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[2014] ZACT 70
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Altech Autopage Cellular (Proprietary) Limited v Nashua Mobile (Proprietary) Limited (019166) [2014] ZACT 70; [2015] 1 CPLR 232 (CT) (4 November 2014)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case No: 019166
In the matter
between:
ALTECH AUTOPAGE
CELLULAR
(PROPRIETARY)
LIMITED
.........................................................................
Primary
acquiring firm
And
NASHUA
MOBILE (PROPRIETARY) LIMITED
IN
RESPECT OF ITS CJELL C SUBSCRIBER
BASE
.................................
Primary
target firm
Panel: Yasmin Carrim
(Presiding Member)
: Andreas Wessels
(Tribunal Member)
: Medi Mokuena
(Tribunal Member)
Heard on: 26
September 2014
Order Issued on: 29
September 2014
Reasons Issued on:
04 November 2014
Reasons for
Decision Approval
[1] On 29 September
2014 the Competition Tribunal (“Tribunal”)
unconditionally approved an acquisition by Altech Autopage
Cellular
(Pty) Ltd (“Altech Autopage”) of the Cell C subscriber
base of Nashua Mobile (Pty) Ltd (“Nashua Mobile”)
and
certain of the franchisees and dealers of Nashua Mobile (as explained
below).
[2] The reasons for
approving the transaction follow.
Parties to
transaction
Primary acquiring
firm
[3] The primary
acquiring firm is Altech Autopage. Altech Autopage is a wholly owned
subsidiary of Autopage Holdings Limited (“Autopage
Holdings”).
Autopage Holdings is ultimately controlled by Allied Electronics
Corporation Limited (“Altron”).
Altron is a public
company listed on the Johannesburg Securities Exchange Limited
(“JSE”) and its shares are widely
held. It is not
controlled, directly or indirectly, by any single firm.
[4] Altech Autopage
is an independent telecommunications service provider (“SP”)
operative in the mobile telecommunications
market throughout South
Africa. Its independent status allows it to provide cellular voice
and data contracts from any of the mobile
network operators (“MNOs”)
in South Africa, or the fixed line operators. In addition, Altech
Autopage is also a retailer
of telecommunications and internet access
hardware and related systems support. Altech Autopage thus procures
subscribers on behalf
of the MNOs and provides value added services
to these subscribers.
Primary target
firm
[5] The primary
target firm is Nashua Mobile in respect of its Cell C subscriber
base. Nashua Mobile is a wholly-owned subsidiary
of Reunert Limited
(“Reunert”), a public company listed on the JSE.
[6] Nashua Mobile is
an independent telecommunications solutions provider, acting as a
retail and distribution channel that provides
a range of mobile
telecommunication services to end-users. It provides credit vetting,
billing and customer care for the subscribers
that subscribe to
packages for connection to any one of the MNOs. Thus, Nashua Mobile
has historically provided a choice of different
options for
subscribers in choosing their network and has provided a route to
market for the MNOs.
[7] The proposed
transaction forms part of a series of transactions. The effect of
these transactions, when viewed cumulatively,
results in Nashua
Mobile exiting the market and no longer operating as an SP in the
telecommunications industry.
[8] This proposed
transaction involves two distinct components. The first involves
Nashua Mobile selling its Cell C subscriber base
to Altech Autopage.
By virtue of the implementation of that aspect of the proposed
transaction, Altech Autopage will have sole
control over Nashua
Mobile’s Cell C subscriber base.
[9] Before dealing
with the second aspect of the transaction it is worth noting that as
a consequence of Nashua Mobile exiting the
telecommunications market,
Nashua Mobile will terminate its retail and supply agreements with
the retailers that operate its distribution
outlets. Some of these
outlets are operated by Nashua Mobile itself while others are
operated by franchisees, dealers and/or agents
(“Channel
Partners”). These Channel Partners hold individual leases for
the premises from which they operate.
[10]
The second aspect of the transaction involves an
Option
Agreement
entered
into between Altech Autopage and Nashua Mobile, in terms of which
Nashua Mobile will facilitate the process of Altech Autopage
entering
into franchisee agreements with some of Nashua Mobile’s Channel
Partners in order for Altech Auto page to operate
its own
distribution outlets from those outlets.
1
[11] Altech Autopage
submitted that it views the transaction as attractive since it
provides it with the opportunity to make a strategic
investment.
[12] Nashua Mobile
submitted that the sale of its subscriber bases is an opportunity to
realise a return on investment and exit
the market while it is in a
position where it is able to offer its employees favourable severance
packages.
Competition
analysis
[13] The merging
parties’ activities overlap in relation to the retailing of
mobile telecommunication services to both corporate
and consumer
subscribers.
[14] As background,
MNOs such as Vodacom, MTN and Cell C are active in the provision of
mobile network access and the distribution
of their products through
various channels. The relationship between the MNO and SP is governed
by an agreement that specifies
the compensation for the specific SP’s
role. As stated above, both Nashua Mobile and Altech Autopage are
independent SPs
that contract with consumer and corporate subscribers
for the provision of airtime, handsets and related services. Both
Nashua
Mobile and Altech Autopage sell products from all the MNOs.
[15]
The merging parties submitted that the relevant product market is the
provision of mobile telecommunications services at the
retail level.
They further submitted that the geographic scope of this market is
national. According to RBB Economics,
2
Vodacom is the largest MNO in South Africa, followed by MTN, and
Nashua Mobile is a relatively small player in the provision of
mobile
telecommunications services at the retail level.
[16] The Commission,
however, considered the relevant product market to be considerably
narrower but agreed that the market was
national in its geographic
scope. For purposes of its analysis the Commission considered the
relevant product market to be the
provision of (pre- and post-paid)
mobile telecommunication products and services by independent service
providers in South Africa.
