Mauritius Competition Commission announces Amnesty for Resale Price Maintenance

By AAT guest contributor Sanjeev Ghurburrun of Geroudis

The Competition Commission of Mauritius has just launched an amnesty program open from 5th June to 5thOctober 2017 for companies which consider they have practices which may amount to resale price maintenance (see here for a recent example of RPM resulting in fines in Mauritius).

Why bother?

In Mauritius, resale price maintenance (RPM) is a per se prohibition and any agreement which provides for it is void and prohibited to that extent. There is comparatively no justification which is allowed under our law to justify RPM.

In RPM cases, the Competition Commission of Mauritius (CCM) can impose financial penalties, for intentional or negligent breaches, which go up to 10% of turnover of offending party, and can extend back for a period of 5 financial years.

What does RPM mean and include?

The CCM defines RPM as “an agreement between a supplier and a dealer with the object or effect of directly or indirectly establishing a fixed or minimum price or price level to be observed by the dealer when reselling a product or service to his customers.” In short, Suppliers should not require resellers to stick to an agreed price or even to the price printed on the product packaging or to sell above a certain price.

This prohibition includes and extends to imposing conditions preventing resellers from discounting or making special offers or, for example, having agreed maximum discounts applicable between supplier and reseller.

Examples of situations which could, in general, be considered as RPM:

  1. The retailer shall apply a shelf price of MUR 77.50 for the first quarter and the corresponding promotional price shall not be below MUR 70.50
  2. The retail price consists of the purchase price plus a minimum mark up of 18%
  3. Supplier X sends an email to dealers A, B, C “as agreed during our last negotiations, the minimum retail price of MUR 227,50 will not be undercut as long as main competitors A, B and C stick to the said price”
  4. A supplier informs its resellers that it will affix the resale price of its product on the product label. Neither does the product label mention that the affixed price is a ‘Recommended price” nor do resellers negotiate the resale price with the supplier individually. Dealers purchase the products with the affixed resale price and do not show any resistance to supplier’s pricing policy.
  5. A supplier agrees with a reseller to grant the latter a 1.5 % rebate or ‘ristourne’ on the wholesale price provided that the retailer adheres to the recommended minimum resale price. The rebate will be deducted from the amount invoiced to the retailer on a quarterly basis upon proof of implementation of the recommended resale price.

When does RPM not apply?

There are two situations where RPM may not apply:

  • A supplier may recommend resale prices to its resellers provided there is no mechanism to entice or make sure that the reseller sticks to the resale prices recommended, and pricing expressly contains the RRP notice.
  • RPM may be permissible within an agency agreement or arrangement, in which one enterprise acts on behalf of another but does not take title of the goods or services. Care should be taken to make sure that the agency infrastructure is not such as made only to bypass the restrictions provided on law.
  • Agreements may set a pricing ceiling preventing resellers from raising prices, are permitted.

Clarification: RPM restrictions apply to all companies, and not only to monopolies (e.g. those with more than 30% market share in their respective markets)

Criteria for Amnesty:

In order to benefit from the amnesty, a company needs to:

  • Admit its participation in an agreement involving RPM
  • Provide to the CCM all information, documents, and evidence available to it regarding the RPM, and as required by the CCM;
  • Maintain continuous and complete co-operation until the conclusion of any action by the CCM in relation to the matter;
  • Offer undertakings that satisfactorily address the competition concerns of the CCM

Essentials:

Should a company consider amnesty, it should also consider the following risks:

  1. For the Amnesty application:
    • Whether there is an RPM issue;
    • A proper impact assessment review of extent and scope of the RPM
    • Full information and issues pack creation
    • Undertakings to propose to the CCM as part of the solution and its impact on the business as well as likelihood of acceptance or amendment by the CCM
  1. In addition to making the application, do consider:
    • The risk of any third-party claims against the company for having to admit liability in order to obtain the amnesty.
    • What else the CCM may find from the information required to be disclosed to them – e.g. the company is to make sure its house is in order.
    • Some restraints contain both vertical and horizontal elements, such as a when a supplier also sells to customers directly making it a competitor and a supplier to the reseller. In such cases, assess and consider how the CCM may analyse this and risks for the company.
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Pan-African Antitrust Round-Up: Mauritius to Egypt & Tunisia (in)to COMESA

A spring smorgasbord of African competition-law developments

As AAT reported in late February, it is not only the COMESA Competition Commission (CCC), but also the the Egyptian antitrust authorities, which now have referred the heads of the Confederation of African Football (CAF) to the Egyptian Economic Court for competition-law violations relating to certain exclusive marketing & broadcasting rights.  In addition, it has been reported that the Egyptian Competition Authority (ECA) has also initiated prosecution of seven companies engaged in alleged government-contract bid rigging in the medical supply field, relating to hospital supplies.

