Competition Amendment Bill: Public hearings

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Trade, Industry and Competition

29 July 2008
Chairperson: Ms M Ntuli (ANC)
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Meeting Summary

The Committee continued with the public hearings on the Competition Amendment Bill. Neotel supported the principle that concurrent jurisdiction must be determined by agreement, but sought clarity on which authority’s findings would take precedence if inquiries were run in parallel, and how public comments could be factored into inquiries. It also suggested that perhaps the submission of information and complaints should be limited to those who could show a real interest in matters, but it would make further suggestions as to wording.

Vodacom's first concern related to the definition of historically disadvantaged persons, and it suggested that this definition be brought in line with the Black Economic Empowerment Act. It secondly questioned the formulation of the amendment to Section 3, and proposed that the concurrent jurisdiction provisions must be harmonised and a new Memorandum of Understanding drawn between the Competition Commission and Independent Communications Authority of South Africa (ICASA). Vodacom also questioned the rationale behind the introduction of the concept of complex monopolies, submitting that the proposed Section 10A should be removed from the Bill, for a number of reasons, including legal uncertainty and the fact that it was not in line with international best practice. Although the imposition of criminal sanctions was in principle supported, the wording of the proposed section 73A(2)(b) was problematic. Members asked that any specific problems in jurisdiction be more clearly defined, queried the situation where the market itself produced anti-competitive outcomes that were not based on individuals’ actions, and questioned the wisdom of making comparisons with other jurisdictions.

The Independent Communications Authority of South Africa (ICASA) also addressed the question of concurrent jurisdiction, suggesting that ex ante matters be left in the hands of ICASA, who should also be responsible for enforcing compliance of the principles it had set out in the Electronic Communications Act, but that the Competition Commission retain its macro powers, and act in matters which were not covered by the Electronic Communications Act. It agreed that since this piece of legislation was relatively new, its enforcement was yet to be developed, but that a new Memorandum of Understanding was required as the existing one had been based on the old Telecommunications Act. It also did not support the proposed wording of the Section 3(3)(c), which should replaced with a clearer wording, which did not seek to establish primacy by one authority. Section 67(9) of the Electronic Communications Act should be reworded and sections 67(1) to (3) should be repealed. Members noted the efforts to discuss issues with the Department of Trade and Industry, questioned the distinction between collusion and rational commercial behaviour, and the criteria that would be applied by ICASA in deciding whether there had been collusion, how competition between first and third economies would be dealt with, and how barriers to entry were to be addressed. The Committee noted that requests by a number of presenters for better synergy between regulators and clarification of mandates, and asked for suggestions on new wording.

Meeting report

Competition Amendment Bill (the Bill): Public Hearings
Neotel Submission

Mr Denzil Bowman, Parliamentary Liaison Officer, Neotel, noted that Neotel supported the principle that concurrent jurisdiction must be determined by agreement.

In relation to the market inquiries, Neotel queried what would happen if the Competition Commission and sector regulator were to run inquiries in parallel, and whose findings would take precedence. It further queried, in relation to the proposed Section 43B(2), how public comments would be gained, and whether these could be factored into the inquiry.

in relation to the proposed Section 43C(1) Neotel enquired whether the Competition Commission should not be obliged to give a report on the inquiry to the Minister. If the Minister was to be responsible for policy formulation this would be necessary, and good practice would make for good policy.

The proposed amendment to Section 49B was finally queried, as Neotel wondered if the submission of information and complaints should not be limited to those with locus standi.

Discussion
Mr J Maake (ANC) asked for further clarity on the comment dealing with the proposed section 43B.

Mr Bowman responded that Neotel believed that anyone approaching the Commission should have an interest in the matter, to avoid unwarranted approaches by those who might merely be pursuing personal grudges against companies. However, Neotel was not insisting that this should be in the Bill.

The Acting Chairperson suggested that a written formulation of a proposed change perhaps be submitted.

Mr L Labuschagne (DA) took Neotel’s point, but said that there could be cases where an investigative journalist may wish to deal with matters. He thought that it would be better to leave the matter open, unless the locus standi could be clearly defined. Technically any member of the public affected by the particular market would have an interest.

Mr Bowman noted these comments, and said that he would discuss the matter further with Neotel's legal advisers.

Vodacom submission
Mr Nkateko Nyoka, Chief Officer: Regulatory and Stakeholder Relations, Vodacom, noted that Vodacom's first concern related to the definition of historically disadvantaged persons, suggesting that the definition might be in conflict with the definition in the Broad Based Black Economic Empowerment Act, and that these definitions should be aligned, alternatively that the definition in this Bill be deleted and replaced with the term "black persons".

