African Media Entertainment Ltd v Lewis NO and Others (68/CAC/MAR/07) [2008] ZACAC 4; [2009] 1 CPLR 1 (CAC) (1 December 2008)

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[2008] ZACAC 4
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African Media Entertainment Ltd v Lewis NO and Others (68/CAC/MAR/07) [2008] ZACAC 4; [2009] 1 CPLR 1 (CAC) (1 December 2008)

IN THE COMPETITION APPEAL COURT OF SOUTH AFRICA
Competition Appeal Court Case No. 68/CAC/MAR/07
Competition Tribunal Case No. 39/AM/May06
In the matter between:
AFRICAN
MEDIA ENTERTAINMENT LTD
Applicant
and
DAVID LEWIS
NO
First Respondent
NORMAN
MANOIM NO
Second Respondent
YASMIN
CARRIM NO
Third Respondent
PRIMEDIA
LTD
Fourth
Respondent
CAPRICORN
CAPITAL PARTNERS (PTY) LTD
Fifth Respondent
NEW AFRICA
INVESTMENTS LTD
Sixth Respondent
THE
COMPETITION COMMISSION
Seventh Respondent
J U D G M E N T
TSHIQI,
AJA
:
[1] This is a
review of a decision by the Competition Tribunal (“
the
Tribunal
”)
to approve, unconditionally, the acquisition of an indirect 24,9%
management interest and a maximum 18% financial interest
by the
fourth respondent in Kaya FM (Pty) Ltd (“
Kaya
”),
a radio station that is a potential competitor of radio stations
operated by Primedia Broadcasting (Pty) Ltd (“
Primedia
”),
a subsidiary of Kaya.
[2] The
acquisition of the interest in question was subject to the
jurisdiction of the competition authorities as a notifiable
merger
because it occurred through the acquisition by Kaya and the fifth
respondent (“
Capricorn
”)
of all the equity in New Africa Investments Ltd (“
Nail
”),
the company that held the 24,9% interest in Kaya.
[3] This
transaction was notified on 29 July 2005. The merger was an
intermediate merger, subject to the jurisdiction of the Competition

Commission (“
the
Commission
”).
The Commission approved the merger on certain conditions. Later when
the matter came before the Tribunal (at the instance
of the merging
parties), who sought to have the conditions considered in terms of
section 16 of the Competition Act 89 of 1998
(“
the
Act
”),
the Commission argued that the merger ought to be prohibited. In
this it was joined by the intervening party, the current
applicant
(“
AME
”);
the rival bidder for the stake in question. The Tribunal
unconditionally approved the transaction in February 2007 (“
the
first approval
”).
[4] AME
brought a review of the first approval before this Court (“
the
first review
”).
The Commission, cited as a respondent in the review, participated
fully in joining in AME’s contention that the Tribunal’s

determination fell to be set aside. This review application was
upheld, and the first approval was set aside on the basis that
the
Tribunal had committed a material error of law in that it
misunderstood the nature of the statutory inquiry it was mandated
to
conduct in terms of s 12A of the Act, by conflating the
jurisdictional and factual roles to be played by the question of
control
in the assessment of a merger. This Court remitted the
matter to the Tribunal for expeditious reconsideration. By agreement
the
second hearing was restricted to renewed oral argument, preceded
by further written argument submitted by the three parties (merging

parties, Commission and AME). The Tribunal embarked upon a full
substantive assessment as directed by this Court and unconditionally

approved the transaction (“
the
second approval
”)
on 9 May 2008.
[5] This
review application, once again brought by AME, relates to the second
approval. The Commission has not joined the present
application.
[6] Section
53 of the Competition Act of 1998 (as amended) (“
the
Act”)
deals with the right to participate in the hearing and allows a party
which has a material interest to participate in the
hearing, subject
to the discretion of the Tribunal and only to the extent required for
the party’s interest to be adequately
represented.
[7] It is
trite that an intervening party, for good policy reasons, is not
recognised as sufficiently “
affected
”
by a merger to the extent of being granted a right of appeal. Such
an intervening party nevertheless has a right to review.
As the
present application is in the form of a review, it is necessary to
set out briefly the indicated approach to such proceedings.

