ArcelorMittal, Telkom, now Sasol? “Excessive pricing” case going to trial in South Africa

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Settling the South African Competition Commission’s case against alleged collusion in the polypropylene market [for no less than R111 million] back in 2010 was not to be the end of Sasol‘s long antitrust journey in the polymers world.

The S.A. Competition Tribunal is hearing the excessive-pricing portion (which was not settled) of the Commission‘s claims against the refining & steel giant this month.  The relevant legal underpinning of the case is the provision against excessive pricing by a dominant firm.  Precedent has declared prices excessive that “bear no reasonable relation to the economic value of the good or service” at issue.  Pheeew.  Facts.  Economics.  Nice.  Looks like a coming battle of the experts to me…

By comparison, in the U.S., antitrust law of course does not forbid “excessive pricing.”  While setting and reaping apparently high prices may be indicative of monopoly power, such acts are not in themselves anti-competitive or illegal in the States.  In Verizon v. Trinko, the U.S. Supreme Court held famously that:

The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. The opportunity to charge monopoly prices—at least for a short period—is what attracts “business acumen” in the first place; it induces risk taking that produces innovation and economic growth.

Interestingly, there is a notable history of failures in the area of ‘excessive pricing’ complaints in South Africa, as well, despite the statutory legitimisation of the cause of action.  In the prior ArcelorMittal and Telkom cases, the Commission and/or Tribunal lost in the end, either at trial or on appeal to the Competition Appeal Court.  That Court had found, in the ArcelorMittal case, that the antitrust watchdogs could not use the ‘excessive pricing’ provision of the statute to combat perceived anti-competitiveness in the “market structure rather than price level.”

We will, of course, report on the ongoing trial and ultimate outcome of this high-profile case, as it unfolds.

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S.A. dominance in the Nigerian mobile telecom market? MTN concerned.

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AllAfrica.com reports that South African telecom giant MTN is in discussions with Nigeria’s Communications Commission (“NCC”) (again, note that Nigeria doesn’t have a competition law regime) relating to its 44% market share in mobile telephony in the country.

The NCC published its report in PDF format on its web site. The report, entitled “Determination of Dominance in Selected Communications Markets in Nigeria“, states in relevant part:

Nigeria is the fastest growing telecommunications market in Africa, rising from a meagre 500,000 telephone subscribers in 2001 to over 108 million as at December 2012 …

As the news report states, MTN is not accused of any abuse of its market power — that is, the hallmark of a unilateral / dominance case, abuse of dominance, is apparently yet absent from the NCC’s phantom case against the provider. What the NCC is worried about inter alia, however, is the preferential treatment given to MTN’s own customers and calls amongst that group. That’s interesting, because many providers across the world have similar “in-network” call rates (indeed, often even free allowances for in-network calls) without triggering antitrust review. The NCC does not perceive dominance issues in fixed voice or mobile data market segments. Rather than relying on the investigated operators’ submissions (proposing, among other things, to use a simple Herfindahl-Hirschman Index determination to see if the market segments were ‘concerntrated’), the NCC’s report lays out quite nicely how it used a “Structure‐Conduct‐Performance (SCP) model”.

The SCP model postulates that the structure of a market determines to large extent the conduct of the participants in the market, which in turn, influences the performance of the firms within the market with respect to profitability and efficiency.

We’ll see where this one goes. Perhaps it simply serves to reinforce our prior question: Is it not time for Nigeria to have its own, proper competition-law regime?

South Africa targets private healthcare sector in CC’s ‘market investigation’

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As reported today by Reuters and SA MoneyWeb, the South African government has announced that the South African Competition Commission will launch an investigation into the private healthcare sector. This is part of a larger initiative to conduct so-called “market inquiries,” on which we previously reported here and here, and which are a direct consequence of the March 2013 effective date of the South African Competition Amendment Act of 2009.

The Economic Development Minister Ebrahim Patel said that “[v]arious stakeholders have raised concerns about pricing, costs and the state of competition and innovation in private healthcare.”