Vodacom supported the principle behind the amendment of Section 3, but found the formulation problematic as it seemed to suggest that the Competition Act would take precedence all other legislation. It could be unworkable, particularly in relation to the Electronic Communications Act (ECA), as competitors were required to negotiate terms, which could be construed as anti competitive behaviour under this Bill. Vodacom suggested that the provisions of the legislation be harmonised. The concurrent jurisdiction provisions must be brought in line, and there should be a review of the Memorandum of Understanding (MOU) between the Competition Commission and Independent Communications Authority of South Africa (ICASA). The new MOU must clarify the coordination of activities and jurisdiction dealing with ex ante and ex post competition matters, and there must be monitoring, investigation and association penalties. It proposed that the jurisdiction of the Competition Commission should cover ex post facto concerns, but not extend to ex ante interventions.

With respect of the complex monopolies, Vodacom summarised the content of the proposed new Section 10A, and questioned the rationale behind the introduction of the concept of complex monopolies, submitting that it should be removed from the Bill. It believed that the market share threshold was overly-broad, that the provision dealt with the structure and not the conduct of a firm, and was open to constitutional challenge,  and that the language gave rise to legal uncertainty, as there was no requirement that firms must be aware of their participation in a complex monopoly, and would be unable to predict whether their markets would fall foul of these provisions. This concept was also not supported by other jurisdictions, and would be out of line with international best practice.

Vodacom then referred to the proposed section 73A, and noted that while it supported the insertion of the imposition of criminal sanctions for directors and others, it had concerns with the different standards of culpability. This did not accord with the Constitutional rights to be presumed innocent, and therefore the proposed section 73A(2)(b) should be deleted in its entirety.

Discussion
Dr P Rabie (DA) referred to the recommendations of strengthening of concurrent jurisdiction, and asked whether examples could be given of where the current jurisdiction was inadequate.

Mr Nyoka noted that Vodacom operated in the field of telecommunications, and was regulated on a daily basis by ICASA, a sector specific regulator that dealt with issues peculiar to the industry. Currently, there was an MOU between the Competition Commission and ICASA, but the Bill seemed to suggest that where there might be conflict between the two authorities, then the position of the Competition Commission would prevail. Vodacom believed that ICASA, as the regulatory body, should rather take precedence as it would have a more focused approach. He cautioned that extending the power of the Competition Commission should not undermine sector policy objectives.

The Acting Chairperson asked if the MOU would be functional if the Bill came into effect in its present form, and if Vodacom was suggesting an amendment.

Mr Nyoka clarified that the Bill in its current form seemed to suggest that the Competition Commission would take precedence. He suggested that the status quo be left as it was at present, alternatively that the sectors be regulated in a different way.

Mr Pakamile Pongwana, Managing Executive: Regulatory Affairs, Vodacom, noted that the ECA had established how ICASA should go about setting rules to ensure that the environment was competitive from the start. If a market review later showed dominance by a firm, then remedies could be put in place. If the Competition Commission were to take over this latter function, rendering the ECA rules irrelevant, then the Commission would itself have to start putting rules in place. Vodacom suggested that it would be preferable rather to strengthen the cooperation that already existed between the Competition Commission and ICASA, and leave the position so that ICASA could put remedies in place.

Ms Amanda Grobler, Executive Head of Business, Vodacom, added that perhaps the existing MOU should be revisited to assess whether it was still sufficient to cover the situation. It was important that the two bodies have a good relationship. She pointed out that the ECA had different policy objectives from the Competition Act. In terms of the ECA, for instance, the operators were required to come to an agreement in respect of mobile rates. However, under the Competition Act, this might be seen as collusion. It was therefore necessary that the Competition Commission, rather than viewing this conduct is isolation, must work with ICASA, to understand what the relevant Acts said, how the industry operated, and how it had been regulated on an ex ante  basis.

Ms F Mahomed (ANC) referred to the suggestions for amendment of the definition of historically disadvantaged people and asked that the presenters produce suggested wording, as also suggested wording on the jurisdiction aspects.

Mr Nyoka responded that the notion of historically disadvantaged persons (HDP) was introduced some time back, but the introduction of later legislation by the Department of Trade and Industry (dti) had resulted in a move away from the notion of HDP to that of a black person, as defined in the Broad Based Black Empowerment Act. 

Mr Maake noted that sometimes there were uncompetitive outcomes because of the market itself, and he felt there was not a problem with allowing the Commission the power to investigate instances, even if there was not wrongdoing by any person.

Ms Sonia Mabuza-Gomane, Manager: Regulatory Affairs, Vodacom, responded that market inquiries and reviews would adequately deal with this situation, to try to determine whether there was a market failure.

Ms Grobler noted that companies might be part of a complex monopoly, without intention or knowledge that they were doing so.

Mr Maake referred to the comment about other jurisdictions, and queried whether it was necessary to try to follow what other countries were doing, as the situations and economies were different.