Traditionally grounds for review are generally narrow and often deal
with procedural aspects and/or irregularities. There are
however
instances where the courts have to consider the merits. The courts
have always been careful to point out that these two
concepts should
not be used interchangeably as it is sometimes the case. Because of
this very important consideration, the courts
on review should be
careful not to determine merits except when considering whether the
Act is justifiable according to the reasons
given for it.
[
8]
The correct approach was in my view aptly described by Cameron JA in
Rustenburg
Platinum Mines Ltd v CCMA
2007 (1) SA 576
where the learned Judge (paras 31-32) in approving of
Carephone
(Pty) Ltd v Marcus NO and Others
1999 (3) SA 304
(LAC)) stated that “
the
question is not whether the decision is capable of being justified,
but whether the decision-maker properly exercised the powers

entrusted to him or her. The focus is on the process and on the way
in which the decision-maker came to the challenged conclusion
”.
However, the learned Judge also acknowledged that under PAJA the
courts are obliged to take into account to some extent the
merits to
determine whether the outcome is
rationally
justifiable but clearly not to substitute own opinion on the
correctness thereof
(my own emphasis).
The principle
of deference in review matters therefore ought to be adopted against
this background. This Court has concisely stated
in
TWK
Agriculture Ltd v The Competition Commission
67/CAC/Jan07 (unreported) as follows:
“
To
recapitulate: were this court to have jurisdiction, it would be
required to decide whether the Commission had properly exercised
the
powers entrusted to it to make a determination and further that it
had applied its mind to the matter in arriving at a reasonable

decision. In addition, consideration would have to be given to the
particular expertise of the Commission in competition matters
of this
nature. It is here that the principle of deference to the expertise
of the Tribunal or Commission would apply. This is
a very different
enquiry to an appeal when the court must consider whether the record
of evidence contains material which reveals
that the decision of the
lower body was correct. In such a case this court would apply its own
view as to the correct decision
based on the evidence placed before
it. The fact that this court would read the record of the evidence
and then, after argument
form the parties, arrive at its own decision
is in the very nature of an appeal. In a case where the Tribunal’s
decision is based
on a technical explication of the economic
evidence, respect in the jurisprudential sense, must be shown to that
body’s expertise
but even here, the decision on appeal is that of
the court, based on its evaluation of the evidence and applicable
law. By contrast,
as indicated, a court has a far narrower remit in
the case of a review where it must be particularly cognizant of the
role, function
and expertise of the administrative body.
”
[9
]
The Tribunal has been granted a legislative discretion to determine
whether a merger should be approved and is thus empowered
to perform
an administrative function. It is clear as stated in
TWK
Agriculture (supra)
,
that
this Court recognises that the most persuasive rationale for the
principle of deference is that the Tribunal, given its mixed

composition, is far more equipped to deal with the issues of both
economics and law.
Merger
proceedings entail extraordinar
ily
protracted evidential investigations and reams of documentary
material. To find that the failure on the part of the Tribunal
in
every determination, expressly, to deal with every single point of
evidence or argument put before it amounts to reviewable
irregularity
would paralyse the exercise of its merger control functions and
undermine the policies of the Act. As long as the
court is satisfied
that the Tribunal exercised its discretion properly and that the
outcome is rationally justifiable; the court
may not interfere.
Before I turn to the substance of the application, it has become
necessary in the light of the Tribunal’s
second decision to deal
with the relevant legal position regarding mergers of this kind.
THE
SCOPE OF SECTION
12A: The Tribunal’s postscript
[10] In the
successful review brought by AME against the decision of the Tribunal
of February 2007, this Court upheld the argument
that the Tribunal
had misconstrued the mandated enquiry and therefore misunderstood the
nature and limits of its discretion in
terms of section 12A. This
Court noted that section 12 defines a merger whereas section 12A
deals with competitive considerations
and an evaluation of a merger
as defined. Once a determination has been made that a merger exists,
the enquiry mandated by the
Act must be conducted in terms of section
12A of the Act. This Court further found that the Tribunal had
focussed exclusively
upon the question of control rather than dealing
expressly and comprehensively with the considerations set out in
section 12A.
In short, the court’s finding was that the entire
assessment undertaken by the Tribunal was based on an examination of
whether
fourth respondent could “
exercise
sole control over Kaya Fm by virtue of section 12(2)(g)
”.
[11
]
To recapitulate: Chapter 3 of the Act deals with merger control. A
merger is defined in terms of section 12 of the Act. Section
12(1)
provides “
for
the purposes of this Act, a merger occurs when one or more firms
directly or indirectly acquire or establish direct or indirect

control over the whole or part of the business of another firm. Of
particular relevance to this dispute is section 12(2)(g) which

