The Competition Commission believes a contract between Vodacom and the government is potentially anticompetitive and has launched an investigation into the telecommunications giant to establish this.
Specifically, the commission suspects that an exclusive contract Vodacom signed with national treasury to be the sole provider of mobile services to government constitutes an exclusionary abuse of dominance by Vodacom in contravention of the Competition Act.
Before Vodacom entered into the exclusive four-year agreement with national treasury, all government departments could purchase mobile services from any network operator.
The investigation was initiated by the commission, which became concerned at the consequences of the deal, rather than because a competitor raised any specific complaints.
“After investigating the market ahead of the Vodacom and Neotel deal, the commission probably has a sense of just how dominant Vodacom is,” said Heather Irvine, a competition law specialist with Falcon & Hume. “That merger was prohibited and it’s possible the commission was looking for a reason to take Vodacom on.”
According to the commission, it has information that there are 20 government departments which will be subjected to the new Vodacom contract. Other departments, including state-owned entities and municipalities, will be incentivised to adopt the new contract.
“This case is unusual,” said Nick Altini, head of Baker McKenzie’s Antitrust & Competition Practice Group. “While there is no doubt that Vodacom is a dominant player in the market, there is no immediate evidence that the firm is looking to abuse its position through this tender. As far as one can see, it won the tender through a competitive bidding process.”
Prohibited
The act prohibits a dominant firm from abusing its dominance by requiring or inducing a supplier or customer to not deal with a competitor and by engaging in an exclusionary act that impedes or prevents a firm’s entry or expansion within a market, unless the firm concerned can show technological, efficiency or other pro-competitive gains which outweigh the anticompetitive effect of its act.
“It appears that the commission is concerned about the economic phenomenon of customer foreclosure where other players are harmed simply because the contract between the two parties excludes them from a very big part of the market,” he said.
The previous example of such a case was SAA’s anticompetitive travel-agent incentive schemes that were found to be in contravention of the Competition Act.
While this does not sound similar, the issue the commission will investigate is: is tying up a large volume of subscribers for a fairly extensive period of time is justifiable or not? For instance is this similar to a juicy contract with the likes of a Sasol, for instance? Or will it cause longer-term harm to the other operators?
That is what the commission will hope to find out.
- This article was originally published on Moneyweb and is used here with permission