COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 18/X/APR10
In the matter between:
MEDIA24 LTD First Applicant
ABRAHAM PETRUS VAN ZYL Second Applicant
And
COMPETITION COMMISSION OF SOUTH AFRICA First Respondent
COMPETITION COMMISSIONER OF SOUTH AFRICA Second Respondent
BERKINA TWINTIG (PTY) LTD, TRADING AS GOLDNET
NEWS Third Respondent
HANS STEYL Fourth Respondent
Panel : Norman Manoim (Presiding Member),
Yasmin Carrim (Tribunal Member)
and Andreas Wessels (Tribunal Member)
Heard on : 09 June 2010
Order issued on : 08 July 2010
Reasons issued on : 08 July 2010
Reasons for Decision
1
1] The applicants have brought this application to set aside a summons issued
by the second respondent , the Competition Commissioner (the
‘Commissioner’) addressed to the second applicant Abraham Van Zyl (‘Van
Zyl’) in his capacity as Chief Executive of the newspaper division of the first
applicant, Media 24 Ltd, (‘Media 24’).1
2] The attack on the summons is that it is ultra vires the powers of the
Commissioner in that it is void for vagueness and contains impermissible
interrogatories.
Background
3] The summons has been issued by the Commissioner in pursuance of an
investigation by the first respondent, the Competition Commission
(‘Commission’), into a complaint of an alleged prohibited practice perpetrated
by Media 24. In January 2009, Hans Steyl, the fourth respondent, a director of
the third respondent Berkina Twintig (Pty) Ltd (‘Berkina’), which published a
newspaper called Goldnet News, lodged a complaint with the Commission
against Media 24. Steyl alleges that Goldnet News , a weekly local newspaper,
competed for advertising in the so-called Free State Goldfields area with two
publications owned and managed by Media 24 called Vista and Forum. 2 In
about 2004/5 he alleges Media 24 cut its advertising rates for Vista and
Forum. Although Berkina tried to respond to these cuts by reducing Goldnet
News’ rates it was not able to do so as the rates would have been below the
costs of production. 3 Eventually, it is common cause , Berkina was forced to
close down Goldnet News in April 2009 and subsequently, Media 24 closed
down Forum in January 2010.4
4] The Commission commenced investigating the complaint. In July 2009 the
Commissioner issued a summons addressed to John Davis , the General
Manager of Media 24. Although this summons, which we refer to as the first
summons, is not the subject of these proceedings , it is relevant insofar as it is
summons, is not the subject of these proceedings , it is relevant insofar as it is
1 Technically the Notice of Motion is defective at it purports to set aside the summons issued by the first
respondent ( the Commission ) when in fact the summons was issued by the Commissioner, the second
respondent in terms of section 49A of the Competition Act (the ‘Act’). We make nothing of this for the purpose
of this decision, as the Commissioner was also cited as a respondent and his interest and that of the
Commission are identical in this matter.
2 The Goldfields area is understood to approximate the Welkom municipal area.
3 Form CC1 Commission record page 2
4 See Annexure AA 10, letter from Werksmans to the Commission dated 23 February 2010. Record page 42.
linked to the chain of events that led to the second summons which is.
5] In the introductory note to the first summons it is alleged that the Commission
is investigating allegations of a contravention of section 8(c) and 8 (d)(iv) of
the Competition Act (“the Act”). 5 It goes on to state that the substance of the
complaint is that Media 24 through Vista and Forum had abused a dominant
position in the market by selling local and national advertising space at a
highly discounted rate which is totally unrelated to the cost of production and
normal overhead costs of a free local newspaper. It goes on to allege that the
advertising rates for Media 24’s publications in Bloemfontein, Bethlehem and
Kroonstad where they (Media 24) don’t face competition are market related.
6] A long series of requests for documents and information then follows. In
respect of Vista and Forum the series of questions relates to costs, the
attribution of costs into categories, revenue sources of income and so forth.
The documents and information requested date back to 2001, and include
strategic documents, minutes, research and reports to management. But the
documents requested were not confined to these two papers. Documents
were also sought of Media 24 , inter alia requesting advertising rates and
‘achieved prices’ for all their community newspapers. 6 The latter were defined
as publications containing at least 40% editorial content and which were free
to the reader. Again the requested documents and information date back to
2001.
7] Following a meeting between the applicants’ attorneys and the Commission
the request was narrowed both in relation to time periods and in respect of
some customer information.