provides ‘a person controls the firm if that person has the ability
to materially influence the policy of the firm in a manner
comparable
to a person who, in ordinary commercial practice, can exercise an
element of control referred to in paragraph (a) –
(f)
’.”
[12
]
Section 12A is headed ‘Consideration of Mergers’. Section 12A(1)
provides for a two-stage enquiry. Initially the authority
must
determine whether or not a merger is likely to substantially prevent
or lessen competition. If the merger is so likely to
substantially
prevent or lessen competition, the enquiry moves to an examination of
any technological, efficiency or pro-competitive
gain which will be
greater than and offset the effects of any prevention or lessening of
competition and further whether the merger
can or cannot be justified
on substantial public interests grounds. In order to facilitate the
investigation as to whether the
merger is likely to substantially
prevent or lessen competition, the Act provides the following
guidance in section 12A(2):
“
(2)
When determining whether or not a merger is likely to substantially
prevent or lessen competition, the Competition Commission
or
Competition Tribunal must assess the strength of competition in the
relevant market, and the probability that the firms in the
market
after the merger will behave competitively or co-operatively, taking
into account any factor that is relevant to competition
in that
market, including –
that actual and potential level of import competition in the
market;
the ease of entry into the market, including tariff and
regulatory barriers;
the level and trends of concentration, and history of collusion,
in the market;
the degree of countervailing power in the market;
the dynamic characteristics of the market, including growth,
innovation, and product differentiation;
the nature and extent of vertical integration in the market;
whether the business or part of the business of a party to the
merger or proposed merger has failed or is likely to fail; and
whether
the merger will result in the removal of an effective competition.
”
[13
]
It is clear from an analysis of these provisions that the relevant
competition authority, being either the Commission or the
Tribunal
has jurisdiction over a transaction in terms of Chapter 3 when that
transaction falls within the definition of a merger
as set out in
section 12.
The thrust of the adverse finding by this Court of the Tribunal’s
approach in its February 2007 determination concerned the conflation

of the definition of merger in section 12 which can be considered as
the port of entry into Chapter 3 and the further enquiry as
to
whether that merger substantially lessens or prevents competition as
set out in section 12A.
The Tribunal, somewhat unusually, provided a lengthy defence of its
approach in its second determination which is the subject of
this
review.
[14
]
In a postscript to its determination it raised the following
concern:
“
What
concerns us is a likely interpretation of the Court’s decision that
may result in a confusing dichotomy in merger analysis.
Direct or
triggering acquisitions are judged by the control standard – no
control, no merger, no need to notify, and, short
of a prohibited
practice, no subsequent remedy even if it was a transaction that gave
rise to the anticompetitive effects that
have been association with
passive financial investment that come to us in the jet stream of a
triggering transaction are subject
to scrutiny for their
anticompetitive effects.
”
(para 159 of the Tribunal’s determination.)
[15
]
The confusion with regard to the relationship between section
12(2)(g) and section 12A has, arguably, been caused, in this case
by
the Tribunal’s initial holding that it had jurisdiction over the
enquiry into whether fourth respondent could control Kaya
FM through
sixth respondent for two reasons. It had jurisdiction over the
acquisition of control over sixth respondent, being
direct
acquisition which meant: “
[t]he
definition of what constitutes a merger also implicates the indirect
acquisition of control of a business. Translated into
the facts of
the present merger, if Primedia through acquiring joint control over
Nail acquired indirect control over Kaya FM we
would have
jurisdiction to examine an acquisition of control as part of the
present notification
”.
(para 54.) Secondly, it found jurisdiction, in terms of its previous
merger decision in relation to Tiso Consortium’s takeover
of sixth
respondent, including Kaya FM. On this basis the Tribunal went on to
say: “
It
follows then as part of our substantive enquiry as to what the likely
post merger effects are that whether the acquirer will
indirectly
control asset in the first enquiry
”.
(para 57.) From hereon the determination appeared to blur the two
stages of the enquiry.
[16
]
Given this confused approach and its later carefully considered
postscript, it becomes necessary for the sake of clarity in this
area
of law to set out what this Court considers to be the proper position
with regard to questions of this kind. The first enquiry
is to
determine whether a merger has taken place. If there is no merger as
defined in section 12, then the relevant competition
authority does
not have the necessary jurisdiction pursuant to Chapter 3 of the Act.
The competition authority, whether it be
the Commission or the
Tribunal, must therefore consider the necessary jurisdictional facts
in order to determine whether the transaction
properly enters into
the scope of Chapter 3.
Briefly
stated, jurisdictional facts refer to the preconditions that must
exist prior to the exercise of the relevant power and
procedures to
be followed or formalities to be observed when exercising the power.
The facts are jurisdictional because the exercise
of the power
granted to the authority depends on their existence or observance, as
the case may be. See Hoexter
Administrative
Law in South Africa
at 260.
It is therefore incorrect to refer to the transaction as a merger
until such time a as the jurisdictional facts contained in section
12
had been found to exist. Once the case is treated as a merger then
the enquiry must move to section 12A and not revert back,
for
example, to section 12(2)(g) of the Act.
[17
]
This then raises a second question, being the extent to which the
kind of control found in section 12(2) (g) may then have an
effect on
a section 12A enquiry. It is clear, both from the approach adopted by
the Tribunal and the earlier decision of this Court,
that once the
jurisdictional enquiry has been completed in favour of the
competition authority’s power to engage in the section
12A
investigation, the enquiry conducted in terms of section 12A needs to
take account, of in cases such as the present, the nature
of the
control exercised. For example, in terms of the MHH
I
model employed by the Tribunal, the calculation of a minority
financial interest is undertaken with a different formula to the
one
which would apply to a full acquisition of the share capital of the
acquiring company. In short, once it has been decided
that the
transaction falls within the definition of merger under section 12,
for example, because the conditions set out in section
12(2)(g) have
been met, the relevant competition authority must proceed to an
examination of the transaction which is then a merger
as defined in
terms of section 12. That enquiry is aided by the pointers set out in
section 12A(2), which are not, however, exclusive
of the enquiry. The
nature of the transaction, taking account of the level of control
which is now exercised, may become an important
part of the
substantive enquiry into the likely post merger effects.
GROUNDS OF REVIEW
[18]
There
are several grounds on which this review is based. However, there
are two main issues which ultimately were emphasised during
argument
in the course of the review proceedings. In my view, the resolution
of these two issues is determinative of the review.
They are
interrelated questions. The first issue is whether the Tribunal acted
irregularly when it took into account the Kaya
documents in
considering the nature of the market. The second issue is whether the
Tribunal failed to define the market properly.
If it is finally
determined that the Tribunal determined the market by means of
reasoning which is sustainable on review, the
balance of AME’s case
is doomed.
THE USE OF KAYA DOCUMENTS
[19] The
complaint is that through a mistake of law, the Tribunal was
influenced in its finding by documents comprising extracts
from board
minutes of Kaya, the target firm despite the fact the documents were
not formally proved in evidence through a witness
with personal
knowledge. Consequently, it is submitted, AME was deprived of an
opportunity to test the documents through examination.
It is further
submitted that AME and the Commission objected to the use of the
documents and the objection was never upheld or
dismissed – such
that the documents were never ruled admissible.
[20] The
history behind the use of the documents can be summarised as follows:
The merging
parties subpoenaed the managing director of Kaya, Ms Charlene Deacon,
duces
tecum
to produce the relevant documents. On the first day of the hearing,
Ms Deacon appeared, represented by counsel. The question arose
as to
the need for her continued presence during the hearing. It was
indicated, given that she had not produced the required documents,