Nigeria remains, for now, one of the few powerhouse African economies without any antitrust legislation (as AAT has reported on here, here, here and here).

But, notes Andreas Stargard, an antitrust attorney with Primerio Ltd., “this status quo is possibly about to change: still waiting for the country’s Senate approval and presidential sign-off, the so-called Federal Competition and Consumer Protection Bill of 2016 recently made it past the initial hurdle of receiving sufficient votes in the lower House of Representatives.  Especially in light of the Nigerian economy’s importance to trade in the West African sphere, swift enactment of the bill would be a welcome step in the right direction.”

The global trend in competition law towards granting immunity to cartel whistleblowers has now been embraced by the Competition Commission of Mauritius (CCM), but with a twist: in a departure from U.S. and EU models, which usually do not afford amnesty to the lead perpetrators of hard-core antitrust violations, the CCM will also grant temporary immunity (during the half-year period from March 1 until the end of August 2017) not only to repentant participants but also to lead initiators of cartels, under the country’s Leniency Programme.

The Executive Director of the CCM, Deshmuk Kowlessur, is quoted in the official agency statement as follows:

‘The policy worldwide including Mauritius, regarding leniency for cartel is that the initiators of cartel cannot benefit from leniency programmes and get immunity from or reduction in fines. The amnesty for cartel initiatorsis a one-off opportunity for cartel initiators to benefit from immunity or up to 100% reduction in fines as provided for under the CCM’s leniency programme. The amnesty is a real incentive for any enterprise to end its participation in a cartel. In many cases it is not clear for the cartel participant itself as to which participant is the initiator. The participants being unsure whether they are an initiator finds it too risky to disclose the cartel and apply for leniency. The amnesty provides this unique window of 6 months where such a cartel participant can apply and benefit from leniency without the risk of seeing its application rejected on ground of it being an initiator.’

 

COMESA Competition Commission logoFinally, COMESA will grow from 19 to 20 member states, welcoming Tunisia at the upcoming October 2017 summit: the official statement notes that “Tunisia first applied for observer status in COMESA in 2005 but the matter was not concluded. In February, 2016 the country formally wrote to the Secretary General making inquiries on joining COMESA. This set in motion the current process towards its admission. once successfully concluded, Tunisia will become the 20[th] member of COMESA.”

This means that within 6 months of accession to the Common Market, Tunisia’s business community will be bound by the competition regulations (including merger control) enforced by the CCC.  Speaking of the CCC, the agency also recently entered into a Memorandum of Understanding with the Mauritian CCM on March 24, facilitating inter-agency coordination.  In addition, the Zimbabwean Competition and Tariff Commission (CTC) will host a national sensitisation workshop on COMESA competition policy on May 16, 2017 in Harare, purportedly as a result of “over 50 transactions involving cross-border mergers notified” to the CCC involving the Zimbabwean market.  “The main objective of the national workshop is to raise awareness among the key stakeholders and business community in Zimbabwe with regards to the provisions and implementation of COMEA competition law,” the CTC noted in a statement.

 

Mauritius competition watchdog places mobile operators under scrutiny

Mauritius competition watchdog places mobile operators under scrutiny

Julie Tirtiaux writes about an investigation by the CCM into allegedly discriminatory mobile pricing policies by the two main mobile operators in the island nation of about 1.2 million.

On 27 August 2015, the Competition Commission of Mauritius (“CCM”) announced an investigation against two major mobile operators, Emtel and Orange. The CCM has identified similar concerns to those examined in other jurisdictions such as France and South Africa, related to the exclusionary effects of discriminatory pricing policy for calling services.

Price discrimination triggered the investigation

The CCM is concerned that the two major mobile telephony operators may be discriminating between tariffs for calls made between subscribers within the same network (“on-net calls”) and calls to subscribers from other competing networks (“off-net calls”). This raises the question as to why off-net calls are charged at higher rates when compared to on-net calls.

The table below sets out the respective call tariffs charged by Emtel, one of the respondents in the current CCM investigation.[1]

Call direction Per second tariff (Rs) Per Minute (Rs)
Emtel to Emtel Voice call 0.02 1.2
Emtel to Emtel Video call 0.02 1.2
Emtel to other mobile operators 0.06 3.6
Emtel to Fixed land line 0.0575 3.45
Emtel to Emtel Favourite Num 0.016 0.96

The CCM suspects that the higher prices for off-net calls may not be objectively justified by cost differentials. This potential discrimination could thus be “preventing, restricting or distorting competition in the local mobile telephony sector, which ultimately could deter or slow investment, innovation and growth in the sector”.[2] It is argued that such conduct raises a strategic barrier for new and small mobile operators to enter and expand within the mobile market, as rational consumers would likely be inclined to choose the operator which already has a large user base.

mauritius

In other words, this allegedly discriminatory pricing policy for calling services could lead to exclusionary conduct by the duopoly of Emtel and Orange and consequently to the infringement of Section 46(2) of the Mauritius Competition Act of 2007.[3] However, such an infringement will have to be proved by the CCM, as the presence of on-net/off-net price differentiation does not automatically raise competition concerns in and of itself. It has been argued that the existence of two equally large competitors is enough to observe a competitive outcome and thus the maximization of and consumer welfare.[4]  Put differently, it is not the number of players in a market which determines the competitive outcome but rather the intensity of competition between the existing players.