8] The information was then supplied apparently to the Commission’s initial
satisfaction.7 Subsequent to the first summons, the Commission wrote two
letters requesting further information from Media 24. The second letter seems
letters requesting further information from Media 24. The second letter seems
5 Section 8(c) provides: “It is prohibited for a dominant firm to engage in an exclusionary act, other than an
act listed in paragraph (d), if the anticompetitive effect of that act outweighs its technological, efficiency or
other pro-competitive gains…”-
Section 8(d) provides: It is prohibited for a dominant firm to-(d) engage in any of the following exclusionary
acts, unless the firm concerned can show technological, efficiency or other pro-competitive gains which
outweigh the anti-competitive effect of its act…
(iv) selling goods or services below their marginal or average variable cost;
6 The summons defines achieved prices as “…advertising revenue divided by total column centimeters sold.”
Record page 31
7 See Annexure A 6 to the founding affidavit, record page 34. The Commission states it is “... thus far happy”
although qualifying this by stating having “...briefly looked through the submission”.
3
to have been the proverbial straw that broke the camel’s back. Media 24‘s
attorneys complained that they did not understand why some documents were
being requested. They also requested more time to compile the information.8
9] The Commission replied explaining its reasons for requesting the information.
Firstly, it wanted to compare prices in regions where Media 24 has market
power to regions where it does not, because it wanted to analyse whether
community newspapers constitute a separate relevant market. It also wanted
to analyse whether predation had taken place by examining whether Media 24
could recoup its losses incurred during the predation period. It also wanted to
establish whether recent prices in the Welkom area had increased more than
in other areas since the exit of Goldnet News. The Commission then granted
an extension of time for the production of information. This elicited another
letter from Media 24’s attorneys again debating the relevance of some of the
information requested.9
10] The Commission’s response was, through the Commissioner, to issue the
second summons on 30 March 2010, which is the subject of this application.
11] The applicants have mounted several attacks on the second summons.
12] The first is that the summons contains impermissible interrogatories. The
complaint here is that the summons contains questions requiring information
from Van Zyl which the applicants allege would not be susceptible to answer
by way of documents, but only by Van Zyl answering questions. This they say
is impermissible because the questions are framed in the ‘document request’
section of the summons.
13] It does not seem to be the argument of the applicants that the Commission
may not use a summons for the purpose of interrogatories; rather that
because the interrogatories appear in a section that the Commission has
defined as one pertaining to documents, the request is unlawful. Put differently
defined as one pertaining to documents, the request is unlawful. Put differently
what the applicants appear to be arguing is that once the Commission has
said the schedule relates to a document request it may only be used to
8 See Annexure AA 10 supra, record pages 42 and 43
9 Annexure A 12, record page 46.
request documents and not solicit other information.
14] The structure of the summons is such that the first three schedules comprise
an introductory note, a definition section and an instruction section , whilst the
fourth and final schedule , contains the requests for documents and
information.
15] The applicants point to the first page of the summons, where the fourth
schedule is first referred to , and note that its language limits itself to a request
for documents. To quote the relevant passage “The documents which the
Company is required to deliver to the Commission are specified in Part IV of
this annexure below.”
16] Whilst on a strict reading the Commission is asking the interrogatories in the
fourth schedule which as we have seen it described earlier as relating to
‘documents’, it is worth noting that the fourth schedule is the only place in
which questions are asked of the addressee and that the schedule is headed
“Documents to be submitted and information requested”.(Our emphasis) Van
Zyl who is the addressee of the summons does not complain that he was
confused by the location of the interrogatories nor could he sensibly have
done so. Nor has this point of complaint been raised on the papers but it only
surfaced afterwards during argument. Nor did the applicants query with the
Commission whether the questions were requests for documents or
information by way of interrogatories. Indeed the summons’ instruction section
permits enquiries to be made about its terms.10
17] This objection is without substance and based on a selective reading of the
terms of the summons. Even if one characterises the questions as
interrogatories they would be permissible in terms of the authorising statute
which empowers the Commission both to request documents and submit the
person summoned to answer interrogatories .11 This leaves as the only point
10 See Schedule III, paragraph 12 record page 54.
10 See Schedule III, paragraph 12 record page 54.
11 Section 49(A)(1), the authorizing section, states: “At any time during an investigation in terms of this Act,
the Commissioner may summon any person who is believed to be able to furnish any information on the
subject of the investigation, or to have possession or control of any book, document or other object that has a
bearing on that subject –
(a) to appear before the Commissioner or a person authorised by the Commissioner, to be interrogated
at a time and place specified in the summons; or
(b) at a time and place specified in the summons, to deliver or produce to the Commissioner, or a person
authorised by the Commissioner, any book, document or other object specified in the summons.