that she would need to return to the proceedings once she had
obtained the documents, at which point, depending on the contents
of
the documents, the merging parties would indicate whether it was
necessary to call Ms Deacon as a witness. The documents were
in due
course produced and the merging parties indicated that the documents
would be put before the Tribunal and that they did
not require to
call Ms Deacon.
[2
1]
During the course of the evidence-in-chief of the expert economist
who testified for the merging parties, Dr Nicola Theron (“
Dr
Theron
”),
the witness referred to the “
strategic
documents, which I’m sure we’ll get to later
”.
At a point in her evidence-in-chief, junior counsel for the merging
parties, conducting the examination, indicated that he
was going to
put documents in respect of which confidentiality claims had been
made to the witness. In that context, a bundle
of documents that had
been extracted and paginated from the Kaya documents that had been
produced by Ms Deacon under subpoena
duces
tecum
was produced for the examination. Counsel for AME stated:
“
Chairperson,
we don’t have bundles of documents from Kaya and nor do we
understand any to have been approved.
”
[22] When it
was explained that the bundle was extracted from the Kaya documents
produced by Ms Deacon under subpoena, counsel
for the Commission
remarked:
“
Chair
I think the point that my learned friend, Mr Campbell, was making and
with which we adjoin is that these are not documents
of record. No
witness has come to speak to them or say anything about them. They
are just documents that were produced pursuant
to a subpoena.
”
[2
3]
Thereupon senior counsel for the merging parties placed the
following with respect to these documents on record:
“
Chair,
could I clarify, because I dealt with this earlier? You will recall
that we had Ms Dekan
[
sic
]
under subpoena. We managed with great difficulty but with the
assistance of the Tribunal ultimately to extract the documents.
We
have them.
We had indicated
in the arrangement, you will recall, that if anybody wanted Ms Dekan,
they could ask for Ms Dekan
.
This arduous question of having to call Ms Dekan to say is this a
minute of the meeting of, I hope that none of my colleagues
is
serious about that,
but if
there is a problem, I’m sure we can go down that road
.
We had asked you to receive these provisionally and if there’s any
challenge specifically to their status that they look like
recent
replicas, then perhaps we can deal with the problem as and when it
arises. But I suggest otherwise we are wasting time.
”
[2
4]
At that stage counsel for the Commission stated the following:
“
Chair,
that is not our position at all. It’s not that these are
[not]
documents of Kaya. The question is we have no idea what they need to
put to an expert witness as to what the significance or meaning
of
the contents of these documents is. The proper people to explain the
strategic significance of the documents is the firm itself.
Those
are then facts, which can be put to an expert. Why Dr Theron has a
privileged insight into the meaning of Kaya’s strategic
documents
is wholly unclear to us.
”
Junior counsel for the merging parties then explained why the merging
parties submitted it was proper for the expert to explain
what
conclusions she drew from the documents – in answer to the specific
objection in this regard from counsel for the Commission:
“
Chair,
the expert testified that she found amongst strategic documents
various supports
[
sic
]
for various propositions. It would be useful to the Tribunal for her
and for me to highlight, which those documents were.
”
[25] This
elicited the following from the Tribunal:
“
Ja,
just go ahead and we’ll see how it goes.
”
The discussion
between the Tribunal a
nd
counsel for the parties reveals that this was a provisional ruling on
the admissibility of the documents.
AME’s
complai
nt
amounts to the following:
The documents were employed by the Tribunal as evidence upon which it
could reasonably rely, against objection. AME did not have
the
“opportunity” to cross-examine the relevant witness.
As Mr
Gauntlett, who appeared together with Mr Snyckers on behalf of the
merging parties, submitted, the simplest answer to this
complaint is
that the documents were received by consent, on the terms recorded in
the arrangement described by counsel for the
merging parties – that
anyone who wanted to call Ms Deacon to explain anything in particular
would do so, and that any challenge
to any document would be dealt
with if and when it arose.
[26] As the
documents had been debated in this fashion and as all the parties
were aware of the source; any of the parties could
have called Ms
Deacon if they needed to do so. Mr Campbell
,
who appeared together with Mr Wesley for AME, submitted that the
obligation was on the merging parties to call Ms Deacon because
they
are the party who sought to introduce such evidence and to rely on
the documents. In my view this submission is not correct
because it
was announced by counsel for the merging parties that they did not
intend calling Ms Deacon. Ms Deacon had presented
herself and the
documentation at the Tribunal under subpoena. As noted, nothing
precluded any of the other parties from calling
her. Furthermore,
the admissibility of the documents was not challenged. It was agreed
that the documents were what they purported
to be. The objection was
rather an objection to having the expert witness for the merging
parties advance opinions relating to
the significance of those
documents.
[
27]
There is a further answer to AME’s argument; it concerns the
procedures of the Tribunal. Section 55 of the Act deals with
the
rules of procedure provides as follows:
“
55. Rules
of procedure
(1) Subject to the Competition Tribunal’s rules of procedure,
the Tribunal member presiding at a hearing may determine any matter

