COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case no: 83/LM/Sep05
In the large merger Between:
MTN Service Provider (Pty) Ltd Acquiring Firm
and
Cell Place (Pty) Ltd Target Firm
Reasons for Decision
Approval
On 8 December 2005 the Competition Tribunal issued a Merger Clearance Certificate
approving the transaction between MTN Service Provider (Pty) Ltd and Cell Place (Pty)
Ltd. The reasons for this decision follow.
The transaction
i. The acquiring firm is MTN Service Provider (Pty) Ltd (“MTNSP”), a
firm wholly owned by Mobile Telephone Networks Holdings (Pty) Ltd
(“MTN Holdings”), which in turn is a wholly owned subsidiary of MTN
Group Limited (“MTN Group”). 1 Apart from its shareholding in Cell
Place, MTNSP has two wholly owned subsidiaries viz. Guard Risk
Insurance Company Ltd (“Guard Risk”) and Cell Captive No 72 (Pty)
Ltd (“Cell Captive”).
1 MTN Group is listed on the JSE Securities Exchange South Africa and does not have a controlling
shareholder. For a list of shareholders which have at least 1% of the issued share capital of MTN Group,
please see page 3 of the Commission’s Report. Detailed information on the MTN Group, including the
subsidiaries of MTN Holdings can be found on pages 23 of the Commission’s Report as well on pages
246247, 547 and 318 of the record.
MTN Holdings
100%
The Kanimambo
Trust
65%
25%25%50%
Cell Place
35%
49%49%
Attitudebest
Computers
Flaminco Moon
Trading
ii.The target firm is Cell Place (Pty) Ltd (“Cell Place”). Premerger, MTN
SP and Mobile Solutions (Pty) Ltd (“Mobile Solutions”) hold 35% and
65% in Cell Place, respectively. This results in joint control of Cell
Place.
iii.Shareholding in Mobile Solutions is held as follows:
iv.The Kanimambo Trust (50%);
v.The Adams Family Trust (25%); and
vi.Jason Didier Redford (25%)
vii. In terms of the merger transaction, MTN is acquiring an additional
16% of the issued share capital in Cell Place from Mobile Solutions,
thereby increasing MTNSP’s shareholding in Cell Place to 51%.
According to the parties, Mobile Solutions will then be dissolved and its
remaining 49% shareholding will be transferred to The Kanimambo
Trust (33%) and to Jason Didier Redford (16%). Mobile Solutions’ third
shareholder, The Adams Family Trust will exit as a shareholder.
According to the parties, Cell Place will be jointly controlled by its
shareholders post merger. 2
viii.The pre and post merger structures are depicted below:
Pre merger structure
2 At page 249 of the record.
MTN Group Ltd
100%
MTN Service
Provider
The Adams Family
Trust
Mobile Solutions
Jason Didier
Redford
2
The Kanimambo
Trust
51% 16%33%
Cell Place
Attitudebest
Computers
Flaminco Moon
Trading
49%49%
Post merger structure
Rationale for the transaction
6. The parties submit that by acquiring one of its licensed exclusive dealers, MTN is
seeking to “…consolidate its service delivery channels in order to bolster the quality
of service offered to endusers.” 3 They assert that they are “shortening the
3 At page 248 of the record.
Jason Didier
Redford
MTN Service
Provider
MTN Holdings
MTN Group Ltd
100%
100%
3
distribution chain” which is in line with international trends to vertically integrate into
the cellular distribution network.
7. Cell Place is concerned with the growth of competing networks as well as the trend
of these networks to vertically integrate downstream. The transaction will allow Cell
Place to consolidate its gains and concentrate on competing vigorously against the
other networks.
Competition analysis
Relevant Market
Product market
8. The MTN Group is a provider of communications services. MTN is South Africa’s
second largest cellular network operators.
9. MTNSP is a service provider to the MTN network. 4 Service providers may be
appointed to exclusively deal with MTN’s network service requirements, alternatively
can do so for all three cellphone networks. MTNSP operates various MTN Service
Provider Service Centres around South Africa. It is charged with taking care of all
the customer’s MTN service needs in terms of his or her cell phone contract,
including credit vetting, contract connections, billing, customer care, upgrades,
migration and other services relating to the administration of the cell phone account.
Cell phone users subscribe to either prepaid or post paid accounts.
10. Other service providers such as Orion, Augopage, Nashua Mobile and iTalk sell
MTN contract airtime and prepaid airtime through their dealer networks. In addition
to consumers’ MTN cellphone needs being attended to by the MTN centers, there
are also various independent distributors which sell MTN products as well as the
large retail chain stores, such as Pick ‘n Pay and Game, amongst others. These
service providers are required to sign a distribution agreement for contract airtime or
prepaid airtime with MTN. These service providers enter into distribution agreements
with “dealers” or distributors, who onsell the network’s products for a commission.
with “dealers” or distributors, who onsell the network’s products for a commission.
