avoidable cost (“AAC”)[4]. This is the cost the firm could have avoided by not engaging in the predatory strategy.[5]

To find exclusionary conduct and thus a contravention of section 8(c) based on predation[6], the Commission would not necessarily need to establish that the dominant firm’s pricing is below any specific cost standard.  All that is required is that the conduct (in this case, low pricing) has an anti-competitive exclusionary effect.

In the Media24 case, the Tribunal has effectively established a new test for predatory pricing which does not meet the test under section 8(d)(iv).  It said that if Media24 is found to have priced below its average total cost (“ATC”)[7] accompanied by additional evidence of intention and recoupment of the loss of profits sustained during the predation period, then a contravention of section 8(c) has taken place.

As ATC include more costs than AAC and AVC of marginal cost, it makes a finding of predation more likely.  The AAC test is thus more stringent than the ATC test.  This follows the logic of the consequences of each section.  As a contravention of section 8(d)(iv) of the Act leads to a fine while a contravention of section 8(c) of the Act only leads to a remedy, it is more difficult to fill the requirements of the specific predation section – section 8(d)(iv).

Consequently, a central issue in this case was to determine Media24’s costs, and compare them to the prices charged during the relevant period.  This is no simple matter.

The Tribunal’s findings trigger questions about how section 8 of the Act on abuse of dominance is structured

Following lengthy discussions about what constitute avoidable costs, the Tribunal held that opportunity costs[8] and re-deployment costs cannot be factored into the calculation of Forum’s AAC. Accordingly, the Tribunal found that Media24 did not contravene the express predation section 8(d)(iv) of the Act.

Interestingly, the Tribunal did however found that Media24 contravened the general exclusionary section 8(c) of the Act. Indeed, after establishing that Media24 was a dominant firm in the market for community newspapers[9], the Tribunal found the evidence of predatory intent which resulted from statements and the implementation of a plan that was predatory in nature. Moreover, the Tribunal held that the pricing of Forum was below ATC.

As a result, it was found that GNN’s exit of the market affected both advertisers and readers. While advertisers paid higher prices as they lost an alternative outlet, readers lost the choice of an alternative newspaper.

Accordingly, the Tribunal concluded that Media24 engaged in exclusionary practice because of predation but didn’t find a contravention of the express predation section of the Competition Act.

The implication of this finding is that Media24 is not liable for a fine. The only power left to the Tribunal is the imposition of another form of remedy. Only if Media24 does the same thing again, will it be subjected to a potential administrative penalty under section 8(c).

Such a finding triggers two interrogations about how section 8 of the Act deals with abuse of dominance.[10]

  • Firstly, how can deterrence be guaranteed when the only consequence of a predatory exclusion conduct, in certain circumstances, is a remedy without a monetary fine? This case leaves food for thought as to the necessity to empower the Tribunal to impose a fine for a first offence when a general exclusionary conduct is found.
  • Secondly, if the required test to prove a contravention of the explicit predation section is too stringent and almost impossible, not only a predatory conduct will never lead to a fine but more generally the utility of this section should be seriously considered.
Footnotes

[1] See the Tribunal’s decision: http://www.comptrib.co.za/assets/Uploads/Reasons-for-Decision-Media24-Section-8-Case-Signature-Documentfinal.pdf

[2] See the Tribunal’s press release: http://www.comptrib.co.za/publications/press-releases/media24-press-release/

[3] A variable cost being a cost that varies with changes in output. The AVC is defined as the sum of all variables costs divided by output.

[4] The important difference with AVC is that AAC include an element of fixed costs.

[5] AAC has become a widely accepted cost standard for the assessment of predatory pricing. This acceptance is evident both from its inclusion in the EU‘s Guidelines, the recent International Competition Network Guidelines, and a Department of Justice Report.

[6] See Nationwide Airlines (Pty) Ltd v SAA (Pty) Ltd and others [1999-2000] CPLR 230 (CT), page 10. The Tribunal stated that a predatory pricing could lead to a finding in terms of section 8(c).

[7] ATC includes fixed, variable and sunk costs (sunk costs being costs that have already been incurred and thus cannot be recovered).

[8] An opportunity cost is a cost of an alternative that must be forgone in order to pursue a certain action.