of procedure for that hearing, with due regard to the circumstances
of the case, and the requirements of section 52(2).
(2) The Tribunal may condone any technical irregularities arising
in any of its proceedings.
The Tribunal may –
(a) accept as evidence any relevant oral testimony, document or
other thing, whether or not -
(i) it is given or proven under oath or affirmation; or
(ii) would be admissible as evidence in court; but
(b) refuse
to accept any oral testimony, document or other thing that is unduly
repetitious.
”
[2
8]
The current AME ground of review is not to any recourse of the
Tribunal to the views expressed by the expert evidence of Dr
Theron
when she attached significance to the documents in question. The
issue is not that the Tribunal wrongly allowed Dr Theron
to answer
the questions and wrongly attached significance to the answers she
gave. Instead, AME objects to the use, by the Tribunal
itself, of
what it could glean from the documents. In terms of section 55, the
Tribunal is empowered to accept any
relevant
document whether or not
it is given or proven under oath or affirmation or
whether
or not
it would be admissible as evidence in court (my emphasis). Although
the Commission’s objection had been directed at the idea
that it
was wrong to ask the merging parties’ expert to express views on
them, reference to the documents by the Tribunal in
the circumstances
is not irregular for the following reasons:
S
ection
55 of the Act specifically requires the Tribunal to conduct its
hearings “
as
expeditiously as possible
”,
and confers for this purpose an inquisitorial jurisdiction on the
Tribunal, and allows it to accept as evidence “
any
document … whether or not it is given or proven under oath or
affirmation, and
[whether
or not]
it would be admissible as evidence in court
”
(
Momentum
Group Ltd & Others v The Chairperson, Competition Tribunal &
Others
[2006] 1 CPLR 17
(CAC) and
Nutri-Flo
CC & Another v Sasol Ltd & Others
[2004] 1 CPLR 248
(CT), par 68.)
[29
] The
documents overwhelmingly comprised extracts from the minutes and
materials submitted at board meetings, in circumstances where
the
person recording them had a duty to record them, and where their
recording had no connection at all with these proceedings
– a point
specifically considered by the Tribunal in pointing to the inherent
reliability of these documents. These documents
were accepted to be
what they purported to be. They reflect the attitude of the board of
the target firm to its competitive environment.
[
30]
In the circumstances of the merger, as indeed acknowledged by the
expert witness who appeared for AME, it would have made little
sense
for the Tribunal not to have had regard to what these documents
revealed about the way in which the industry viewed the market
when
it was talking to itself. It is clear from the manner in which the
documents were handled that they formed part of material
that the
experts agreed was sensible and fair to use for assessing the effects
of the merger. It is also clear that the contents
of the documents
were subjected to cross-examination and were thus tested through the
questioning of experts. The acceptance and
use of the documents by
the Tribunal is in the circumstances not reviewable.
MARKET DEFINITION
[
31]
On the merits, the central contention in justification of the relief
sought by AME was that the Tribunal’s approach to market
definition
was vitiated by a fundamental flaw – namely the conflation of the
market for listeners with the market for advertising.
AME contends
that the market for advertisers entails a homogenous product market,
and that the notion that the differentiation
in the market for
listeners translates into a differentiated product market for
advertising is a fundamental flaw.
[3
2]
Both AME and Primedia agree that the relevant product market is the
LSM 6-10 listeners. This is the product that is offered
by both Kaya
and Highveld to the advertisers. AME contends that there is no
differentiation in the advertising market to determine,
because the
product (LSM 6-10 listeners) is a homogenous one and the radio
stations compete only on volume and price. AME accepts
that radio
stations compete with one another for the volume of the listeners in
the LSM 6-10 category because the higher the concentration
of LSM
6-10 listeners in the listenership that they are able to offer
advertisers, the more they will be able to charge the advertisers.

