SACC’s take on its #DigitalMarkets oversight & regulation

The South African Competition Commission recently contributed the following summary of its activities regarding the ‘hot topic’ of so-called Digital Markets and antitrust law to the “Compendium” (not AAT’s, the actual government enforcers’ compendium document resulting from the multilateral G7 meeting organized by the Bundeskartellamt in Germany).

Whether and how you have sought to use enforcement or non-enforcement tools, law
enforcement or regulatory action to address such issues. You may wish to highlight any
particularly relevant cases.

Recent cases
The Competition Commission of South Africa (CCSA) uses various competition enforcement tools to resolve concerns in digital markets, including unilateral conduct enforcement, merger regulation, market inquiries and advocacy. In November 2021, the CCSA referred an abuse of dominance case against Facebook Inc. (now Meta Platforms Inc) to the Competition Tribunal (Tribunal), for adjudication. The CCSA’s investigation found that Facebook enforced unduly restrictive access terms and conditions to its WhatsApp platform, against GovChat. This was to remove GovChat’s threat to Facebook’s own social networking position and WhatsApp’s monetisation strategies.

GovChat is a start-up online platform through which the South Africa government communicates with its citizens through mass push notifications on the WhatsApp platform. The GovChat platform also allows citizens to access information or services pertaining to various government services or programmes such as social grants, COVID19 services or to respond to surveys / polls to rate government services / performance. Thus, GovChat plays a very important role in the lives of South African citizens and is an important interface between the government and citizens. The CCSA found that Facebook’s conducts likely contravenes the following abuse of dominance provisions contained in section 8(1) of the Competition Act No. 89 of 1998 (as amended) –

a. refusal to give a competitor access to an essential facility when economically feasible to do so (section 8(1)(b)).
b. engaging in exclusionary conduct whose anticompetitive effect is not outweighed by any efficiencies or technological gains (section 8(c)).
c. refusal to supply scarce goods or services to a competitor or customer when economically feasible to do so (section 8(1)(d)(ii)).
At the time of writing, the Tribunal had not yet allocated a hearing date for this matter.

Market inquiries
In May 2021, the CCSA launched its online intermediation platforms market inquiry (the “Inquiry”). The Inquiry is focused on digital platforms in the areas of e-Commerce marketplaces, online classifieds, software application stores, travel and accommodation aggregators, and food delivery services platforms. The inquiry has focused on three areas of competition and public interest, namely (a) market features that may hinder competition amongst the platforms themselves; (b) market features that may give rise to discriminatory or exploitative treatment of business users; and (c) market features that may negatively impact the ability of SMEs and/or historically disadvantaged firms to participate in the economy.

The Inquiry released its provisional report in July 2022 and aims to conclude its work by the end of 2022. Amongst others, the Inquiry has provisionally found that Google Search plays an important role in directing consumers to the different platforms, and in this way shapes platform competition. The prevalence of paid search at the top of the search results page without adequate identifiers as advertising raises platform customer acquisition costs and favours large, often global, platforms. Preferential placement of their own specialist search units also distorts competition in Google’s favour. The Inquiry provisionally recommends that paid results are prominently labelled as advertising with borders and shading to be clearer to consumers and that the top of the page is reserved for organic, or natural, search results based on relevance only, uninfluenced by payments. The Inquiry further provisionally recommends that Google allows competitors to compete for prominence in a search by having their own specialist units and with no guaranteed positions for Google specialist units. The Inquiry is also exploring whether the default position of Google Search on mobile devices should end in South Africa. In terms of competition amongst platforms, the Inquiry makes the following provisional findings and recommendations, amongst others:

a. In software application stores, there is no effective competition for the fees charged to app developers with in-app payments, resulting in high fees and app prices. The Inquiry’s provisional recommendation is that apps should be able to steer consumers to external web-based payment options, or alternatively a maximum cap is placed on application store commission fees.
b. Price parity clauses, evident in travel & accommodation, e-commerce and food delivery, hinder competition and create dependency, and the Inquiry therefore recommends their removal. Wide price parity clauses prevent businesses offering
lower prices on other platforms and narrow parity prevents businesses from offering lower prices on their own direct online channel.
c. In property classifieds and food delivery, new entrants and local delivery platforms face challenges signing up large national businesses, undermining their ability to compete. The Inquiry provisionally finds in property classifieds this is a result of the investment and support of large estate agencies in Private Property and recommends the divesture of their stake. Facilitating the interoperability of listings on the leading platforms is a further recommendation to support entrants. In food delivery, national restaurant chains often prevent franchisees listing on local delivery platforms and the Inquiry recommends this practice ceases along with any incentives provided by national delivery platforms to steer volumes their way.
d. In food delivery, the Inquiry also finds that the business model of substantial eater promotions alongside high restaurant commission fees can result in large surcharges on menu items which is not transparent to consumers and distorts competition with local delivery options. The Inquiry provisionally recommends greater transparency on either the menu surcharge or the share taken by the delivery platforms.
In terms of competition amongst businesses on the platforms and consumer choice, the Inquiry makes the following provisional findings and recommendations, amongst others:

