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.

Confusion reigns in COMESA: filing fees misstated, “operation” vs. “threshold”, and new web site

Posted on by Editor
COMESA Competition Commission logo

COMESA Competition Commission makes changes, but observers deplore lack of clarity and persisting mistakes

Visiting the CCC web site will yield a surprise to COMESA followers, as the Commission’s online presence has an updated look.  (Importantly, we express hope that it’s not all cosmetic but also substantive, and that the CCC’s webmaster has improved online security, in light of the numerous hacking attacks to which the agency was subjected in 2014.)

What’s more, the new web site has some new merger-related information, most notably of course the new finalized Merger Assessment Guidelines and an “Explanatory Note” on mergers.

Guidelines subvert Rules threshold under guise of companies’ “operation” within region

The former attempt to infuse some sense into the previous zero-dollar notification threshold regime (by re-defining in the Guidelines what it means to “operate” in COMESA countries as having turnover of >$5 million per annum).  They do so without actually amending or otherwise revoking the underlying Rules, which still do specify to this day that the turnover threshold for notification is “$0” COMESA dollars (which are the fictitious FX equivalent currency of U.S. dollars, so there is effectively no currency conversion required from USD figures).  CNBC/Africa has an 8-minute interview on the topic with a World Bank Group staffer who was part of the working group making the revisions here.

We at AAT respectfully question both the validity and the sensibility of keeping the flawed legislation of the Rules in place, while making agency ex parte interpretive changes via CCC “Guidelines” that notably do not have the force of law in COMESA countries.

“Explanatory Note” and the question of filing fees: 0.01% or 0.5%? Errors continue to persist.

The latter document (reproduced below in full) tries to do the same in a more simplistic fashion — asking, curiously, “What is merger?” [sic!]  However, the Explanatory Note appears fundamentally flawed as it incorrectly includes a reference to the filing fee as being set at 0.01% of the parties’ combined annual revenues.

AAT analysed this statement and believes that the CCC improperly refers to the old Rules (which provided for a 0.01% fee in Rule 55) until they were revised and then subsequently interpreted by CCC guidance in February of 2013: since then, filing a CCC notification incurs a fee of 0.5% of turnover, as we extensively discussed here.  (Update: The CCC has apparently read our post and, as of 5 Nov. 2014, changed this incorrect statement, deleting all references to filing fees in their entirety.)

Continuing lack of clarity emanates from COMESA’s official statements and publications

AAT deplores the ongoing confusion that reigns with respect to the CCC’s pronouncements on crucially important issues such as thresholds, filing fees, and the like.  It takes more than a new web site design to instill parties’ and attorneys’ trust in the young antitrust regime’s competency, and with it, new filings (which have notably stalled at zero for the past half year).

Mergers and Acquisistions

What is Merger?

Most mergers pose little or no serious threat to competition, and may actually be pro-competitive.  Such benevolent mergers have a number of economic advantages such as resultant economies of scale, reduction in the cost of production and sale, and gains of horizontal integration.  There could also be more convenient and reliable supply of input materials and reduction of overheads.  These advantages could, and should, lead to lower prices to the consumer.

Other mergers, however, may harm competition by increasing the probability of exercise of market power and abuse of dominance.  Mergers can also sometimes produce market structures that are anti-competitive in the sense of making it easier for a group of firms to cartelise a market, or enabling the merged entity to act more like a monopolist.

An increasing number of business firms in the COMESA region are merging, or entering into other forms of strategic alliances, in order to take advantage of the many economic benefits that arise from such transactions.  Undertakings in the COMESA region are relatively small compared with those in other parts of the world.  Mergers in the region, however, would create ‘regional champions’ capable of competing with other international companies on an equal footing.

Companies however need to notify the Commission their proposed mergers to enable the mergers to be thoroughly examined for any anti-competitive features that might reduce or eliminate the transaction’s economic benefits.  Not all mergers are notified to the Commission.  Only those large mergers that exceed a certain prescribed threshold have to be notified.  The fee for notifying mergers is not punitive, but is only meant to defray the costs to the Commission for examining the transactions.  The COMESA Competition Rules provide for a relatively small merger notification fee calculated at 0.01% of the combined annual turnover or combined value of assets in the COMESA region of the merging parties.  (NOTE by editor: The CCC has, as of 5 Nov. 2014, changed this incorrect statement and deleted all references to filing fees entirely.) Failure to notify mergers can however be very costly to the merging parties.  The Regulations provide for a high penalty of up to 1% of the merging parties’ annual turnover in the COMESA region for not notifying eligible mergers

Merger in COMESA Competition Regulations

The word merger in this COMESA Competition Regulation is construed in the context of its definition under Article 23(1) of the Regulations.

