The settlement was finalized by the Competition Tribual on 18 July 2013. Its terms include, importantly for the latest job-related and divisional developments at Telkom, the functional separation between the company’s retail and wholesale divisions, in addition to other pricing commitments, a fine, and ongoing monitoring obligations under the guidance of the Commission. As reported today, the company has now also issued and implemented a new antitrust/competition compliance policy, its so-called “Competition Settlement Code of Conduct Policy,” reportedlya whopping 25-page document.
In this latest round of compliance efforts, Telkom’s CEO Sipho Maseko is said to have sent out communications to all staff, attempting to alleviate media reports about potential large-scale job cuts. He is cited as follows: “While I can’t predict the future, I can unhesitatingly say the 12 months that lie ahead will be demanding. Challenges await, of this we can be certain. We will have to be on top of our game and tackle the issues that influence our business with focus and purpose if we are to unlock our full potential.”
Arguably, most if not all of today’s antitrust enforcers would agree that the world’s competition regimes (African or Asian, American or European, established or recently budding) are fundamentally designed to achieve very few, but important, goals. Among these goals are the following: (1) economically, to enhance the market’s allocative efficiency & stimulate growth of production and (2) individually, consistent with Bob Bork‘s key insight, to increase consumer welfare (even if the latter may not be a formally stated aim of some regimes).
Is the world today better for the [working] consumer than it was 123 years ago, when Senator Sherman and the majority of the U.S. legislature decried the unjust and ill-gotten riches of that era’s robber barons and enacted the Sherman Act?
Robber Baron, circa 1890
The paper is interesting but too short to be of real academic or legal value in and of itself, in our view. The infamous photo of the super-yacht on the authors’ blog represents the easy part of what they set out to accomplish – politicizing the issue and driving popular opinion (much akin to the period newspaper cartoon above).
Robber Baron, circa 2014
That said, authors Ricardo Fuentes and Nick Galasso go somewhat beyond the, by now, usual egalitarian quotes (Brandeis’s Depression-era statement: “We may have democracy, or we may have wealth concentrated in the hands of the few, but we cannot have both“) and the well-known head-turner statistics of inequality (e.g., “almost half [of the world’s wealth is] going to the richest one percent; the other half to the remaining 99 percent“), many of which are also found on their blog.
Yet, while they do go a bit deeper than merely scratching the surface with populist platitudes and photos of jetsetter playtoys, they fail to do so on the specific issue of how antitrust fits into the question of global economic inequality. One need not attempt to un-seat Bork from the academic and judicial pedestals he has reigned over for 4 decades, but one could try a bit harder here… The OXFAM study simply does not provide any new insights. To its credit, it does identify the issue – but it does not develop the overall impact of competition law any further than highlighting the one (very particularized) example of the allegedly monopolistic Mexican telecoms sector:
Anti-competition and regulatory failure: the richest man in the world
Weak regulatory environments are ideal settings for anti-competitive business practices. Without competition, firms are free to charge exorbitant prices, which cause consumers to lose out and ultimately increase economic inequality. When elites exploit weak or incompetent anti-trust authorities, price gauging follows as a form of government to big business. By not acting when dominant firms crowd out competition, government tacitly permits big business to capture unearned profits, thereby transferring income from the less well-off sections of society to the rich. Consumer goods become more expensive, and if incomes do not rise, inequality worsens.
Mexico’s privatization of its telecommunications sector 20 years ago provides a clear example of the nexus between monopolistic behavior, weak and insufficient regulatory and legal institutions, and resulting economic inequality.
Mexico’s Carlos Slim moves in and out of the world’s richest person spot, possessing a net worth estimated at $73bn. The enormity of his wealth derives from establishing an almost complete monopoly over fixed line, mobile, and broadband communications services in Mexico. Slim is the CEO and Chairman of América Móvil, which controls nearly 80 percent of fixed line services and 70 percent of mobile services in the country. A recent OECD review on telecommunications policy and regulation in Mexico concluded that the monopoly over the sector has had a significant negative effect on the economy, and a sustained welfare cost to citizens who have had to pay inflated prices for telecommunications.
As the OECD report argues, América Móvil’s ‘incessant’ monopolistic behavior is facilitated by a ‘dysfunctional legal system’, which has replaced the elected government’s right and responsibility to develop economic policy and execute regulation of markets. This system has stunted the emergence of a dynamic and competitive telecommunications market. In fact, many of the regulatory instruments present in most OECD countries are absent in Mexico.
The costs of government failure to curb such monopolistic behavior are large. Mexico has a high level of inequality and has the lowest GDP of all OECD countries. As other OECD countries demonstrate, a more efficient telecommunications (especially broadband) sector can play an important role in driving economic growth and reducing poverty, especially among a large rural population, as in Mexico’s case. The OECD calculates that the market dysfunctions stemming from the telecommunications sector have generated a welfare loss of $129.2bn between 2005 and 2009, or 1.8 percent of GDP per year.