[17] The Commission
however also pointed out that the pre- and post-paid market segments
differ in that pre-paid customers make
payment upfront such that the
distributor assumes no risk. The Commission further found that the
prepaid market segment in South
Africa is by far larger than the
post-paid market segment. Since Nashua Mobile derives a very small
percentage of its revenue from
pre-paid customers, the Commission
specifically considered the potential effects of the proposed
transaction in the post-paid market
segment.
[18] We have
considered the potential competition effects of the proposed
transaction on: (i) the pre- and post-paid market subscriber
segments
potentially representing a single relevant product market; and (ii)
the (narrower) post-paid subscriber market segment
as a potential
separate relevant product market.
[19]
The Commission’s analysis of the effects of the proposed
transaction on the (broader) market for
“
the
sale of pre-paid and post-paid mobile telecommunication products and
services'’
revealed
that the merged entity will have a national market share of less than
5%.
[20]
If one only considers the narrow market segment of post-paid
subscribers, Altech Autopage accounts for approximately [5-10]%
of
all post-paid mobile services in 2013 in South Africa.
3
Nashua Mobile is a relatively small competitor in this segment
accounting for approximately [5-10]% of all postpaid subscribers
in
South Africa
4
and only a small portion of this market share will shift to Altech
Autopage as a result of the proposed transaction, i.e. only
that
related to the Cell C subscriber base.
5
[21] In respect of
the transaction resulting in Altech Autopage acquiring channel
partner contracts, the Commission concluded that
the merged entity’s
postmerger retail store presence would be less than 20%, even if
Altech Autopage were to convert all
of the current Nashua Mobile
stores in South Africa.
[22] Based on its
analysis the Commission concluded that the proposed transaction was
unlikely to result in a substantial prevention
or lessening of
competition in any relevant market. This is a finding with which we
concur.
[23] We next
consider the effect of the proposed transaction on employment
Public interest
[24]
The merging parties were at pains to impress upon the Tribunal that
the proposed transaction does not constitute the sale of
a business
as a going concern, and that Nashua Mobile’s employees would
thus not be transferred to the acquiring firm.
6
The Tribunal is acutely aware of the fact that approving the proposed
transaction necessarily results in Nashua Mobile exiting
the market
and many of Nashua’s employees facing retrenchment.
[25] At first we
were uncertain as to the exact number of employees adversely affected
by the transaction since the figures provided
by the merging parties
were somewhat inconsistent. At the hearing of 26 September 2014, the
position regarding employment effects
was clarified by counsel for
the merging parties.
[26] While we deem
the employment effects of the proposed transaction to be significant,
we are mindful of the fact that Nashua
Mobile has elected to exit the
market. We have also taken cognisance of the substantial commitments
made by Nashua in respect of
minimising the adverse effects on
employment.
[27]
Nashua has undertaken to redeploy as many affected employees within
the Reunert Group as possible and expects this figure to
be between
100 and 150. The severance packages Nashua has offered all of its
employees (“the Severance Packages”) appear
to be
particularly generous, being between three and five times more than
they would be in terms of the Labour Relations Act.
7
It also appears that many employees elected to accept the Severance
Packages,
8
Further, the merging parties have established support structures
which provide affected employees with
inter
alia
psychological
and financial counselling; assistance in updating their curricula
vitae; having their curricula vitae circulated within
the Reunert
Group and afforded preferential consideration in the event of
vacancies arising; and letters of reference.
9
[28]
It is also necessary to remark here that Nashua has provided specific
undertakings in respect of all affected unskilled employees,
i.e.
those deemed most vulnerable and least likely to find alternative
employment were they to be retrenched as a result of the
proposed
transaction. Nashua has undertaken to redeploy each affected
unskilled employee within the Reunert Group.
10
[29]
In addition to the Severance Packages, our fears regarding adverse
employment effects have been further allayed by Altech Autopage
having given certain undertakings which also go towards mitigating
the employment concerns. These undertakings are set out fully
in the
Tribunal’s Order and Merger Clearance Certificate dated 29
September 2014.
11
[30] The proposed
transaction raises no public interest concerns other than those
relating to employment.
Conclusion
[31] In conclusion
we find that the proposed transaction is unlikely to result in a
substantial prevention or lessening of competition
in the relevant
market(s), howsoever defined.
[32] Notwithstanding
the absence of any material competition effects, we have remained
concerned with the proposed transaction due
to the serious public
interest effects and have not arrived at our decision lightly.
[33] While we do
consider the employment concerns elucidated above to be significant,
these have been ameliorated by the employment
related undertakings
put forward by the merging parties.
[34] For the reasons
set out above and in light of the undertakings given by the merging
parties with regards to employment, we
approve the proposed
transaction unconditionally.
04 November 2014
DATE
Andreas Wessels
Yasmin
Carrim and Medi
Mokuena concurring
Tribunal Researcher:
Derrick Bowles and Shannon Quinn
For the target firm:
Adv David Unterhalter SC instructed by Norton Rose Fulbright
For the acquiring
firm: Lee Mendelsohn of ENS Africa
For the Commission:
Grashum Mutizwa
1
See
inter
alia
pages
16 to 18 of the transcript.
2
The
economics firm commissioned by the merging parties to provide a
competitiveness report on the proposed transaction.
3
Commission’s
Recommendation, pages 15 and 16, Table 5.
4
Commission’s
Recommendation, pages 15 and 16, Table 5.
5
Commission’s
Recommendation, page 16.
6
Inter
alia
page
14 of the Merger Record.
7
Act
No. 66 of 1995.
8
See
inter
alia
pages
13 and 14 of the transcript.
9
Inter
alia
Merger
Record page 17.
10
Merger
Record page 17.
11
See
Annexure A to the Tribunal’s order, paragraph 3.