Whenever I think of the Competition Commission, I am reminded of the Vogons in Douglas Adams’s comedy science fiction book The Hitchhiker’s Guide to the Galaxy.
The Vogons are an alien race that demolishes the Earth to make way for an intergalactic highway, earthlings be damned. Adams describes the Vogons as obstinate and officious; they are employed as the galactic government’s bureaucrats, and bureaucracy is all they know.
The Competition Commission clearly wants to show it’s a muscular regulator. Emboldened by changes to the Competition Act, it thinks robust intervention in the private sector — even ripping apart successful business models — is justified to protect small enterprises and create jobs. Its heavy-handed meddling risks doing the exact opposite. The commission has become hostile to business — and to South Africa’s economic success.
Its decision to recommend the blocking of Vodacom’s acquisition of a co-controlling 30%-40% stake in Maziv, the parent of fibre operator Vumatel, is a great example of the commission getting it hopelessly wrong.
It said the deal would likely slow down investment in 5G fixed wireless access and fibre, suggesting there would be greater investment in these areas without the deal between Vodacom and Maziv. Yet the commission failed to notice that these are complementary technologies.
Neither Maziv nor Vodacom intends to scale back the investment in 5G and fibre. And both have committed to operating their fibre assets on an open access basis, meaning no discrimination against other internet service providers using their infrastructure. The Competition Tribunal should let the deal proceed with no further concessions by either Vodacom or Maziv.
The commission’s draconian new rules around e-commerce are arguably even worse. Its final report into “online intermediation platforms”, released last month, takes unfair aim at several companies, most notably Takealot, South Africa’s most successful online retailer.
Under the commission’s rules, details of which must still be hammered out, Takealot must create a separate division to house its own retail arm and another one for third-party sellers in its marketplace.
Many small businesses use the convenience of Takealot for fulfilment, and the commission is worried the e-retailer will abuse its position to favour its own retail operations. But splitting Takealot in two could result in duplication of staff and systems, driving up costs for marketplace sellers — and consumers.
A mistake the commission made, industry players say, is defining e-commerce as a market on its own, rather than including it as part of the much bigger retail sector. E-commerce makes up only 4% of total retail sales in South Africa, so why target Takealot and not, say, Massmart or TFG?
Takealot doesn’t have monopoly market power, so why is it being treated by the commission as if it does, while other big market players — mainly traditional bricks-and-mortar retailers building significant online businesses — are given a free pass? Takealot has every right to feel aggrieved. It should sue the commission.
This is very extensive interference with the heart of the strategies of these businesses, even though these businesses haven’t been shown to have abused their dominance
The commission’s report also comes just months before the world’s biggest e-commerce company, Amazon.com, launches its own e-commerce operation in South Africa, which is also expected to include a marketplace for third-party sellers.
The commission says it could impose the same rules on Amazon as it has on Takealot, but competition law experts tell me that can’t happen. The commission made “no binding findings on Amazon, and no remedial actions apply”, says a top competition lawyer. “They can’t send Amazon a letter that they must comply after the fact.”
The risk is that global e-commerce giants will now be favoured over “local champions”, according to a senior executive at a large local online retailer. Worse, it could drive away investment and make South Africa a less desirable place in which to start a business.
If the commission can target a subsector that makes up only 4% of that sector’s sales, why would companies in other nascent industries such as fintech invest here? Why risk having your business model ripped apart by a bureaucrat in Pretoria the moment you become moderately successful? This is not a formula for economic success.
The commission’s more muscular approach flows from 2019 amendments to the Competition Act, the competition lawyer says. These have given it “nebulous powers” to take action to remedy features of any market it feels has an impact on competition. This, the lawyer says, has made the commission think it can intervene directly in companies’ business models, even dictating their retail pricing strategies (in the case of application stores).
“This is very extensive interference with the heart of the strategies of these businesses, even though these businesses haven’t been shown to have abused their dominance.”
Aggrieved parties can still approach the court, of course. But many companies may simply choose to comply, particularly if the benefits outweigh the risks of suing: a high court challenge is costly, and firms may not want to antagonise the commission as they might have to approach it in future to approve deals they’re pursuing.
But that doesn’t solve the problem of a competition authority that has developed a deep-seated dislike of big business. What’s to be done about Pretoria’s Vogons?
* McLeod is editor of TechCentral
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