[9] Media24 would have had a market share of approximately 75%.

[10] On this topic, see the articles of Neil Mackenzie, “Are South Africa’s Predatory Pricing Rules Suitable?” and “Rethinking Exclusionary Abuse in South Africa”.

CEO Calls for Introduction of Nigerian Competition Law

Posted on by Editor

 

“Too huge to be monopolised”? — Orkeh cites business need for Nigerian competition law

The Managing Director and Chief Executive Officer of African Cable Television, Mr. Godfrey Orkeh, was interviewed recently in Lagos, Nigeria, and discussed a topic we at AAT have previously addressed: The need for Africa’s largest economy to enact antitrust laws.  ACTV (pronounced “active”) began its service in December 2014 and has faced an uphill battle in entering the pay-TV marketplace.

As John Oxenham, a founding director of Pr1merio, the Africa-focussed legal advisory firm and business consultancy, points out: “In April of 2014, Nigeria surpassed South Africa as the continent’s largest economy, yet it still lacks any enforceable antitrust provision in its statutes.” (See Economist Apr. 12, 2014: “Africa’s New Number One“).

nigeria

Even prior to Nigeria’s rise to become the continent’s premier economy in terms of GDP, we published several calls for a Nigerian competition law. For example, in our article “Another call for Competition Law in Nigeria: Privatization of Electricity,” AAT contributor Chinwe Chiwete wrote:

The way forward still remains for Nigeria to have a Competition Law as the basic legal framework upon which other sector regulations can build upon.

Chilufya Sampa, a former COMESA Competition Commissioner and currently the Executive Director of the Zambian Competition & Consumer Protection Commission, said that antitrust law in Africa’s largest economy “would be great indeed,” noting the “many benefits in having a competition law.”

Pr1merio director Andreas Stargard likewise promoted the idea of establishing an antitrust regime in West Africa’s dominant economy. He wrote in an article aptly entitled “Nigerian antitrust?“:

Today, AfricanAntitrust adds its voice to the steady, though infrequent, discussion surrounding the possibility of a Nigerian competition-law regime.  In our opinion, it is not a question of “if” but “when”, and perhaps more importantly, “how“?

“If”: it is a virtual certainty that sooner or later, the drivers of growth in the Nigerian economy (innovators, IPR owners and applicants, upstarts, and foreign investment) will succeed in their demands for an antitrust law to be enacted.

“When”: it’s been debated in Nigeria since at least 1988; there was another push in the right direction in 2002; and, since then, at least a steady trickle of intermittent calls for a central antitrust regulator, often coming loudest from the outside (as does this post). This general time line coincides with that of other developing or now emerging competition-law jurisdictions, and we believe it is now a question of years, not decades, until a Nigerian Sherman Act will see the legislative light of day. Our (admittedly unscientific) prediction is that Nigeria will have a competition-law regime prior to 2020. (Note: the latest of up to six bills introduced to date, the Competition and Consumer Protection Bill, has been languishing in the Nigerian Senate since 2009).

“How”: this is the kicker — the most interesting bit of the Groundhog Day story this would otherwise be and remain. The intriguing part about reigniting the discussion surrounding Nigerian antitrust law is that we now live in the age of COMESA and more importantly here, the COMESA CCC (Competition Commission).

This opens up new opportunities that may not have been envisaged by others in the 1990s or 2000s. For example: will the economies of West Africa band together and create a similar organisation, notably with “legal teeth”, which might include provisions for a centralised enforcement of antitrust? Will it be under the auspices of ECOWAS or UEMOA? A monetary union has been known to be an effective driver of ever-increasing competition-law enforcement elsewhere in the world (hint: Brussels)…

If the answer to these crucial questions is “no”, what are the consequences to the Nigerian economy? Will Nigeria continue on its path to outsider status when it comes to healthy economic regulation — despite its powerhouse status in sub-Saharan Africa? Will this add to the disincentive against increased foreign investment, akin to the prevalent oil and diesel-stealing that occurs ’round-the-clock and in the open? Will businesses — other than former state monopolies, now privatised and firmly in the hands of oligarchs, or cartelists — continue to accept being deprived of the economic fruit of their labour, without protection from certifiably anti-competitive behaviour? Will other state agencies continue to step in and act as quasi-enforcers of antitrust, as they have done in the past (the Air Cargo cartel is an example), filling the void of a central competition commission?

