COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 87/LM/Oct04
In the large merger between:
Vodacom Service Provider Company (Pty) Ltd
and
Tiscali (Pty) Ltd
Reasons for Decision
________________________________________________________________
APPROVAL
On 12 January 2005 the Competition Tribunal issued a Merger Clearance
Certificate approving the merger between Vodacom Service Provider Company
(Pty) Ltd and Tiscali (Pty) Ltd in terms of section 16(2)(a). The reasons for the
approval of the merger appear below.
The Parties
1. The acquiring firm is Vodacom Service Provider Company (“VSP”),
subsidiary of VSP Holdings (Pty) Ltd, whose ultimate owner is the Vodacom
Group (Pty) Ltd.
2. The primary target firm is Tiscali, owned by an international company,
Tiscali BV.
The Merger Transaction
3. VSP is acquiring the business of Tiscali as a going concern. This includes
the Vodacom network airtime contract business and incomeearning activity
of Tiscali.
Rationale for the Transaction
4. Tiscali is disposing of its interest in RSA. MWeb is acquiring
the internet access business and Vodacom will be acquiring the
cellular mobile telephony business, more particularly, the cellular
service provider business (this merger transaction) comprising the
Vodacom contract subscriber base.
5. This transaction amounts to a “shortening of the distribution chain” in
that Vodacom is essentially acquiring control over one of its service
providers downstream, Tiscali. This is apparently part of an international
trend to integrate the cellular distribution network
Structure of Industry
The relevant product market
6. Vodacom is active in the downstream market via VSP, which sells
and distributes handsets, accessories and Vodacom cellular airtime.
vii.Tiscali sources clients, concludes and
administers contracts on behalf of Vodacom with
subscribers to Vodacom’s network and
distributes cellular handsets and accessories in
the cellular industry. Tiscali is already licensed to
act as an exclusive Vodacom service provider.
=
Operators /
Networks
Cell C, Vodacom, MTN
VSP, Tiscali , Smartcall, Autopage,
Nashua Mobile, Global Telematics
Service Providers
(contract or prepaid)
=
Point of sale
=
Retailers, franchises, cellular and
independent dealers.
8. In line with previous decisions, the Commission did not define a market
since even on the narrowest of market definitions, they felt there is no
substantial prevention or lessening of competition. They do however work
hypothetically with the market for provision of cellular telephony services to
Vodacom subscribers only.
COMPETITIVE ANALYSIS
Competitive Impact of Merger :
Horizontal Effects
9. Tiscali and VSP recruit only Vodacom customers and only deal in Vodacom
products, therefore this merger only affects intrabrand competition.
10. Furthermore, Tiscali is already licensed to act as an exclusive Vodacom
service provider. We agree with the Commission that the transaction
makes no material difference to the market as the market share accretion is
minimal. The stated market share figures, based on sales revenue , is 65%
and 2% for VSP and Tiscali respectively. Based on number of contract
subscribers it is 71% and 1.2% respectively 1. Tiscali has 2% of the cellular
market in RSA. Therefore, Vodacom already is dominant in the market for
provision of cellular services to Vodacom contract subscribers and this
merger makes no material difference.
11. Concerns were notified to the Commission to the effect that Vodacom was
entrenching its market power in the contract subscriber market by buying
out all service providers. The concern was raised that this would increase
its vertical links in the supply chain and allow it to eliminate all discounts
currently given, thereby increasing Vodacom’s margins in a saturated
market and entrench their market power to set high prices on a take it or
leave it basis .
12. Indeed it seems that VSP has already acquired the majority of the exclusive
Vodacom service providers. There are, however, other factors that
Vodacom service providers. There are, however, other factors that
persuade us that this transaction will not substantially prevent or lessen
competition.
13. Firstly, the evidence confirms that the role of service providers , in line with
worldwide trends, is diminishing with the advent of prepaid packages since
there is less of a role for service providers to do credit checking, attend to
billing of customers and other administrative functions.
1 See page 363 or Record.
14. At the hearing it emerged that Tiscali target the corporate, as opposed to
the consumer market. They therefore do not regard themselves as
competing directly in the consumer market with Vodacom. However, it
seemed they were talking more about the leastcost routing system, as
opposed to cellular contracts. Be that as it may, their market share
contribution to the transaction in respect of cellular service provision
remains low. Though Vodacom’s acquisition of the target firm would
swallow up a competitor and reduce to some extent the level of intrabrand
competition in the market, the parties advised that premerger, the level of
intrabrand competition at service provider level, is limited in any event due
to the discount structure within which they operate and the need to cover
overhead costs. The parties further pointed out that most of the competition
in the market takes place at network level, between the three cellular
networks. The role of the service provider has, in line with international
trends, therefore become obsolete, because they act as an intermediary,
where the real competition is happening at network level.
15. This confirms our finding in respect of another, similar merger where we
stated, in respect of horizontal effects 2:
“In respect of contract services, the tariffs (approved by ICASA) and terms
of the contracts are set by the cellular networks. Thus service providers
have no product or pricing power. They compete primarily in terms of
convenience to the customer and the packaging of the offer (handsets and
discounted subscriptions). The service providers apply the discounts which
they receive from the networks differently, though ultimately, the total
packages offered to customers match each other…therefore no reduction
packages offered to customers match each other…therefore no reduction
in intrabrand competition and no substantial lessening of competition.”
Vertical Effects
16. This merger will entail further consolidation downstream but Tiscali is
almost an exclusive provider of Vodacom services. Therefore, there is not
likely to be any foreclosure of access to Vodacom rivals. Similarly, in the
Smartphone merger, it was held that:
“Since Smartcall exclusively provides Vodacom services, this merger does
not further Vodacom's ability to foreclose access to its rivals.”
Conclusion
We conclude that the merger will not lead to a substantial lessening of
2 Vodacom and Smartphone merger
competition.
The Tribunal therefore approves the transaction unconditionally. There are no
public interest concerns which would alter this conclusion.
_____________ 5 April 2005
D. H. Lewis Date
Concurring: N. Manoim, M. Madlanga
For the merging parties: A. Le Grange, Hofmeyer Herbstein & Gihwala Inc
For the Commission: H. Ratshisusu, Competition Commission