Likely affected companies are all major players in the healthcare industry, including providers such as Life Healthcare, Mediclinic International and Netcare Ltd.

Details of $2.9 billion bid-rigging come to light in South African parliament

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As SAcommercialPropNews reports, the South African Parliament heard testimony from the chairman of the Construction Industry Development Board (CIDB), Mr. Bafana Ndendwa, on the developments and results of the South African Competition Commission’s investigation into the building industry at large.

The investigation into the potential 26 billion Rand collusion had begun when building budgets related to the 2010 FIFA soccer world cup in South Africa were plagued with cost overruns.  Since then, it appears that well over 40 construction companies have been investigated by the Commission.  We had previously reported on antitrust settlements in the S.A. building industry here.

Even with some settlements underway, the building-industry antitrust saga appears far from over, though.  Creating a spectre of double jeopardy, Mr. Ndendwa stated that leniency from the Commission may not yield similar treatment by other investigating bodies.  The cited article also quotes members of the ‘Portfolio Committee’ of the Parliament as pressing for criminal charges to be filed.  This is an interesting development, as the South African competition law (as it is currently in effect) does not [yet] provide for criminal sanctions against individuals.  While the law had been amended to include such a provision, the amendments have not yet been ratified and put into effect.

South Africa: Telkom agrees to penalty

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South Africa’s incumbent telecommunications infrastructure provider, Telkom Limited, has agreed to pay R449 million ($49m) to the South African Competition Commission (the “Commission”) to settle allegations that Telkom had abused its dominant market position. The company statement can be found here.

In August 2012, the Competition Tribunal (the “Tribunal“) levied the R449 million fine against Telkom for abusing its dominant position between 1994 and 2004, after the Commission received complaints from, inter alia, the South African Value Added Networks Services.

Telkom subsequently appealed the Tribunal’s decision to the Competition Appeal Court (“CAC“) which the Commission followed with its own appeal to the CAC seeking to increase the fine to R3 billion ($327m). The settlement agreement will effectively result in the parties withdrawing their appeal and/or cross-appeal and cover their own costs. In terms of the agreement, Telkom will pay 50% of the fine within six months and the balance within 18 months.

S.A. mobile operator escapes antitrust investigation

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South African mobile phone and data provider Cell C has managed to avoid a potential Competition Commission investigation upon having changed its text-message (SMS) pricing scheme.  The industry group that was slated to bring a formal complaint, WASPA (no kidding, that’s their actual acronym), decided not to lodge the complaint in light of the less discriminatory pricing of Cell C’s bulk SMS rates.

Ironic? S.A. & Russia to “influence” platinum market “without cartel”

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South Africa and Russia plan to “influence” global platinum market “without cartel” — [it escapes the author how this is possible].

Russia and South Africa, who together hold approximately 80% of worldwide platinum reserves, have signed a provisional agreement to co-ordinate efforts to control the global platinum market. Details of the plan emerged at the fifth summit of emerging economies of Brazil, Russia, India, China and South Africa (“BRICS”), held in Durban, South Africa last week.

South Africa is the world’s largest producer of platinum, controlling approximately 70% market share, whilst Russia is the world’s top palladium producer, accounting for approximately 40% of the palladium market; Russia notably also holds a further 10% of the platinum market. The two countries jointly possess almost complete market dominance over platinum. The only other significant reserve of platinum that has been extracted outside of Russia and South Africa is in Canada’s Yukon territory, accounting for approximately 3% of the worldwide reserves. In recent years, platinum producers have faced rising production costs and a drop in prices, due to poor demand for the metal.

Therefore, as Russian Natural Resources Minister Sergey Donskoy explained the purpose of the provisional agreement, “Our goal is to co-ordinate our actions accordingly to expand the markets. The price depends on the structure of the market, and we will form the structure of the market.”