11. Cell Place is licensed to act as an exclusive MTN dealer and operates 90 stores
around South Africa which sell contract airtime, prepaid airtime, as well as providing
cell phone rentals and accessories.
12. The overlap occurs in respect of the markets for the sale of MTN contract and
4 In terms of MTN’s ICASA licensing conditions, MTN may itself provide these services, or appoint a sub
licence a service provider to distribute their products through the dealership networks.
4
prepaid airtime.
Geographic market
13. We agree with the commission that the relevant geographic market is national.
Impact on competition
14. It is common cause that there is an increasing trend amongst network providers to
vertically integrate downstream, by buying up their service providers and provide the
services themselves. The merging parties assert that due to the advent of the
prepaid market, the role of service providers has become less important, as
consumers can typically buy prepaid contracts from retailers.
15. This transaction has both a horizontal and a vertical dimension. Horizontal, because
the MTN service centers and Cell Place compete in the distribution market. Vertical,
because MTN is consolidating with its dealer downstream, again in the distribution
market.
16. Horizontally, postmerger, the merged entity will have less than 2% market share in
the prepaid market. This is largely because of the presence of the large retailers in
this market. In the market for the sale of MTN contract airtime, the postmerger
market share will be 40%, which is quite high. We evaluate this latter market in the
context of concerns raised by various industry players.
Industry Concerns
17. There is a vertical dimension to this merger. The upstream market is that for the sale
of MTN cellular services. Downstream, the MTN service providers are a channel
between the dealers and the MTN network operator.
18. Some concerns were expressed by third party service providers. 5 They asserted
there would be a loss of intrabrand competition brought about as a result of this
merger. They were of the view that the merger would nullify the countervailing power
the SPs have, insofar as they contended that MTN will, through CellPlace, itself
compete and be operative in the downstream market and favour its own retail
partner. They argue that the loss of intrabrand competition could lead to trading
restrictions being imposed on the MTN dealers thereby luring away their customers,
ultimately entrenching MTN's upstream power visavis the consumer. In other
words, they fear loss of competition amongst service providers selling the MTN
product.
5 Three service providers made submissions to the Commission. They were invited to amplify their
submissions at the hearing, but declined, choosing instead to rely on their written submissions.
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19. Related to this concern, the third party service providers asserted that vertical
integration by MTNSP will result in increased dominance by the networks. This is
because they will force out the "triservice" providers (like themselves) that compete
by offering consumers a choice of network based on the best tariff. 6They contended
that in the longterm, exit of these SPs could enable the networks to raise prices of
deals and reduce their competitiveness. Also, with the advent of number portability,
they asserted that the role of the triservice SP will become more important, as they
can facilitate customers switching networks more easily.
20. The merging parties countered this allegation by asserting that due to the
introduction of number portability, it will now be easier for dealers to switch between
network providers and therefore they will have even more market power to switch
from one network to the other. Furthermore, that the relationship is between the
consumer and the network directly and the dealer’s role is likened to that of an agent
or gobetween between the parties. The true competition takes place at the network
level, between the three different network operators, and competition at the
downstream level is limited to competing for commission from the relevant network.
We agree with this last submission. The various package offerings by the cellular
networks are the same, therefore it would be irrelevant to the consumer which dealer
she would go to. Again, in line with other mergers, we find that there does not seem
to be any significant competition at dealer level, which would be compromised by
this merger.
21. The commission further found that barriers to entry into the market for the sale of
MTN contract airtime is not prohibitive. We are also mindful of the parties’ point that
MTN contract airtime is not prohibitive. We are also mindful of the parties’ point that
this merger is not substantially changing the competitive landscape, in that it
involves an increase of shareholding from 35% to 51%. Accordingly any foreclosure
effects that exist now would have existed before this merger in any event.
Furthermore, since Cell Place is an exclusive dealer for MTNSP, this is another
reason why input or customer foreclosure is highly unlikely.
22. As already explained, vertical integration of service providers is a welldocumented
international trend and in view of the lack of horizontal concerns raised by this
merger, we have no reason to impugn it on the basis of any vertical concerns.
Conclusion
We conclude that the merger will not lead to a substantial lessening or prevention of
competition. There are no public interest concerns which would alter this conclusion.
6 Tri –service providers are firms not contracted exclusively to any of the three networks but rather serve
to distribute the products of all three, hence the name.
6
The Tribunal therefore approves the transaction unconditionally.
20 December 2005
N. Manoim Date
Concurring: D. Lewis
For the merging parties: M. Brassey instructed by KPMG
For the Commission: H. Ratshisusu, Mergers and Acquisitions
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