Convergence Bill and Competition Regulation in South Africa

1. PRESENTATION Parliamentary Portfolio Committee On Communications Convergence Bill (B9-2005) Cape Town 24 May 2005 By the Competition Commission SA

2. Presenters Fungai Sibanda Senior Analyst, Policy & Research Division Zodwa Ntuli Compliance Manager, Compliance Division

3. Introduction • The Commission welcomes the opportunity to comment of the Convergence Bill • Issues of interconnection, facilities leasing, number portability, carrier pre-selection, are a cornerstone of a competitive communications sector • We expect convergence to stimulate competition and allow flexibility and adaptability • Market boundaries are likely to become blurred, posing a challenge for regulators • Proper regulation of these activities is thus paramount

4. Introduction cont. • The Commission, through the Competition Act, is the custodian of competition across all sectors • The Competition Act was passed in 1998 and became operational in 1999 • Its objectives include promoting efficiency, adaptability and development of the economy, as well as product choice and competitive prices for consumers • The Bill seeks to promote competition, encourage investment, facilitate entry, and ensure access to communications networks in an open fair and non-discriminatory manner

5. Introduction cont. • Therefore, the two pieces of legislation are complementary in their objectives, hence our support for the Bill • The Commission was consulted by the Department of Communications (DOC) during the drafting process • Some of the inputs made were considered – the Commission also notes that the latest version has progressed and improved significantly • However, some parts of the comments made were not considered by DOC • There is still an opportunity for much improvement of this Bill

6. Concurrent Jurisdiction • Section 3(1A) of the Competition Act provides for concurrent jurisdiction with sector regulators • Concurrent jurisdiction was a temporary measure until sector legislation is amended to remove mandate on competition matters • As a model, concurrent jurisdiction is not ideal and is not best practice of regulating competition • Concurrent jurisdiction was and is still a compromise to deal with clauses in legislation that were passed prior to 1998

7. …Concurrent jurisdiction • Where new legislation, or amendments to existing legislation are made, concurrent jurisdiction should be avoided or removed • South Africa has legislation and specialized institutions created specifically for competition regulation • Sector legislation and regulations should thus be amended to remove any clauses that gave them a mandate on competition matters • The Commission sees this process as an opportunity to make such amendments – there is no need to perpetuate concurrency

8. Government Policy • DPE’s Accelerated Agenda Towards the Restructuring of State Enterprises (2000) • Recommends that concurrent jurisdiction must be clarified in respect of prohibited practices in transition industries • If there is inconsistency between industry specific and national competition regulation, the former must conform to the latter • Though Commission and regulator may look at competition issues together, the final decision should rest with Commission

9. Government Policy… • In regulated industries with no potential for competition – sector regulator may remain sole actor • But Commission would have powers to investigate mergers and abuse of dominance • In regulated industries with high degree of competition – Commission must have jurisdiction on competition matters • But the Commission may be required to consult with sector regulator • Mergers requiring licence transfer may remain under concurrent jurisdiction

10. …Government policy • Adam Smith Institute Report on Concurrent Jurisdiction (The Need for Practical Mechanisms to Implement Concurrent Jurisdiction) • This report emanates from a study commissioned by Government and it recommends that: • In the communications sector, the Convergence Bill should provide for a clear division of responsibilities by leaving competition provisions to the Competition Act

11. International experience • In most OECD countries, competition authorities are responsible for competition regulation • …while sector regulators are responsible for technical and economic regulation such as: • Setting and enforcing product standards for purposes of safety and environmental issues • Externalities and optimal allocation of publicly owned or controlled resources • Price regulation, etc.