Godfrey-Orkeh
Chief Executive Officer of African Cable Television, Mr. Godfrey Orkeh

Below, we excerpt a few of Mr. Orkeh’s pertinent comments on the issue, in which he discusses the lack of any monopolisation offence under Nigerian law and the high barriers of entry in the television and media sector he and his company have faced while challenging the incumbent domestic TV provider.

The number one challenge in the industry is that there is no regulation, NBC is doing its best but there is no act of law that backs the activities up. Before the last government handed over, there was a bill that was being pushed, [competition-law] bill like what we find in Europe that nobody can own 100 per cent of an industry, if you grow beyond a particular size, for instance when Microsoft, Google among others grew beyond a certain size, they were stopped to allow room for other players. There is no such law right now in Nigeria so it is a big barrier; it is only legislature that can change that. … This is good for the economy and the customers.

We knew there is a monopolistic tendency in the market, the existing structure in the legislature of Nigeria allows a dominant player to take advantage of the environment, before we came to the market. There was no pay TV offering PVR for the middle class and for you to get decoder with PVR you have to cough out about N70, 000 but we are saying with N15, 000 you can have a PVR. And content-wise there was a lot of exclusivity which is going to be difficult for one person to break. Beyond this, we will develop the market for our self, develop a niche for our self because right now the tendency is also thriving in the industry, Nigeria with a population of about 170 million, 26 million households with television, but the market is so huge. There is still a huge market that is not being addressed, we are here to capture that niche market and grow it. … [] Nigerians are the only ones that can take a stand as far as monopoly is concerned, and we have started seeing that in recent social media reactions about what is happening in the industry.  If we don’t have a choice there will always be a monopoly even if it is only a player that is that market, but you’ve created an avenue for two to three players to play in the market, there would be options like what we see in the telecoms sector, where I can port my number, which I believe has  taken efficiency to another level. So we are getting to a point where with digitisation every Nigerian would be exposed to as many channels as possible.  But the fact remains that the market is a huge segment. It is too huge to be monopolised.

Outside of AAT’s own resources on the prospect of a future Nigerian antitrust law, we refer our readers to the following resources for further reading on this topic:

  1. http://www.globalcompetitionforum.org/regions/africa/Nigeria/antitrust%20article.pdf
  2. http://afro-ip.blogspot.be/2011/11/iprs-and-competition-law-nigerian.html
  3. http://www.cuts-ccier.org/7up4/NTW-Nigeria_media.htm

Tech antitrust news: disrupting M-Pesa mobile payment monopoly? cashless NFC mandatory?

Posted on by Editor

Disruption & entry — mandatory cashlessness — and alleged collective dominance

Perhaps they don’t realise it themselves, but the journalists at ITWeb Africa have written antitrust/competition law strories in three of their recent reports, covering the rapidly growing and lucrative tech world in Africa: their stories range (in antitrust terms) from collective dominance in Africa’s tech sphere, to a challenger’s new entry in mobile payments, to a mandatory government-backed mobile NFC system for Kenyan transit commuters that allegedly causes more consumer harm than benefit by going cashless and giving the spoils all to one monopolist.

We take each in turn.

Disruption to M-Pesa’s mobile payment crown?

It looks as though the M-Pesa crown may be taken through the competitive process (and without active intervention by the competition authority) after all:

Equity Bank is about to join Airtel’s challenge to the leading position of Safaricom Limited’s M-Pesa service (on which AAT has written extensively before).  The magazine reports that an ultra-thin SIM card technology and the Kenyan bank have reached a pact that will allow them to compete with M-Pesa’s service, on top of existing user SIM cards.

Equity Bank is “determined to challenge” Safaricom’s M-Pesa mobile money service with the help of Taiwanese headquartered Taisys, which claims that the Communications Authority of Kenya “last month tentatively gave Equity Bank the go-ahead to use thin SIMs for one year.”  Equity is reported to be the “largest bank in East Africa with almost 9 million bank accounts.”