In the end, no matter how deeply or superficially the paper treats its subject, it will likely be of great interest to several of the African competition enforcers that preside over antitrust regimes in which the “public interest” criterion is present (e.g., COMESA, South Africa, and several others). This means in practice: We at AfricanAntitrust.com expect the paper to be cited in the near future by a competition authority near you. So get acquainted with it before it’s too late.
The CCK is aiming for 90% of all Kenyans to have access to mobile communications devices within five years, thereby seeking to double the telecoms sector’s contribution to the country’s GDP to a total of 5%. It is noteworthy that Kenya – a comparatively technologically advanced East African nation that currently already has 76% mobile penetration among its residents – is not only relying on the telecom authority to achieve these goals, but the agency is actively collaborating with the competition watchdog CAK.
An article in HumanIPO quotes the CCK director general, Francis Wangusi, as saying: “We are working with the Competition Authority to ensure that all the mobile money transfer platforms are transparent in order to promote competition.” The official CCK press release is available here.
Other interesting statistics are the planned increase in internet penetration from the current 41.6% to 70% and that of mobile money services from 58.9% to 70% by the end of the 5-year plan.
Mobile payments have been described as “the epicenter of mobile commerce. The merger of the social, mobile, and payment industries has created incredible business growth opportunities for start-ups, social media, banks, retailers, payment networks, and other companies.”
Use of a mobile device such as a cell phone with SMS or internet capability is particularly widespread in many African countries, where brick-and-mortar banks are scarce and not widely used by the vast majority of the population, whereas mobile phones are omnipresent and relatively easily accessible (see the 76% current penetration rate, which rivals that of developed European economies).
Kenya itself is considered by many to be at the forefront of the African mobile-payments universe, with its M-Pesa mobile-currency system often touted as the most developed mobile-payment system in the world. The Economist asked rhetorically: “Why does Kenya lead the world in mobile money?”, pointing out that roughly 25% of Kenya’s GDP flows through the mobile service, with over 17 million users in Kenya alone. The WorldBank has commented that “Mobile payments go viral [with] M-PESA in Kenya.” M-Pesa was originally launched in March 2007 by Vodacom/Safaricom in Kenya and is now jointly operated with other carriers offering services in Tanzania, South Africa, Afghanistan, India and other nations.
What appears to be the crux of the Cell C complaint is a predatory pricing argument against MTN and Vodacom — a type of claim that is, generally speaking, not an easy one to make. Complaining to an antitrust regulator or a court that a rival is charging too low a price for competing services is generally a no-go of an antitrust argument. You are essentially telling the judge: “my rivals out-compete me! Help me raise prices!”
To make out a successful case for truly anti-competitive predatory conduct, you would normally (e.g., in the U.S. or in the EU) have to prove (1) dominance, (2) true below-cost pricing (the economic measure of which is subject to debate, on top of that), (3) a likelihood of success in the subsequent recoupment of any losses incurred, and potentially, depending on your jurisdiction, (4) predatory intent by the dominant firm.
Interestingly, the complaint may have received well-timed (or perhaps too well-timed?) support from the South African Independent Communications Authority (ICA). The ICA recently announced plans to reduce the so-called “mobile termination rates” by 75%, from 40 to 10 South African cents within 2 years. This would, we expect, reduce the current differential between on- and off-rate calls.
This of course bodes well for Cell C, as the company has openly stated its desire, according to another report, for “a flat rate” — i.e., termination rates of zero. In its October 11, 2013, proposal to cut termination rates drastically, the ICA tellingly concludes “that competition in the wholesale voice call termination markets … is ineffective owing to inefficient pricing.” (Draft Regulation at section 5.) The regulator purportedly used the hypothetical monopolist test to define and evaluate the relevant markets. Violations of the proposed rate reductions would carry penalties of Rand 500,000 to R1m.
Vodacom is the largest S.A. mobile carrier by number of subscribers, ahead of MTN and Cell C. MTN — itself no stranger to these blog pages — is the dominant mobile carrier on the African continent, however, and has been accused previously of leveraging its power elsewhere to gain or maintain dominance in other jurisdictions.
According to an article that appeared in the South African journal MoneyWeb, Cell C’s CEO Alan Knott-Craig has complained publicly at an industry conference that its competitors (Vodacom and MTN) are abusing their purported dominant market positions with far lower on-net call rates than off-net rates (i.e., rates to numbers outside the proprietary mobile network).
According to the complainant’s press statement, the key argument “relates to the manner in which the dominant incumbents discriminate between their on-net and off-net effective prices, which has a dramatic and direct impact on smaller operators’ ability to acquire new customers. The two dominant incumbents discount their effective on-net prices substantially while charging a premium for their customers to call off-net. This amounts to discriminatory pricing and is without doubt anti-competitive when adopted by dominant operators.”
South Africa’s Competition Tribunal had a busy week last week tasked with considering the proposed penalties for the various construction companies and also confirming the second significant administrative penalty on South Africa’s incumbent provider of fixed line telecommunication services, Telkom. In terms of the second order, Telkom has agreed to pay an administrative penalty of R200m and committed to separate its wholesale and retail divisions, in order to reduce the wholesale and retail prices of its products to the value of R875m over five years.
