THE mandate that SA’s competition authorities have to approve (or prevent) mergers gives them a power that can be particularly important in sectors where there are monopolies or dominant players. <\/p>\n
Even where dominant players are abusing their market power to ensure prices, and profits, are much higher than they would be in a competitive environment, the competition authorities can’t usually intervene — at least not unless someone complains. <\/p>\n
But any time a monopoly such as Telkom wants to buy another company, it’s exposed to the full scrutiny of the competition commission and the tribunal. And you can usually bet on private sector players coming along to object, bringing with them good lawyers and detailed insider industry information that will throw light on the monopolists’ activities<\/p>\n
Telkom’s proposed acquisition of Business Connexion (BCX) didn’t make for as high profile a case at the competition tribunal as did another recent merger case involving a dominant player — when Sasol tried to buy Engen. But just as it did in the Sasol case, the tribunal has rejected the deal, arguing in effect that it carries the risk of strangling the competition that is just beginning to emerge in the industry thanks to regulatory reforms.<\/p>\n
Telkom was a statutory monopoly but now it is exposed, at least in theory, to competition in its core markets. In practice, though, it’s still going to be in a powerful market position for a long time. You could argue that if you want to introduce real competition into the telecommunications market to lower costs — something that is crucial for SA’s economy — Telkom should be forced to compete with one hand tied behind its back. <\/p>\n
It should, in other words, be given less leeway than other companies would be when it comes to making acquisitions or venturing into new areas.<\/p>\n
Perhaps sector regulators such as Icasa might appropriately go that route. But the tribunal has always emphasised that competition is its mandate, and it’s stuck to that in its decisions. So even an acquisition by the most predatory monopoly would probably have to be allowed if there was no evidence it would prevent or lessen competition in the relevant market. In this case the tribunal was careful to scrutinise the deal’s likely impact on competition, and make its decision squarely on those grounds.<\/p>\n
And the judgment it released this week shows the tribunal, once again, advancing thoughtful and carefully constructed arguments in support of its decision to prevent the Telkom\/BCX merger. The decision wasn’t based on conventional market share grounds but rather on the belief that a merger would lessen the competition promised in consequence of the deregulation of the value added network services that players such as BCX and Didata provide to corporate SA. <\/p>\n
Central to the case was the market for managed network services (MNS), a market in which BCX is the leading player. But it’s also a part of the industry that profoundly threatens Telkom’s long-established monopoly , because with deregulation, companies can now increasingly bypass Telkom’s infrastructure altogether, using networks to transfer data, make voice calls and generally do all the communicating they need to do. <\/p>\n
The tribunal’s conclusion was that Telkom was less interested in dominating the MNS market than it was in staving off the development of the market, in an attempt to protect its fixed-line monopoly for as long as possible. That would prevent consumers getting the benefit of the lower costs and greater choice that would otherwise result from deregulation and innovation.<\/p>\n
The tribunal doesn’t mince words and it’s not complimentary about Telkom’s past efforts to protect its monopoly. This week’s judgment will mean Telkom now has a lot less space in which to do that.<\/p>\n