a. Across all platforms there is a tendency to sell top ranking search positions to businesses which are not the most relevant to the consumer and constitute a form of advertising that is not transparent. This impacts on consumer choice and competition, especially for SMEs that cannot spend as much as large businesses. The Inquiry recommends that advertising is clearly displayed as such and that the top results are reserved for organic (or natural) search results.
b. The Inquiry provisionally finds that the extreme levels of fee discrimination against SMEs in online classifieds, food delivery and to a lesser extent travel & accommodation, hinders their participation and has no coherent justification. The Inquiry provisionally recommends that a maximum cap is placed on the fee differentials between large and small businesses, potentially at 10-15%. In food delivery it is recommended that more equitable treatment also occurs in terms of marketing commitments made in exchange for lower commission fees.
c. In e-commerce, the Inquiry provisionally finds that conflicts of interest arise in operating a marketplace for third party sellers and selling one’s own retail products. This may result in self-preferencing conduct such as product gating, retail buyers given access to seller data to target successful products, preferential display ads and promotions. The lack of a speedy resolution process also adds to the costs borne by sellers. The Inquiry provisionally recommends an internal structural separation of retail from the marketplace to implement equitable and competitively neutral processes.
d. In software application stores, the Inquiry provisionally finds that South African applications (“Apps”) face challenges to their
larger global App development companies. The Inquiry provisionally recommends that App stores provide country-specific curation of App recommendations and provide free promotional credits to South African App developers to enhance
their visibility.

Regarding the participation by historically disadvantaged persons (HDPs), the Inquiry has provisionally found that the digital economy is far less inclusive to HDPs than many traditional industries. In addition, there are considerably more challenges faced by HDPs, especially as regards funding and support. These are as follows:
a. For HDP digital entrepreneurs, general wealth inequality presents a hurdle to seed funding from close associates, and the venture capital industry offers little at this stage. Beyond seed funding, venture capital funds only seek out HDP entrepreneurs where those funds have an express mandate to that effect. Such mandates are rare beyond the SA SME Fund (a joint government and CEO initiative). The Inquiry provisionally recommends specific commitments on HDP mandates from private investors and for government to channel funds for HDP digital entrepreneurs through mandates to the venture capital sector along with requirements for transformation of the sector.
b. A lack of assets and funding hinder HDP business’ ability to onboard and exploit the opportunities provided by digital platforms.
recommendation is that all leading platforms provide HDP businesses with personalised onboarding, a waiver on onboarding costs and fees, free promotional credits, fees that are no higher than the best placed, and the opportunity for consumers to discover HDP businesses on the platform.

Advocacy interventions


The CCSA has continued its work with the Intergovernmental Fintech Working Group (“IFWG”), which includes financial services regulators as well as the information regulator. The IFWG has produced several position papers. These include Regulating Open Finance Consultation and Research Paper, FinTech platform activity in South Africa and its regulatory implications; and the position paper on crypto assets. These papers seek to understand the growing role of FinTech’s and innovation in the South African financial sector and explore how regulators can more proactively assess emerging risks and opportunities in the market. The next steps for the IFWG include dealing with customer data ownership and data standards and engaging with the information regulator, exposition of potential competition aspects related to open finance and how to mitigate anti competition behaviours. This showcases that the regulation of digital markets requires a multidisciplinary approach.

Any steps your agency has taken to strengthen its institutional capabilities to better equip it to deal with digital competition issues (for example, by forming a special unit, recruiting more data specialists, building new investigative tools, or gathering new/different evidence).

The CCSA has prioritised strengthening its institutional capacity in digital markets by targeting the training of investigators and economists in international courses and conferences to upgrade skills. However, the CCSA has used an active enforcement approach as the prime vehicle for deepening its understanding of these markets and to upgrade toolkits at the same time. The CCSA had initiated a project to use digital tools in the detection and investigation of collusion and assist generally on digital market cases. The CCSA has partnered with academic institutions to bring in their artificial intelligence expertise rather than seeking to hire and build internal capacity.