5
of objection that the interrogatories were not placed in some separate
schedule headed interrogatories. This is a purely formal complaint about how
the summons is structured and given that the architecture of the summons did
not confuse the applicants this objection must accordingly fail.12
18] The more substantial attack on the second summons is that the information
sought is void for vagueness.
19] It is not necessary to repeat the contents of the summons because the attack
on it is thematic. What the Commission seeks through a series of questions is
information on community newspapers in other geographic locations owned by
Media 24. The information relates to:
• Circulation figures for certain community papers named in the
summons for a period from January 2001 to the present date;
• Rate data in disaggregated form;
• Strategy documents and board minutes for community newspapers
with similar weekly circulation figures to Vista and Forum (There
follows a list of the names of those publications the Commission
considers meet this definition although the list is not considered
exhaustive of papers in this category); and
• Information on new entry of the five most recent Media 24 community
papers that have entered the market. This information request relates
inter alia to sunk costs, the time period for the publications to have
broken even and the ‘scale’ at which they became effective
competitors.
20] The applicants argue that the remainder of the second summons , i.e. those
parts that don’t constitute the interrogatories, is unintelligible and overbroad.
The nub of the attack is that information is being sought about publications
outside of the Free State Goldfields area, cannot be relevant because the
predation is alleged to have occurred in the Goldfields market.
12 The interrogatories relate to asking why certain publications for which advertisement rates had been
provided, do not appear in the ABC certified free newspaper summary. (See summons questions 4 and 5
record page 56.)
21] The applicants argue that any rate comparison across geographic areas is
meaningless given the variance in conditions. They attach to their papers a
confirmatory affidavit from an economist explaining why comparisons across
geographic markets suffer from limitations because of many variables that
exist between geographic markets that relate inter alia to population
demographics and differences in local competitive dynamics . The conclusion
is that:
“Given these factors, comparing advertising rates in different areas without
considering the full range of other factors that influence such rates will
produce statistical results that cannot be competently used for any alleged
reasons put forward by the Commission.” (Our emphasis) 13 The applicants
suggest that this conclusion is common cause and hence the request is
unintelligible. This is not a fair reading of the Commission’s position. What the
Commission concedes is that various reasons may explain variation in
advertising rates across regions but that is the point of its summons – to
enable it to have the necessary information to come to conclusion on this
issue.
22] What Media 24 is contending for amounts to us coming to a conclusion that a
comparison of rates for the same product in other geographic markets can
never be relevant in case where the dominant firm is accused of predation in
respect of that product in a particular geographic market. But the basis for
suggesting that it is not relevant to the investigation of the complaint is the
applicants’ expert's assumption that this information could not produce
statistical results that could be competently used. This is the essence of this
part of the objection; a methodological assumption about an exercise that has
yet to be performed based on a factual premise that Media 24 expects us to
accept without the benefit of trial and evidence.
accept without the benefit of trial and evidence.
23] It would require remarkable self assurance for us to adopt such a categorical
approach. Furthermore, the relative strength of various types of evidence in
reaching a final decision about a predatory allegation may significantly differ
from case to case and therefore it is imperative that each individual case be
assessed at the actual hearing and not on mere methodological assumptions
on which more than one economic expert may very well disagree. It may well
be that the comparisons ultimately prove odious , but that does not make the
attempt to do this exercise illegitimate. The economist has no basis to
conclude a priori that the exercise can never be statistically competent.
13 See founding affidavit paragraph 34.2, record page 12. In his supporting affidavit the economist James
Hodge acknowledges that this information in the founding affidavit emanates from advice from him. See
record page 15.