Mr Nyoka said that the drafters of the Bill had considered the notion of a complex monopoly as appropriate to the South African situation, but Vodacom did not agree. It made reference to other jurisdictions because  of the reality that South Africa was operating in the global environment. Other countries had jettisoned this concept, after trying it out, and Vodacom did not believe that its introduction in South Africa would serve the purpose of producing good and enforceable law. The Competition Commission itself had similar concerns and if the implementer did not support the suggestions, then this was all the more reason that they not be introduced.

Ms Grobler added that the telecommunications industry was well developed, and could be equated to that in other countries. The Law Society of South Africa had also cautioned against introducing the concept of complex monopolies, since it had been found not to be efficient in other countries.

Ms Mahomed asked for further reasons why Vodacom had called for deletion of section 73A(2).

Ms Mabuza-Gomane said that this was because it was based upon imputed knowledge, and that a person could be convicted without actual knowledge.

Mr Labuschagne said that if it was not for the ICASA regulations, then the mobile companies would possibly be regarding as colluding. Other countries did not have complex monopolies because there was more open competition.

Mr Nyoka pointed out that ICASA had initiated a number of enquiries, and was in fact looking at issues of competition in a proactive way. However, it would be undesirable for both ICASA and the Competition Commission each to initiate separate inquiries and give separate findings; hence the need for robust cooperation, and the need to align the Competition and Electronic Communications Acts.

Independent Communications Authority of South Africa (ICASA) Submission
Mr Robert Nkuna, Councillor, ICASA, noted that the written submission of ICASA contained a summary of all recommendations, as well as a detailed motivation (see attached document for details). He suggested that the amendment process should seek to clarify roles. This should narrow the opportunities for forum shopping. This had been raised already with the Department of Trade and Industry. 

ICASA also suggested that there be a clear delineation between ex ante and ex post matters. He gave a definition of the terms, saying that the ECA allowed ICASA to "set the rules of the game" (ex ante matters), but it was then necessary to enforce compliance (ex post responsibility). If ICASA imposed a remedy related to interconnection, it would make no sense then to have the Competition Commission enforce it. ICASA had therefore suggested that enforcement of compliance should remain with ICASA. It would appear, on first reading, that the ECA and Competition Acts did not clearly set out those responsibilities. It should be that the Competition Commission should deal with matters not covered in the sector legislation. The role of the sector regulator would be confined to matters outlined in the ECA. If the two pieces of legislation were read in context, there should not be a problem. Mr Nkuna noted that historically ICASA's role was limited in terms of the old Telecommunications Act. Currently its role was wider, and the laws must be regarded as mutually reinforcing.
 
Mr Nkuna said that the ECA was a fairly new piece of legislation and it may seem that ICASA had no teeth to enforce it. However, through practical implementation of Chapter 10 of that Act, the perceived gaps would be closed. ICASA understood that its ex post responsibility was confined to matters directly concerned with the sector and set out in the ECA. It therefore recommended that ICASA should be vested with exclusive ex ante regulatory powers, and the Competition Commission should be vested with ex post competition regulation not otherwise set out in the ECA. It recommended that Sections 67(1) to (3) (dealing with undue preference) of the ECA should be repealed.

Section 67(9) of the ECA stated that "subject to” the provisions of this Act, the Competition Act applied to competition matters in the electronic arena. In its engagement with the dti, ICASA had realised that there could be differing interpretations. It therefore suggested that the words "subject to" should be replaced with "despite" or "notwithstanding", or that the provision should be amended to clarify the respective roles. The Competition Commission should deal only with those ex post matters not covered in the ECA.

ICASA did not support the proposed section 3(3)(c) in its current form. The attempt to create certainty had not succeeded, as it persisted in the notion that one piece of legislation should take precedence, which ICASA did not support. It suggested that this provision be removed or replaced with a clearer distinction about the roles, rather than attempting to establish primary jurisdiction by one or the other. ICASA's proposed wording had been submitted to the dti.

Discussion
Prof B Turok (ANC) agreed that it was desirable to avoid "turf wars" and to establish clear authority and jurisdiction. He hoped that ICASA and dti would be able to sort the matters out.

Mr Nkuna responded that ICASA and dti had reached some agreement on who should attend to what, and that there was a cordial relationship between the two, and with the Competition Commission. ICASA had suggested that the legislation should clarify the responsibilities, rather than the MOUs. The current MOU would also need to be re-negotiated, as it was negotiated at a time when the Telecommunications Act still applied. The role of ICASA was more pronounced under the ECA and the changed context must be taken into account.

Prof Turok noted that when the Law Society made its presentation, the question was raised as to the difference between “collusion” and "rational commercial behaviour". He asked whether any of the presenters could clarify this point. The Committee needed to understand the fundamental issues of what competition was, and what was allowable.