The new technology of a “stick-on” slim-SIM card allows the user “to execute mobile banking transactions, releasing the bank from the limitations of a telco-issued banking SIM.”  Safaricom had previously complained to the authority, arguing that PIN theft and denial of service are real risks that counsel against use of new SIMs.

In other related news, second M-Pesa challenger Airtel has secured a contract with the Kenyan Revenue Service that allows Kenyan citizens to pay their taxes using Airtel’s mobile money service.
The cashless economy: is the imminent Kenyan My1963 NFC payment system anti-competitive?

In this story about Nairobi’s public transport system’s much-derided effort to go entirely cashless – dubbed “My1963” -, the magazine reports that the Consumer Federation of Kenya (Cofek) claims that the digital payment system benefits “all except the consumer”.  In Cofek’s statement (“7 reasons why Cofek will fight to stop the #My1963 PSV’s cashless payment fraud“), the federation makes seven distinct arguments against the legality of the scheme.  Two relevant criticisms from the competition-law perspective are the following:

  1. no competitive bidding process: the body alleges that, due to politicians’ ties to banking and other interests, the correct process for entertaining competitive bids was not followed in accordance with proper public procurement rules.
  2. supra-competitive (monopolistic) pricing: an “exorbitant” 3% commission is being charged by the service provider of the system, as agreed between the Kenyan National Transport Safety Authority and the banks.

Cofek also urges the Competition Authority of Kenya (CAK) to “investigate the #My1963 and entire cashless payment system with a view to finding it uncompetitive, predatory and anti-consumer and market interest” [sic].

Viber, WhatsApp, YouTube: dominant in Africa?

In its report on alleged dominance by three tech companies, the paper begins by pointing out the (some more and some less) startling statistics:

WhatsApp is the leading third-party messaging application, Viber has overtaken Skype as the leading VoIP service on several networks and YouTube is the top video streaming app. … on Africa’s mobile networks WhatsApp accounts for 7% of total traffic, while Viber has overtaken Skype as a VoIP service. Streaming video accounts for just over 6% of downstream traffic – significantly lower than North America and Europe where it accounts for more than 30%.

WAP Browsing has seen a significant decline in traffic share thanks to increased adoption of smartphones throughout the region [–Ed.: on the latter point, the journal also has an interesting separate piece, discussing the new era of WiFi connectivity in Africa].

Being called “dominant” may be a badge of honor to the sales staff, but it is a dangerous moniker when viewed by the competition-law enforcers through their monopolisation lens.  WhatsApp, Viber and YouTube (whose parent is, of course, the already dominant Google) may therefore have to begin thinking about treading more lightly in terms of their dealings with competitors on the African continent, lest they wish to prompt governmental scrutiny from the likes of the South African Competition Commission, the Kenyan Competition Authority, or COMESA’s CCC.

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.

Minister’s grip over antitrust authorities further strengthened

Posted on by Editor

South Africa takes on more price regulation in planned amendment to Competition Act

BDLive’s Carol Paton reports that Economic Development Minister Ebrahim Patel – with whose involvement in competition policy AAT readers are well aware from reading our site – has further strengthened his grip on the country’s competition authorities.  He is said to be drafting amendments to the Competition Act in relation to dominant firms’ “excessive pricing” practices.  The amendments are to be introduced to Parliament in 2015.
The article quotes Mr. Patel’s Sunday interview, in which he said:

“The past five years indicated that we are serious about dealing with cartels. But the challenge that we have had is that the economy still has many formal monopolies or upstream producers who are able to impose high prices on downstream manufacturers. We have got to move with greater urgency to tackle the structural challenges.  Giving a dominant player the right to set its own price results is an unfairness. In the Sasol example, part of the remedy is for the firm to work with the competition authorities to develop a soft version of price regulation.”

Price regulation is an absolute taboo in U.S. antitrust law, and even under more interventionist and public-policy influenced EU standards, explicit price regulation is not practiced in the bloc’s 28 member states.
Sasol, the giant South African oil company, is said to be aware of the government’s plans, saying: “setting prices, in particular of traded goods, invariably leads to unsatisfactory outcomes.  South Africa’s joining the World Trade Organisation in 1995 took us forward to opening the economy to compete internationally, with prices being brought in line with international prices. Regulating prices to below gate price, is unlikely to lead to building long-term competitive industries.”