7
24] It is well established in antitrust economics that evidence in pricing cases , be
they excessive or predatory is notoriously difficult because evidence on costs
and their relationship to prices in a particular market is not always susceptible
to precision as it depends largely on how a firm accounts for them . Therefore,
no immutable rules exist in competition economics for analysing such cases ,
since most instances involve intricate issues of both economic and accounting
judgment. Therefore comparisons are often made of the sale of the same or
similar product in other geographic markets in order to assess whether
conclusions can be reached by way of inferences drawn. Indeed this has been
the approach to excessive pricing cases where too the argument can be made
that variations occur across geographic markets. Yet notwithstanding this the
Competition Appeal Court (CAC) in Mittal recognised this as a legitimate
means of comparing prices to ascertain if a price was excessive.14
“Prices ordinarily charged locally in other markets by the same firm or by
other firms with broadly comparable cost structures at comparable levels of
output, may obviously serve as a measure of the ‘economic value’ of the
same good or service in our market ...”15
25] In the same decision the CAC quotes the approach of the United Kingdom’s
Competition Appeals Tribunal who observed in the Napp case that:
‘Measuring whether a price is above the level that would exist in a competitive
market is rarely an easy task. The fact that the exercise may be difficult is not,
however, a reason for not attempting it. In the present case, the methods used
by the Director are various comparisons of (i) Napp’s prices with Napp’s costs,
(ii) Napp’s prices with the costs of its next most profitable competitor, (iii)
Napp’s prices with those of its competitors and (iv) Napp’s prices with prices
charged by Napp in other markets. Those methods seem to us to be among
charged by Napp in other markets. Those methods seem to us to be among
the approaches that may reasonably be used to establish excessive prices,
although there are, no doubt, other methods.’ 16 (Our emphasis)
The CAC went on to observe that:
Evans and Padilla, in their discussion of various policies towards the
prohibition of excessive pricing by dominant firms, emphasise the ‘conceptual
as well as practical difficulties’ of determining what constitutes an ‘unfair’ price
for purposes of Article 82 of the EC Treaty. Due to the complexity of the
14 Mittal Steel South Africa Limited and Others v Harmony Gold Mining Company Limited and Another
(70/CAC/Apr07) [2009] SA CAC 1
15See Mittal supra paragraph 51.
16 Ibid at paragraph 48 and Napp Pharmaceutical Holdings Ltd & Others v General General of Fair Trading
[2002] CAT 1.
exercise more than one method is employed under Article 82. Primarily, a
comparison between the actual price and the costs of production is made but,
where this is not possible, the price can be compared to prices in comparable
markets In comparing prices the European Court makes use of different
comparator prices. 17
26] Although predatory and excessive pricing are not the same thing, both entail
coming to conclusions about the relationship of price to costs. Thus in pricing
cases of both kinds a comparative analysis of related markets may be highly
relevant.
27] In general terms information in regard to an alleged predatory firm’s prices and
costs in different geographic markets relating to the same product or service
could conceivably either allay fears of or reinforce a likely predation
hypothesis. For example: a firm that is charging similar low prices in all of the
geographic markets in which it operates is highly unlikely to be predating in
any one geographic market. On the other hand a significant variation between
the market where the alleged predation occurs and another series of markets
may give rise to an inference that the applicant is charging below cost. Indeed
this is precisely what the complainant Steyl alleges. 18 Of course this is not a
complete answer or conclusive evidence that a contravention has taken place ,
but this is not what we have to decide now. What we can conclude is that a
comparison of pricing information and costs for a similar product in other
geographic markets to the one in which the predation is alleged to have
occurred is a legitimate investigative exercise for the Commission to perform.
The actions of a predatory firm in markets related to the relevant market in
which the alleged predation takes place (i.e. in the instant case other potential
geographic markets of the same relevant product market) may be relevant to
inter alia:
I.a better understanding of the overall pricing and profitability strategy of
inter alia:
I.a better understanding of the overall pricing and profitability strategy of
the alleged predatory firm, as well as the rationality and feasibility of a
predatory strategy in any one particular market;
II.justification for the incumbent firm’s lower prices and/or costs in one
market compared to others, considering for example the relationship
between market demand (i.e. the relative size of the relevant market)
and relevant costs and prices;
III.the allocation of costs relating to any multi-market activities of the
17 Op cit note 13, at paragraph 48.
18 See paginated page 7 of the complaint where the complainant alleges that the applicant’s advertising rates
in the Goldfields market were barely half the rate for one of its papers in another geographic market although
circulations were comparable.
9
alleged predatory firm; the financial constraints that the alleged
predatory firm faces (i.e. the ability to sustain losses in the relevant
market in question as a result of activities in other markets);
IV.the financial constraints that the alleged predatory firm faces (i.e. the
ability to sustain losses in the relevant market in question as a result of
activities in other markets);
V.potential cross-subsidisation from other (more profitable) markets
where the alleged predator may face lesser or no competition; and
VI.the potential benefits flowing to other markets from any reputational
effect in the market under consideration, i.e. the recoupment of profits
in markets other than the one in which the predatory behaviour occurs.