Mr Keith Weeks, General Manager: Markets and Competition, ICASA, had understood that the Law Society was referring to unconscious parallel price-following. He believed that collusion required proof of a “meeting of the minds” to do something, as opposed to the situation where market structures and rational parallel conduct that was not consciously geared to collusion produced price-following behaviour. If this happened, then this could be regarded as market failure. Where there were markets with a high degree of inoperability, such as banking or telecommunications, the question was then how to address the failure. Care should be taken not to produce uncertain rules and outcomes by forcing behaviour, rather than addressing the market.

Prof Turok asked what criteria would be applied in the telecommunications industry, in distinguishing between the two situations. If there were two suppliers of service, there could be unconscious price following, or there could be active discussion. He asked how this was assessed, and if there was any scientific evaluation. If it was merely a "thumbsuck" then there was a danger of other factors influencing attitudes.

Mr Weeks said that the provisions of restrictive horizontal practices were not covered by the sector regulator. However, there must be evidence of an agreement before collusion was claimed. The use of complex monopoly provisions and market inquiries was aimed at dealing with the situation where rational conduct produced a certain outcome, and here a standard of evidence would be used. Rational self-interest of participants in those markets might lead them to shadow each other, particularly on price determinations. A specific price control could address the market failure.

Mr Nkuna said that Chapter 10 of the ECA set out issues of competition. The different markets were defined. Once those markets were defined, ICASA would then look for operators with significant market power, or dominant operators. However, the mere fact of dominance did not always mean that an operator was anti-competitive, and the market would have to be investigated. Only if a dominant firm was causing the market to be anti-competitive was it necessary to price-fix. The ECA further provided that transactions between operators must be transparent. There was a value chain outlined in the ECA. Throughout the process if was possible for ICASA to impose remedies, or reviews over a period of time.

The Acting Chairperson asked, in a situation such as South Africa, which was a developing country, how competition between the first and third economies was handled.

Mr Nkuna responded that a number of measures would be used, including imposition of pro-competitive measures on the larger operators, who must charge a cost-based price, as opposed to the smaller operators who would be dependent on inter-connection. ICASA could create separate dispensations for smaller operators, and the need to do so was presently under discussion with smaller operators. All players in the industry must also contribute 0.2% to the Universal Services Access Fund, which was used for subsidies. It was recently also used to support Under Serviced Area licences.

Mr S Njikelana (ANC) asked who would address competition in the South African economy. He had understood that the Competition Commission would address anti-competitive behaviour across the board. He wondered how then to restructure the mandate of the Competition Commission so that it could become more effective, and whether the problems in jurisdiction of regulators applied only to ICASA.

Mr Nkuna agreed that the issue of competition was spread across the economic cluster, as evidenced by the submissions from the National Energy Regulator (NERSA), and that in general there was a distinction between ex ante and ex post matters. There should be good relationships between the Competition Commission and all other regulators.

Ms Mahomed said that duplications of regulators and functionaries should be avoided. She asked for clarity on the review of the MOU, and on the proposed changes to the Bill. She added that the Committee had heard the need for synergy, and clarification of the mandates, so that those wishing to lodge complaints must know where to do so. She suggested that ICASA should produce suggested wording here too, so that the Committee was better apprised of the gaps.

Mr Nkuna thought that ICASA should be able to enforce complaints that showed that an operator was not complying.

Mr Maake agreed with Prof Turok's comments. He asked if there were specific conflicts envisaged between ICASA and the Competition Commission, which should be addressed by the MOU. He asked that examples of conflicts that could not be solved by agreements be given. He wondered if it was a question of each authority wanting to retain certain powers. He reiterated that someone should be checking the whole competition arena.

Mr Nkuna noted that the two authorities had worked well together in the past. However, the new ECA was now in place. After ICASA had set the rules, it was only logical that ICASA should enforce compliance. He reiterated ICASA’s position that the Competition Commission could still deal with "macro" issues not covered by the sector specific legislation. It would continue to play a large role in the macro-environment, whereas the sector specific regulators would deal with micro-issues. The MOU would have to contain pragmatic issues such as where to resolve the issues. ICASA had suggested to dti that although the detail would be articulated in the MOU, the principles should be in the legislation.

Mr Maake followed up on the Chairperson's questions and asked about barriers to entry, and how a person without collateral to take a loan from a bank would be able to enter the markets.

Mr Nkuna said that this was still under discussion. ICASA acted in consultation with the industry and stakeholders. It would ensure dispensations to allow new operators to enter the market and there would be report backs on how far ICASA had moved with competition issues.

Closing remarks
The Acting Chairperson indicated that the committee would be considering all comments. It would be concerned to close the gaps. She noted that the Committee would need to apply its minds fully and in detail to the numerous issues. The Department would be giving its responses the following Tuesday.

The meeting was adjourned.

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