Mr Campbell submitted that it is not revenue that is supplied as the
product, but listeners. It is the listenership of each
radio
station that is the product supplied by such radio station. The
product is supplied to the advertisers, not by them; and
the
advertising revenue, far from being the product, is the payment for
the product.
He further
submitted that differentiation in the listener market does not
determine differentiation in the advertising market because:
There is no
differentiation in the advertising market to determine, because the
prod
uct
– LSM 6-10 listeners – is a homogonous one and the radio
stations compete only on volume and price.
In this regard, advertisers are concerned only to obtain a
sufficient number of LSM 6-10 listeners, and at the best price.

They are not interested in their colour, taste in music or whether
they wear glasses.
[33] The
submissions by the AME seem to be premised on the reasoning that the
whole objective of competition in the listener market
is to obtain
the product sold in the advertising market. Therefore, it follows
that once the radio stations have their desired
LSM 6-10
listenership, they in effect sell the listeners to the advertisers.
Thus the AME argument is to the effect that there
is no
differentiation in the product sold; it is sold as a homogenous
product. Consequently, radio stations are unusual in that
they may
differentiate whilst they compete for the listeners, but once the
product is obtained, they all offer the advertiser the
same product
and there is no differentiation in quality. Mr Campbell offers the
following example to illustrate their contention:
In so far as
an advertiser seeks to reach, for example, 10 000 LSM 6-10 listeners,
the fact that the 10 000 LSM 6-10 listeners on
Station A are not the
same as the 10 000 LSM listeners on Station B does not alter the fact
that the listeners on Station A are
substitutes for those on Station
B. Therefore Stations A and B compete with each other to sell their
LSM 6-10 listeners to advertisers
and the advertisers are interested
only in the d
isposable
income of the LSM 6-10 listeners.
[
34]
Further in support for its contention that the product is
homogenous, AME states that, for example, an advertiser like a cell

phone company has no interest in psychographic profile (i.e. whether
the prospective purchaser prefers classical music to African

contemporary jazz); but only in obtaining exposure to persons with
sufficient disposable income to purchase the contract.
[3
5]
Primedia on the other hand contends that all examples of considering
the market for advertising in radio mergers point out that
radio
mergers entail a dual sided or dual platform market; one side
represented by the market for listeners and one side represented
by
the market for advertising. Primedia contends that this analysis
emphasises the degree of differentiation in the relevant product

market because of the interplay between the differentiation in the
market for listeners and the market for advertisers. Primedia