South African Mining Minister Susan Shabangu confirmed the plan with Russia, saying: “We’re not really controlling the market” and We want to contribute without creating a cartel, but we want to influence the markets.” The South African Department of Trade and Industry Director-General, Lionel October, said, in support of other comments by Shabangu that “We will give access to minerals and then incentivise companies to add value locally.”

Russia and South Africa’s plans may be derailed due to competition concerns, however.  For example, previous attempts at consolidation within the platinum industry have raised red antitrust flags and were ultimately abandoned. In 1996, Lonmin and Gencor lost an appeal against a European Commission decision blocking the planned merger of their South African platinum mines (Case No. IV/M.619, Commission decision of April 24, 1996). This was the first E.C. decision prohibiting a merger on collective dominance grounds. The Court of First Instance (now called the EU’s General Court) upheld the decision of the Commission, validating its concerns that the merger would result in collective global platinum market dominance (Case T-102/96).

SACC gets 2 new interim deputy commissioners

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According to a statement released by South African Economic Development minister Patel and other online sources (among them polity.org.za and AllAfrica) the South African Competition Commission has appointed two interim deputy commissioners to serve 6-month terms.

The South African Economic Development Department’s statement identifies the two new deputy commissioners as “advocate Oliver Josie and Trudi Makhaya“.

It is noteworthy that both are being recruited from the existing but recently dwindling ranks of the SACC.  We previously reported about one of Ms. Makhaya’s recent competition-focused articles here.

The official statement continues:

“The interim appointments will ensure an uninterrupted service by the Competition Commission, which has a critical role to play in advancing an inclusive economy, promoting competition, combating abuse of market power and supporting job creation and small business development”.

S.A. Competition Tribunal confirms 2 new settlements

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South Africa’s highest governmental competition authority, the Competition Tribunal, has approved two settlement agreements reached by the lower Competition Commission with Air Products South Africa and MVA Bricks / MVA Stene, respectively.

These relate to collusive behaviour in various business sectors, including the building sector which had been investigated by the antitrust watchdog for an extensive period of time.

The former settlement requires Air Products to pay a penalty of almost R2.8 million (about USD300,000) for purported market allocation between it and Sasol Chemical Industries in the industrial gases market. The undertaking published a press release, noting that:

“Air Products has agreed to amend the suite of agreements with Sasol to remove any provisions that contravene the Competition Act; to develop, implement and monitor a (renewed and enhanced) competition law compliance programme incorporating corporate governance designed to ensure that its employees, management, directors and agents do not engage in future contraventions of the Competition Act; and to refrain from engaging in anti-competitive conduct in the future.

“Air Products intends to implement further internal measures to inculcate an increased awareness of the Competition Act and to ensure compliance with the competition laws of South Africa going forward, to ensure that no further inadvertent contraventions of the Competition Act take place.”

The latter settlement with MVA Bricks calls for a R672 565 penalty for collusion between MVA and Aveng Africa in the market for generic paving blocks.

South African market-inquiry provision comes into effect

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President Jacob Zuma has signed the market inquiry provisions of the South African Competition Amendment Act of 2009 (“Amendment Act”) into force today, 8 March 2013.

The president set 1 April 2013, as the date on which section 6 of the Amendment Act will become effective.

Section 6 empowers the S.A. Competition Commission (“Commission”) to conduct an inquiry into the general state of competition in any market in South Africa, without referring to specific prohibited conduct or a particular firm.  Under this provision, the Commission may initiate a market inquiry when it has reason to believe that any features of an identified market may be distorting or restricting competition in that market, e.g., where a market is not functioning optimally, but where no prohibited conduct, such as cartel activity, has been identified.

Section 6 also regulates how the Commission may conduct such market inquiries.  More specifically, the Commission may use its powers to request information from firms but may not use its search and seizure (i.e., dawn raid) powers to gather information for a market inquiry.

At the conclusion of the market inquiry, the Commission must publish its findings and may also make recommendations to the Minister of Trade and Industry or other regulatory authorities relating to any competition matters identified.