28] Therefore, an analysis of prices and costs across potential separate (i.e.
localised) geographic markets where the alleged predator faces varying
competitive constraints, seems a reasonable and relevant exercise in a
predation context. We cannot at this stage categorically assume that the
information required in the summons is not statistically competent.
29] Of course this assumes that the Commission has as yet determined the
boundaries of the market. It emphasises that is has not – that both the product
and geographic market boundaries are issues it must still investigate. For
instance it would not be clear if community newspapers of the kind in issue
constitute the relevant product market or whether the so-called Goldfields area
is the relevant geographic market.
30] The information sought by the Commission in the second summons is relevant
to both these exercises. The Commission’s rationale for seeking the
information is both intelligible and within an orthodox approach to investigation
of such cases.
31] The remaining attack on the summons is that it is overly broad as to region,
time and particularity. Here the same argument is repeated that because the
time and particularity. Here the same argument is repeated that because the
focus is on local competitive dynamics in the Free State Goldfields area any
enquiry into publications nationwide “leads nowhere”. We have already
explained how such an enquiry may lead “somewhere” and hence it is not
necessary to repeat these arguments. It suffices to emphasise that it is not
common cause, as the applicants would have it, that the relevant enquiry for
information should be confined to the Free State Goldfields area.
32] The Commission’s response to the criticism about the lengthy time periods
contemplated in the summons is also reasonable. Although some questions
require information dating back to 2001, (the circulation figures for three
newspapers circulating in the Western Cape) others date back to 2003 or only
from the date of the summons (July 2009) to date. The Commission argues
that since the alleged predation occurred in 2004/5 it is necessary for it to
have information for the periods before this in order to come to conclusions on
whether pricing was predatory. The information about rates required up to the
present date is necessary to evaluate the possibility of recoupment occurring ,
as the complainant has exited the market as has one of the Media 24
publications in the Goldfields area. Again the justification for the selection of
the various time periods appears well reasoned.
33] That of course does not mean that the request for documents and information
- even accepting that a comparison with other regions , where the applicant
circulates similar publications is legitimate – can be unbounded. The applicant
suggests rhetorically in its heads of argument that the link between the change
in pricing of its publications since 2003 in say Langa, Gugulethu and Athlone
is too far removed to merit a resort to summons.
34] Taken out of context of the investigation that might sound reasonable ,
however the Commission did not come to this selection randomly as an
examination of the course of the investigation shows. In the first summons the
Commission asked Media 24 for:
“List prices (as published in a rate card or otherwise) containing advertising
rates for all Media 24 community newspaper publications applicable between
January 2001 and the present date. Community newspaper publication means
any newspaper publication containing at least 40% editorial content, which is
any newspaper publication containing at least 40% editorial content, which is
free to the reader.” 19
35] We were advised from the Bar by Mr Peterson appearing for the Commission
that the list of publications contained in the second summons was yielded by
this question. In other words the list of publications constitutes products the
19 See first summons page 12 question 2, record page 31.
11
Commission considers comparable to the ones allegedly used to perpetrate
the predation strategy in the Goldfields area. We were advised further that
similar information sought was already given by Media 24 in respect of papers
in the Western Cape Province, Eastern Cape, Northern Cape and some parts
of the Free State.20
36] Thus there is a rational connection between the information sought and the
analysis the Commission seeks to undertake.
37] The final category of question in the summons requires the applicants to
disaggregate information supplied pursuant to the first summons. 21 What the
Commission seeks is specific financial information at a publication level which
is relevant to its comparison exercise as opposed to regional totals, which are
not meaningful for the purpose of the assessment. This request is both
reasonable and relevant given the exercise which the Commission is
performing in benchmarking. Aggregated information is not helpful in this
regard.
38] Of course one cannot be without sympathy for the applicants given that the
request for information is extensive. The applicants complain that it will take as
many as 500 personnel hours to procure it. 22 Whilst it is unfortunate that firms
that are the subject of an investigation are often put to considerable
inconvenience to assemble documents to comply with a summons that burden
does not invalidate the request contained.
39] We find that the application is without merit and it is accordingly dismissed.
40] There is no order as to costs.
_________________________________ 08 July 2010
DATE
Norman Manoim and Andreas Wessels.
20 See page 51 of the Transcript
21 See question 3, record page 55.
22 See founding affidavit paragraph 37, record page 13.
Yasmin Carrim concurred.
Tribunal Researcher : Mahashane Shabangu
For the Applicants : Advocate Schalk Burger S.C. instructed by Werksmans
Incorporating Jan S. De Villiers
For the Respondents : Hylton Petersen of the Competition Commission
13