12. International experience… • Telecommunications Regulatory Authority in India • Adjudicates disputes on matters relating to technical compatibility, interconnection, revenue sharing agreements, quality of services and consumer issues • Does not have any jurisdiction on competition matters such as monopolistic trade or restrictive practices • Competition issues are subject to jurisdiction of Monopolies and Trade practices Commission • The sector legislation specifically excludes the regulator’s jurisdiction on competition issues

13. …International experience • The Australian experience is the following: • ACCC has jurisdiction on all these matters as it plays both the regulator and the competition agency functions • These functions were merged particularly to address difficulties that existed – the competition agency thus has jurisdiction over sectoral and competition issues • Australia is really an exception

14. Problematic Clauses • Section 63 of the Bill deals with competition matters Subsection (1): “Subject to the provisions of this Act and of the related legislation, the Competition Act, 1998 (Act No 89 of 1998) applies to competition matters in the communications industry”. • Section gives connotation that the Bill trumps over the Competition Act • Suggests that the Competition Act will be invoked only if the Bill fails to address a particular competition matter in the sector • The Commission finds this unacceptable

15. …Recommends • The Commission recommends that the words ‘subject to’ be replaced with ‘notwithstanding’ so that the Bill is aligned with the Competition Act and any other relevant legislation • Alternatively, that section section 63(1) as a whole be deleted

16. …Problematic Clauses • Subsection (3) allows the regulator to direct a licensee by written notice to cease or refrain from taking action that would: (a) have the effect of giving undue preference to; or (b) cause undue discrimination againstany person or category of persons • This section has the effect of giving the regulator powers to pronounce on competition matters such as discriminatory pricing • These are the powers the Commission argues should be removed from the Bill as they create unnecessary confusion

17. …Recommends • The Bill must be clear that the Regulator would use tools available to it to deal with problems envisaged in this section • In the event that discrimination occurs, the provisions of the Competition Act should be invoked • Such tools must be limited to its mandate, which excludes mandate to deal with competition matters

18. …Problematic Clauses • Subsection (4) allows the Authority to prescribe regulations to prevent the kind of discrimination envisaged in the subsection (3) • Such regulations are meant to, inter alia, ensure the efficient and effective investigation of anticompetitive actions and the speedy resolution of complaints • It is not clear who is assumed to do the investigation • The issuing of regulations is one of the Authority’s functions • However, the investigation and speedy resolution of complaints involving anticompetitive conduct is the responsibility of the competition authorities

19. …Problematic Clauses • Subsection (5) identifies the prohibition, locking, blocking or prevention of any end user equipment from being used with any licensed communications service as anticompetitive • The Competition Act identifies conduct that is anticompetitive • It is not clear why this specific practice is being singled out to the exclusion of all other potentially restrictive conduct • This section must be removedas creates inconsistency

20. …Problematic Clauses • Definitions of “dominance” and “market power”Section 8 of the Bill deals with the terms and conditions of licenses • Sub-section (3) allows the regulator to prescribe additional terms and conditions to certain licenses, under certain conditions, including the possession of significant market power. • In subsection (4) significant market power is deemed present where a firm is dominant • Market dominance is then defined as the possession of 35% or more market share

21. …Problematic Clauses • The Bill fails to recognize that dominance does not equal market power • In terms of the Competition Act, a firm that has less than 35% market share may be dominant if it possesses market power • Similarly, a firm with more than 35% but less 45% of the market is deemed dominant unless it can prove that it does not have market power • The Competition Act defines market power adequately • The definitions of dominance and market power offered in the Bill are at variance with those in the Competition Act • This opens up a loophole for legal challenges

22. …Recommends • We therefore recommend that the terms ‘dominance and ‘market power’ be aligned to the Competition Act • … not only for the sake of legislative consistency but also to prevent future exploitation of this gap by litigants

23. Conclusion • We urge that concurrent jurisdiction be removed in the communications sector • Competition authorities should be responsible for competition matters across all sectors • Section 63 be revised to remove mandate on competition issues • Definitions and terms use should be in line with the Competition Act not in contradiction • Competition authorities are best placed to deal with competition issues – sector regulators should deal with the technical and/or economic aspects • We encourage inclusion of clauses allowing for consultation and cooperation to occur as opposed to concurrency

24. …Conclusion • Problems created by concurrent jurisdiction include: • Forum shopping • Wasteful duplication of resources • Myriad of legal interpretation – creating legal anomalies • Confusion in legal redress processes • Double jeopardy

25. THANK YOU FOR THE OPPORTUNITY

26. How to contact us Website: www.compcom.co.za E-mail: ccsa@compcom.co.za Tel: 012 394 3200 Fax: 012 394 4200