Control is used in the context of controlling interest as defined under Article 23(2) of the Regulations. Without prejudice to Article 23(2), control shall be constituted by rights, contracts or any other means which, either separately or in combination with and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking. The COMESA Competition Commission (‘the Commission’) shall deem a person or undertaking to exercise control within the meaning of Article 23(2) of the Regulations if the person or undertaking;

  • Beneficially owns more than one half of the issued share capital of the undertaking;
  • Is entitled to cast a majority of the votes that may be cast at a general meeting of the undertaking, or has the ability to control the voting of a majority of those votes that may be cast at a general meeting of the undertaking, or has the ability to control the voting of a majority of those votes, either directly or through a controlled entity of the undertaking;
  • Is able to appoint, or to veto the appointment, of a majority of the directors of the undertakings;
  • Is a holding company, and the undertaking is a subsidiary of that holding company;
  • In the case of the undertaking being a trust, has the ability to control the majority of the votes of the trustees or to appoint or change the majority of the beneficiaries of the trust;
  • In the case of an undertaking being a close corporation, owns the majority of the members’ interest or controls directly, or has the right to control, the majority of the members’ votes in the close corporation; or
  • Has the ability to materially influence the policy of the undertaking in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control referred to in paragraphs (a) to (f).

The Commission shall assess material influence on a case by case basis, having regard to the overall relationship between the acquiring firm and the target firm in light of the commercial context.

In its assessment of material influence, the Commission shall focus on the acquiring undertaking(s). Minority and other interests shall be examined by the Commission to the extent that they are able to influence the policy of the undertaking(s) concerned.

The Commission shall consider an acquiring firm’s ability to influence policy relevant to the behaviour of the target firm in the market place. This includes the management of the business, in particular in relation to its competitive conduct, and thus includes the strategic direction of a firm and its ability to define and achieve its commercial objectives.

The Commission shall consider an acquiring firm’s ability to block special resolutions by virtue of share ownership or other factors, including:

  • The distribution and holders of the remaining shares, in particular whether the acquiring entity’s shareholding makes it the largest shareholder;
  • Patterns of attendance and voting at recent shareholders’ meetings based on recent shareholder returns, and, in particular, whether voter attendance is such that in practice a minority holder is able to block a special resolution;
  • Any special voting or veto rights attached to the shareholding under consideration; and
  • Any other special provisions in the constitution of the target firm which confer the ability to exercise influence.

Where an acquiring firm is not able to block special resolutions of the target firm, the Commission shall have regard to the status and expertise of the acquiring firm, and its corresponding influence with other shareholders, and shall consider whether, given the identity and corporate policy of the target company, the acquiring firm may be able to exert material influence on policy formulation at an earlier stage.

The Commission shall review the proportion of Board of Directors appointed by the acquiring firm and the corporate/industry expertise of members of the Board appointed by the acquiring firm. The Commission may also assess the identities, relevant expertise and incentives of other Board Members.

Interpretation of Article 23(3) of the COMESA Competition Regulations
Article 23(3) of the COMESA Competition Regulations (‘the Regulations’) provides that:

                        “This Article shall apply where:

  • both the acquiring firm and target firm or either the acquiring firm or target firm operate in two or more Member States; and

  • the threshold of combined annual turnover or assets provided for in paragraph 4 is exceeded”.

The interpretation shall focus on Article 23(3)(a) since Article 23(3)(b) is superfluous due to the non-existent of thresholds currently. Article 23(3)(a) is divided into two parts as follows:

  • both the acquiring firm and the target firm operate in two or more Member States;
  • either the acquiring firm or target firm operate in two or more Member States.

The meaning of the first part above is that for a merger to fall within the dominion of Part IV of the Regulations is that both the acquiring firm and the target firm should operate in two or more Member States. For example if Company A is the acquiring firm and it operates in Zambia and Malawi and Company B is the target company and it equally operates in Zambia and Malawi, then the requirements of the first limb are satisfied and the merger falls within the ambit of Part IV of the Regulations.

Another scenario where the first part is satisfied is where Company A the acquiring firm operates in Zambia and Malawi and Company B the target firm operates in Zambia and Ethiopia. In this example, both Company A and Company B operate in two or more Member States.

The third scenario where the first part is satisfied is where Company A the acquiring firm operates in Zambia and Malawi and Company B the target firm operates in Djibouti and Madagascar. In this example, both Company A and Company B operate in two or more Member States.

As regards the second part, a merger falls within the province of Part IV of the Regulations where for example Company A the acquiring firm operates in Kenya and Seychelles and acquires Company B the target which has no operations in the COMESA Member States.

Another scenario where the second part is satisfied is where Company A the acquiring firm has no operations in any of the COMESA Member States but acquires Company B the target which operates in Rwanda and Burundi.

The foregoing are pursuant to the second limb which uses the words “either or” and therefore presupposes that both the acquiring firm and the target firm do not have to operate in two or more Member States as is the case for the first limb but that where either the target or acquiring is operates in two or more Member States, the merger is captured under Part IV of the Regulations.

It is important to note that where the acquiring firm operates in only one Member State and the target firm operates in another Member State and only that Member State, then such a merger does not satisfy the jurisdictional requirements of Part IV of the Regulations. This is however on the premise that such firms do not control any other firm whether directly or indirectly in a third Member State. Such firms should also not be controlled whether directly or indirectly by any other firm in a third Member State. For example, where Company A the acquiring firm operates in Swaziland only and Company B the target operates in Rwanda only, such a merger does not meet the jurisdictional requirements of Part IV of the Regulations. The situation may be different where Company A has a stake in Company C which operates in Mauritius or Company B has a stake in Company D which operates in the Democratic Republic of Congo.

The word operate is taken to mean that a firm(s) in issue derives turnover in two or more Member States. Therefore does not need to be directly domiciled in a Member State but it can have operations through exports, imports, subsidiaries etc. in a Member State.

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.