submits that AME’s contention is at odds with the expert opinion of
the three economists who testified at the Tribunal about
the
differential nature of the product market and its consequences for
the assessment of the merger.
In my view
,
AME’s argument in favour of a homogeneous market is problematic for
the following reasons:
[36] Mr
Hodge, the economist for AME, conceded during cross-examination that,
in order to do a full analysis of the competitive
dynamic of the
advertising market, it is necessary to analyse the listener market.
He also agreed that the Tribunal had to take
into account the opinion
of Winter, as cited by the economist for the Commission Prof Roberts,
that “
the
chances of a merger having the effect of substantially lessening
competition are lower if the merging stations have different
formats
and different profiles
”.
[
37]
It was also clear from the evidence of both Prof Roberts and Mr
Muller (the media advertising expert) that the differentiation
on the
listener market translates into differentiation in the advertising
market. The key passage of Roberts’ report, citing
Muller, makes
this point clear:
“
The
relevant market then in any radio merger must take into account the
different characteristics of the stations, including the
format and
the profiles of their listeners. The chances of a merger having the
effect of substantially lessening competition
are lower if the
merging stations have different formats and listener profiles [here
the reference is to Winter’s report].
For instance, advertisers
of a particular cell-phone product seeking to reach a younger
audience between 16 – 25 years of age
would not see a classical
radio station as a close substitute to an urban youth-orientated
station. Listeners would be more likely
to alternate between
stations of a similar format depending on the changing offerings,
DJ’s, play-list etc. At different times
of the day, listeners may
have different preferences, for example, to listen to news in the
morning and music at other times.
The different formats are
complementary in this case, with competition between stations within
the formats. In addition, stations
with similar formats can compete
for DJ’s and the quality of their offering. Such stations are
generally viewed by advertisers
as comparable also. Radio stations
therefore have different psychographic profiles which are derived
from their listeners’
profiles.”
[38
]
Evidence led at the Tribunal clearly showed that Kaya is a less
effective competitor, a concession made by Mr Hodge, AME’s
expert.
This contradicts the submission made by AME that once the radio
stations have their desired LSM 6-10 listenership, there
is no
differentiation in the product sold. This is further highlighted by
the fact that Highveld at times commands a basic rate
for advertising
that is almost four times that of Kaya. This would clearly not be
possible in a market of homogenous products populated
by both
stations.
[
39]
The Tribunal’s approach to market definition in this merger paid
attention to the nuances arising from the fact that the
market in
question entailed a differentiated product market in which Kaya and
Highveld were not perfect competitors, and that the
relative degrees
of proximity between stations in one’s attempts at market
definition required close election.
[40
]
Notwithstanding that the Tribunal had the benefit of three
economists, no consensus could be found because of the complex nature

of the analysis of radio markets. Mr Wilkins, the advertising
executive for Primedia stated that, although most radio stations
have
rate cards, they are rarely utilised in reality; clearly suggesting
flexibility and that what is charged in reality is highly
negotiable.
It also transpired that radio stations change format and audience
during the day shows and the so-called “
drive-time
slots
”
are the ones for which there is demand.
[4
1]
In order to define the market in a manner sensitive to the degree of
differentiation, the Tribunal accepted the need to find
relative
degrees of proximity between the respective stations. But that
proved to a complex task Accordingly, as the Tribunal
found that
there was no reliable evidence from the demographics of audience and
advertiser profiles, it decided to utilise the
Kaya documents as the
next best evidence in that it reflected the opinions of the station
(Kaya FM) on who competes in the market.
In this the Tribunal
candidly states:
“
Absent
reliable econometric evide
nce
and inconclusive evidence from the demographics of audience and
advertiser profiles, the next best evidence we have of who competes

in the market are the opinions of the stations themselves. While
Primedia witnesses testified to this in the hearing, some caution

must be expressed about this evidence, given their interest in the
outcome. One piece of evidence that cannot be regarded as
having
been drawn up in contemplation of this hearing are the internal
documents of Kaya FM which were obtained under subpoena
prior to the
hearing.
While the Kaya documentation does not help to decide definitively
who is in and who is out, it does help to evaluate the competitive

proximity of stations.”
[42
]
It must also be accepted that the Tribunal was not dealing with a
100% (hundred per cent) merger nor a homogenous product. The
Tribunal
was also acutely aware of the problem that, with partial
non-controlling acquisitions, MHHI assessments were intended
to
measure potential unilateral effects in homogenous product markets,
while diversion flow assessments were intended to measure
potential
unilateral effects in differentiated product markets. The Tribunal
accordingly sought to find degrees of closeness between
the relevant
firms in defining the market for differentiated products. On the
basis of the available evidence, the Tribunal engaged
in an exercise
of drawing such concentric circles around target firm and acquiring
firm. Thus, “the proper approach in a case
such as this is to
consider the market as composed of a number of firms which constitute
better or worse substitutes for one another”.
Kaya’s first
circle contained Metro FM, then Highveld, Jacaranda, YFM and 5FM.
Highveld’s first circle contained Jacaranda,
then 5FM, and then
Kaya. Kaya’s second circle contained 702, SAFM Classic FM and
Radio Jozi (and, of course, all the stations
in the first circle).
Highveld’s second circle “may be the same as it is for Kaya, but
some in the second circle, “may
be the same as it is for Kaya, but
some in the second circle may be closer to it than to Kaya.”
Where
precisely the degree of differentiation as between Highveld
substitutes and Kaya substitutes would end up drawing the best