The analysis of the foreclosure effects of on-net/off-net price differentiation by the Autorité de la concurrence[5]

In December 2012, the Autorité de la concurrence fined the three main French mobile operators, i.e. France Télécom, Orange France and SFR a total of €183.1 million for supplying their subscribers with unlimited on-net offerings.[6]

According to the Autorité de la concurrence, “these offerings first of all artificially accentuated the “club” effect, that is, the propensity for close relatives to regroup under the same operator, by encouraging consumers to switch operators and join that of their relatives (…). Once the clubs were formed, these offerings “locked” consumers in durably with their operator by significantly raising the exit costs incurred by the subscribers of on net unlimited offerings as well as by their relatives who wish to subscribe to a new offering with a competing operator”.[7]

In addition, these offerings automatically favoured large operators over small operators (“network effect”). In other words, these offerings induced users to subscribe to the dominant incumbents at the expense of smaller independent operators who would undoubtedly have been faced with higher cost structures directly related to the higher off-net calls rates.

The regulation of the mobile sector in South Africa

Unlike the Mauritian telecom market which allows operators to freely set their prices, South Africa regulates call termination rates, which correspond to fees that mobile operators charge each other to carry calls between their networks, via the Independent Communications Authority of South Africa (“ICASA”). ICASA justified new regulations by saying that the rates had driven up the cost to communicate for consumers, making South Africa one of the most expensive places to use a mobile phone.[8]

 

On 29 September 2014, ICASA modified the asymmetric rates, first introduced in February 2014,[9] in order to ensure a level playing field between the mobile operators. The intended effect of these asymmetric rates is to ensure low off-net call rates for operators with low market power.[10]

 

In addition to the regulatory aspects in the hands of ICASA, in October 2013 Cell C lodged a complaint with the South African Competition Commission against MTN and Vodacom in relation to alleged differentiation between on-net/off-net prices. [11]

Conclusion

In conclusion, the efficient functioning of the crucial mobile sector is a delicate task for both regulating bodies and enforcement agencies. It will thus be interesting to see how this investigation progresses and what learnings the CCM is able to draw through the assessment of the on-net/off-net price differentiation by the two main mobile operators in Mauritius.

[1] See Emtel’s price plans presented on their website on 7 September 2015: https://www.emtel.com/price-plans

[2] See the media release of the CCM of 27 August 2015 opening of investigation on monopoly situation in relation to mobile telephony sector.

[3] Section 46(2) of the Mauritius Competition Act prohibits a monopoly situation held by one or several firms which “(a) has the object or effect of preventing, restricting or distorting competition; or (b) in any other way constitutes exploitation of the monopoly situation”.

[4] Frontier Economics “On-net/off-net differentials the potential for large networks to use on-net/off-net differentials or high M2M call, termination charges as a means of foreclosure” March 2004.

[5] That is to say the French Competition Authority.

[6] Decision of the Autorité de la concurrence of 13 December 2012, France Télécom, Orange France and SFR, case no 12-D-24. This decision has been appealed and is currently pending before the Paris Court of Appeal.

[7] Press release of the Autorité de la concurrence: http://www.autoritedelaconcurrence.fr/user/standard.php?id_rub=418&id_article=2014

[8] ICASA, 16 October 2012 Media Release https://www.icasa.org.za/AboutUs/ICASANews/tabid/630/post/consumers-benefitfrom-a-drop-in-the-actual-cost-of-prepaid-mobile-voice-call/Default.aspx INCASA said that “mobile prices are cheaper in over 30 African countries than they are in South Africa

[9] The asymmetric rates adopted by INCASA in February 2014 were declared unlawful and invalid by the High Court on 31 March 2014 as they were objectively irrational and unreasonable.

[10] It must be noted that these new asymmetric rates have been challenged and that the case is still pending. See the following article on ENSafrica: https://www.ensafrica.com/news/the-reformulation-of-call-termination-rates-in-South-Africa?Id=1414&STitle=TMT%20ENSight.

[11] This complaint is still being investigated by the Competition Commission.