Following engagements with national and provincial governments to understand the extent and format of tender information, the Commission has begun a process of designing algorithmic programmes to detect collusion. This has been greatly aided by engagements with other competition agencies globally to discuss their experience as to what has worked and what has not. Similarly, for data specialists the CCSA has not sought to hire in those skills yet but rather to put together a panel of local experts that may be drawn on in enforcement or research. This approach was adopted as the best means to establish what the use case is for such skills, what specific skills are most valuable and the frequency of data specialist requirements. It is only if there is an ongoing demand in investigation across different enforcement areas and the ability to sustainable source the right skillsets that the CCSA will invest in hiring. The panel approach is also a means to interest data scientists in competition law enforcement and potentially establish career paths in this area. The CCSA together with the competition authorities of Egypt, Kenya, Nigeria and Mauritius, launched a digital markets enforcement initiative, given the greater shared challenges that digital markets pose for African countries. The aforementioned jurisdictions recognize that these challenges necessitate closer co-operation in order to share knowledge, develop effective strategies in digital markets and provide a stronger united front in dealing with global tech companies. The initiative has agreed to enhance strategic collaboration between the authorities by: (i) Scoping the conduct in digital markets, that has been the subject of investigation in other jurisdictions, on African consumers, businesses and economies with the purpose of fair regulation and enforcement in Africa (where applicable); (b) Researching the barriers to the emergence and expansion of African digital platforms and firms that may contribute to enhanced competition and inclusion in these markets for the benefit of African consumers and economies; (c) Cooperating in the assessment of global, continental, and regional mergers and acquisitions in digital markets, including harmonizing the notification framework; without prejudice to confidentiality commitments; (d) To share information in accordance with existing laws and applicable protocols; and (e) Sharing knowledge and build capacity to deal with digital markets. As part of this initiative, a series of technical workshops are forthcoming in 2022 to commence the collaborative baseline research mapping the digital landscape in all participating countries. This research will assist in obtaining a deeper understanding of the extent of consumer adoption and emerging market structure across the main types of digital markets in a country. Country-specific factors across Africa will impact on the extent of adoption by consumers and the emergence of domestic digital firms alongside global ones.

The CCSA has continued its engagement with the European Union (EU) to provide an opportunity for mutual learning using the SA/EU Dialogue Facility to host a series of workshops in partnership with the Directorate-General of Competition in the European Commission (DG Comp). The Dialogue has been extended and will examine issues of remedial action and data protection issues in a forthcoming workshop in 2022.

Whether, in your jurisdiction, (a) there have been any national reforms or new laws or regulations to better address digital competition issues, or (b) there are any significant proposed reforms pending before national legislative or regulatory bodies to better address digital competition issues.

The Inquiry has provisionally identified the potential need for proactive regulations or guidelines in respect of a few categories of circumstances in addition to the remedial action proposed in the provisional report. First, to bring potentially new leading platforms within the ambit of the current proposed remedies that would be imposed on existing leading platforms. Second, to proactively prevent certain conduct in intermediation platforms that are still maturing and where the conduct is likely to emerge in the future, but where there is clear potential for harm. The provisional proposal for regulations or guidelines would cover the following areas: a. A process for the identification and review of leading platform status b. Prohibition of the following conduct which has an adverse effect on intermediation platform competition (1) The use of price parity clauses (wide or narrow) or achievement of the same outcome through price quality factors in the SERP ranking algorithm; (2) Restrictions or frictions on multi-homing by business users including exclusivity arrangements, interoperability limitations and multi-year contracting; (3) Loyalty schemes that leverage the leading position of the platform, including visibility on the platform, to get business users to fund the scheme in whole or part. c. Prohibition of the following conduct which distorts competition amongst business users and/or results in their exploitation (1) Self-preferencing conduct of any sort; (2) Discrimination in listing, commission or promotional fees against SMEs/HDPs beyond a maximum cap; (3) A lack of adequate transparency over promoted listings as advertising; (4) The excessive sale of visibility through demoting organic results; and (5) Permitting algorithm biases that favour one group or another.

Any law enforcement, regulatory, or policy work by your agency concerning digital competition issues that has involved interaction with non-competition agencies or other laws or policy areas—such as privacy, consumer protection, or media sustainability—and how it was or is being handled.

Work in the fintech area is being done through the IFWG as outlined above. The CCSA has also put together a workshop with the Information Regulator of South Africa to discuss the interface of the two agencies around data privacy and data access for competition.