composite circle, was, as already noted, an intensely difficult
question to answer. Hence the Tribunal found:
“
We are
not certain that the marker extends only to the first circle and
there may be circumstances for
some advertisers, as they are not a homogenous group either, that
stations in the second circle are an adequate substitute, and
this
group of advertisers may be sufficiently large to deter a successful
post merger price increase, assuming Primedia was in
a position to
control Kaya’s pricing post merger.”
The point of
this analysis was that
,
if one of the two first circles on its own, either that of the target
firm or that of the acquiring firm, without consideration
even of the
firms included in the other first circle, and without any
consideration of any firms included in the second circle
of either,
did not cause concern on an MHHI assessment, then, given that an MHHI
assessment would grossly overstate the effects
of the merger in a
differentiated market, and further given that the boundaries of the
market would always lie somewhat outside
those of the bigger first
circle of either firm, there could be no concentration problem.
Thus, it made sense to consider whether, as a worst case scenario,
the bigger first circle of either of the two firms in the merger
on
its own gave rise to concerns when the inappropriate yet crude
starting point of an MHHI assessment was performed on that circle.
But, the
Tribunal also considered that the Kaya first circle was not merely
one of the first circles in question – it was in fact
regarded as
the
smallest
plausible possible market
;
it had, for this hypothesis, the corroboration of being identical to
the wider market proposed by the Commission, and ultimately
adopted
by it, as the market. The Tribunal was clear that this market was
indeed a candidate market, but the smallest or most
concentrated
plausible candidate, rather than, as viewed by the Commission, the
widest plausible boundary. This was made explicit
in the following
passage from its determination:
“
Note
that our first circle corresponds with what the Commission term their
wider market. The difference between our approaches
is that we
consider the first circle as a possible universe of the market and,
that if it errs, it does so by narrowing the market
more than might
be justified, whilst the Commission comes to the opposite
conclusion.”
The MHHI
analysis on this smallest plausible market, Kaya’s first circ
le,
yielded a delta of 79.4. This was, however, once the Commission’s
thesis had been accepted of ‘upweighting’ the market
shares in
favour of Gauteng, a device that increased the concentration level.
That level
fell below the level (100) suggested by the US Guidelines as raising
a presumptive anti-competitive concern. AME argued
that this was
above the level of 50 which suggested a potential of raising a
concern. That submission means, in effect that it
is not a level
where there is not even a possibility of concern.
However, an
MHHI assessment employed in a differentiated product market is likely
grossly to overstate the effects of the merger,
as it is premised
upon a homogenous product market and perfect competitors.
Furthermore, the MHHI assessment would at best be
a crude starting
point to measure unilateral effects, as was stressed by Mr Hodge
before the Tribunal. The Tribunal had in the
past expressed the
caveat
that HHI analyses were an “insufficient basis for drawing
conclusions regarding competition impact.”
I accept that
t
he
point of such an assessment is to give an indication of potential
unilateral effects, to measure whether the diversion flow from

Highveld to Kaya after a putative “
merger
”
would be such as to make a unilateral price hike on the part of
Highveld a profitable proposition. This enquiry took place
in
circumstances where an MHHI assessment was an inappropriate tool,
given the differentiated nature of the product market, and
which
would grossly overstate the effects of the merger. It was however
the next best tool available, given the absence of any
diversion flow
analysis based on a price pressure index. The Tribunal was alive to
this problem, and did not leave its investigation
into the potential
for a diversion flow from Highveld to Kaya at the results of the MHHI
assessment done on the smallest plausible
market. Instead, it
examined in detail the theory that, post the transaction, a price
hike by Highveld would be attractive because
lost custom might be
expected to flow to Kaya.
[4
3]
After a careful examination, of this situation the Tribunal
concluded that:
“
The
idea that Highveld would now contemplate a price increase that they
would not have contemplated without the merger, because
they are now
comfortable with the notion that what they lose to rivals they will
gain back in their share of Kaya’s earnings,
sounds so devoid of
commercial reality as to not require further contemplation.
”
[44] The
merging parities contended, with justification, that the Tribunal was
correct in its approach to be sensitive to the differentiation
in the
product market. In my view, the Tribunal was faced with a case which
did not, as is evident from the expert economic evidence,
admit to
forensic precision. The Tribunal applied economics with respect to
the appropriate way of considering the market in
the circumstances,
with awareness of the difficulty of employment of MHHI assessments in
the case of such differentiation, and,
taking account of the reality,
that Kaya was a less effective competitor to Highveld than were
several other stations. The MHHI
assessment, imperfect a tool though
it be, was employed on the smallest plausible possible market, and
the hypothesis it was supposed
to measure, namely likely diversion
flows from Highveld to Kaya, considered in detail beyond the
unworrying results of the MHHI
assessment, yielding a thoroughly
grounded and logical conclusion.
[45] It must
be borne in mind that this is an application to review the Tribunal’s
approach. That observation prompts a return
to the issue of
deference. As is evident from my reasoning, I am of the view that
the Tribunal has provided a justifiable, careful
reasoned approach to
the present dispute. Being cognisant of the Tribunal’s expertise
and mandated function there is no basis
to interfere with its
findings.
[46
]
The following order is therefore made:
4
5.1
The application is dismissed.
45
.2
The applicant is ordered to pay the costs including the costs of two
counsel.
________________________
Z L L TSHIQI
DAVIS JP and MAILULA JA agreed