Telkom, was previously before the Tribunal in relation to a further abuse of dominance matter and was fined R449m. Telkom had appealed the finding but recently withdrew its appeal against the fine which related to allegations of an abuse of dominance in the telecommunications market between 1999 and 2004, a period in which it was a monopoly provider of telecoms facilities in the country. The fine was much less than the R3bn that the commission had initially requested.
In relation to the second order, the Commission found (following receipt of a significant amount of information from Telkom’s downstream competitors) that Telkom had engaged in a so-called “margin squeeze” by billing licenced operators excessive fees for bandwidth and for a product called IPLC (international private leased circuit). The pricing was set at levels that precluded cost-effective competition with Telkom’s retail internet access and services available via a leased line or ADSL access.
In terms of the settlement, Telkom has agreed to reduce prices on specific product lines that had been implicated in the complaints before the commission over the next three financial years, with no increases in the final two years in which the agreement remains in place.
Telkom has also committed itself to a weighting of 70% price reduction in its wholesale division and 30% in its retail division to eliminate any margin squeeze while ensuring that wholesale products savings are passed on to the benefit of its consumers.
It will also embark on a roll-out of strategic points of presence in the public sector at its own cost and discuss the specific needs of state departments with the Department of Communications.
On Digital Media (“ODM”), owner of TopTV, has filed a complaint with the South African Competition Commission (“Commission”) against the Naspers controlled company, MultiChoice (which owns DStv as well as SuperSport) alleging abuse of dominance.
ODM alleges that SuperSport unfairly refused to share rights to all Premier Soccer League (“PSL”) matches from 2011 until 2016 with ODM. ODM submits that there is “not another sports broadcaster in the world today that enjoys a similar level of dominance to that of SuperSport” and has accused MultiChoice of contravening the Competition Act 89 of 1998 (“Act”) by refusing to give it access to, what ODM believes, is an “essential facility”, when it is feasible to do so.
The ODM complaint was lodged with the Commission several months ago following a statement made in parliament by Communications Minister Dina Pule, that the Minister would issue a policy directive to the Independent Communications Authority of South Africa to address competition in the broadcasting sector.
Commission spokesman, Keitumetse Letebele, said that the complaint is still being processed by the Commission’s screening unit who will write a recommendation to the Commissioner to either drop the case or pursue further investigation.
We know it’s a somewhat brusque title for a “new competition regime” post.
But we must ask ourselves: Why is the República de Moçambique now joining the growing cadre of countries with a competition-law regime** — almost exactly half a year after COMESA instituted its own competition rules?
That’s a rhetorical question, of course. Mozambique notably decided to leave the (then-21 member state) COMESA organisation in 1997, after barely 3 years of membership.
The new Mozambique Competition Law, no. 10 / 2013 will become effective by 11 July 2013, with implementing rules to be finalised in the fall, which will guide the newly-established Autoridade Reguladora da Concorrência (Competition Regulatory Authority). It is the result of a 6-year long process of designing and establishing a competition policy that began in 2007 with a domestic legislative push in this direction and a subsequent May 2008 draft competition law proposed by an E.U. study sponsored by the European Development Fund. It remains to be seen whether the ARC will formally join the Lusophone Competition Network of Portuguese-speaking antitrust jurisdictions or not.
While the final version of the imminent Mozambiquan competition law includes a (suspensory!) merger notification regime, it is likely that deal enforcement will initially take a back seat to monopolisation/abuse-of-dominance issues, as the competitive landscape in the Mozambiquan economy is characterised less by mergers-to-monopoly rather than by formerly state-owned enterprises, now privatised, that tend to exert potential market dominance.
Details, details…
Depending on the severity of any infringement, a 1 to 5% prior-year turnover fine, as well as the potential for a criminal antitrust offence anticipatorily included in the law, all serve to cause market participants to tread more cautiously in the future.
(Oh, lest we forget to mention it, especially in the context of the fining scale: the national flag of Mozambique sports a Kalashnikov AK-47 assault rifle, with bayonet attached. We do not think that this is indicative of the country’s future antitrust enforcement style, but we do believe that Mozambique may be the only competition-law jurisdiction with a fully-automatic gun as a state symbol.)
The law goes into effect the second week of July 2013 (see our Countdown Timer at the bottom right of this page), for those who keep track…
Mobile communications as likely target?
We here at AfricanAntitrust.com predict that the comparatively large (and seemingly concentrated) mobile-phone market in Mozambique may soon see an investigation into abuses of dominance under the new law. There are several million mobile subscribers vs. less than 100,000 landlines country-wide — yet, only 2 mobile providers exist, mCel & Vodacom.
** as to the “growing cadre”, how many jurisdictions are there nowadays? The International Competition Network has about 111 member jurisdictions, which is indicative of the lower bound, but there are surely additional ones (e.g., COMESA, which is not a member of the ICN), so the total figure should be >112…
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.
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.
African Antitrust & Competition Law 