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[2015] ZACT 14
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Dimension Data (Pty) Ltd v MWEB Connect (Pty) Ltd (019653) [2015] ZACT 14 (28 January 2015)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: 019653
In
the matter between:
Dimension
Data (Pty)
Ltd
...................................................................................
Acquiring
Firm
and
MWEB
Connect (Pty)
Ltd
.....................................................................................
Target
Firms
In
Respect of the following Divisions:
MWEB
Business/VOID Division,
Optinet
Network and Optinet Services
Panel:
Yasmin Carrim (Presiding Member)
Medi
Mokuena (Tribunal Member)
Andiswa
Ndoni (Tribunal Member)
Heard
on:18 December2014
Order
issued on : 18 December 2014
Reasons
issued on : 28 January 2015
Reasons
for Decision
Approval
1.
On 18 December 2014 the Competition Tribunal (the “Tribunal”)
conditionally approved an acquisition by Dimension
Data (Pty) Ltd
“DiData”) of the three divisions of MWEB (Pty) Ltd
(“MWEB”), namely MWEB BusinessA/OID Division
(“MWEB
Business”), Optinet Network Division (“Optinet Network”)
and Optinet Services Division (“Optinet
Services”).
2.
The reasons for the approval of the proposed transaction follow.
The
Parties and their activities
3.
The primary acquiring firm is DiData. DiData is controlled by
Internet Solutions (Pty) Ltd (“IS”), which is in turn
controlled by Dimension Data Middle East and Africa (Pty) Ltd
(“DiData MEA"). DiData MEA is controlled by Dimension
Data
Holdings Pic (“DiData Holdings”), a company headquartered
in the United Kingdom. DiData Holdings is controlled
by Nippon
Telegraph and Telephone Corporation (“NTT”), a firm
incorporated in term of the laws of Japan.
1
DiData controls the following firms: IS Fax (Pty) Ltd, Layer One
Telecommunications (Pty) Ltd and The Internet Solution Security
(Pty)
Ltd.
4.
In South Africa the DiData group operates through a variety of
subsidiaries and divisions that specialise in information technology
(“IT”) and communication services. The group provides
solutions that help clients plan, build, support and manage their
IT
and communications infrastructures. DiData’s lines of business
include network integration, converged communications (network,
voice
and data), security, data centre and storage, customer interactive
solutions and Microsoft solutions. IS through its Internet
Service
Provider (“ISP”) service business provides internet based
connectivity and communications (including
inter
alia
corporate
internet access, virtual private networks, community-based
connectivity services and broadband, as well as voice, messaging,
facsimile, mobility and fixed-mobile convergence) , data centre and
carrier services throughout Africa.
5.
The primary target firm is MWEB, in respect of three of its
divisions, i.e. MWEB Business, Optinet Networks and Optinet Services.
These divisions are controlled by MWEB which is in turn controlled by
Huntley Holdings (Pty) Ltd (“Huntley”). Huntley
is
controlled by MultiChoice Investments (Pty) Ltd ("MultiChoice
Investments”) which is in turn controlled by MultiChoice
South
Africa (Pty) Ltd ("MultiChoice South Africa”). MultiChoice
South Africa is controlled by MultiChoice South Africa
Holdings
("MultiChoice South Africa Holdings”) which is in turn
controlled by MIH Holdings (Pty) Ltd (“MIH Holdings”).
MIH Holdings is controlled by Naspers Ltd (“Naspers”).
MWEB does not control any firm.
6.
MWEB business sells products and services in the following broad
categories: connectivity, hosting, cloud services, security,
VOIP and
email services. Optinet Network operates as an internal division of
MWEB that provides products and services only to companies
within the
Naspers group. Optinet Services is also an internal division of MWEB
which provides services predominantly to the Naspers
group as well as
to a small number of companies historically associated with the
Naspers group. These services include server hosting,
network
services and IT support services.
Proposed
transaction and rationale
7.
In terms of the proposed transaction DiData intends to acquire, as a
going concern and in one indivisible transaction, the three
divisions
of MWEB. Following implementation of the proposed transaction, the
three divisions will be fully integrated into DiData’s
operations.
8.
The rationale for DiData is that the proposed transaction will
inter
alia
support
economies of scale on the network of IS as well as improved return of
assets, as IS will be able to consolidate carious
cloud products
(currently hosted by the three divisions) onto existing IS platforms.
9.
MWEB submitted that the proposed transaction will
inter
alia
afford
Naspers the opportunity to obtain network services from an
independent entity of a much larger combined scale.
Competition
Analysis
10.
The Commission identified horizontal overlaps between the activities
of the merging parties in respect the following eight markets:
(1)
the market for wholesale of ADSL/fixed line data services (2) the
market for the retail of ADSL data services with potential
sub
markets separately comprising large corporates and residential and
SMME customers, (3) the market for the retail of mobile
data
services, with potential submarkets separately comprising large
corporates and residential and SMME customers, (4) the narrow
market
for the provision the hosting and collaboration services, (5) the
narrow market for the provision of cloud services, (6)
the narrow
market for the provision of managed security services and (7) the
narrow market for the provision of fixed voice services
and (8) the
market for IP VPN.
11.
The Commission defined the relevant geographic market in respect of
all these market as being national.
12.
In relation to market shares, the Commission found that the merging
parties' post-merger market shares will be as follows: (1)
the market
for wholesale of ADSL/fixed line data services: 22%,(2) the market
for the retail of ADSL data services with potential
sub markets
separately comprising large corporates and residential and SMME
customers: 15.94%, (3) the market for the retail of
mobile data
services, with potential submarkets separately comprising large
corporates and residential and SMME customers: 1.53%,
(4) the narrow
market for the provision the hosting and collaboration services: 23%,
(5) the narrow market for the provision of
cloud services: 23%, (6)
the narrow market for the provision of managed security services:
23%, (7) the narrow market for the provision
of fixed voice services:
22.45% and (8) the market for IP VPN : 18.81 %. The Commission
further found that the market share accretion
in all the identified
markets is small (less than 3%).
13.The
Commission found that the merging parties will continue to face
competition in ail the above markets from other competing
firms such
as Telkom, NeoteI, MTN-Afrihost, WebAfrica, Vodacom, MTN, Cell C,
BCX, Gijima, IBM, BT South Africa, Orange Business
and Vox. The
Commission therefore concluded that the proposed transaction is
unlikely to result in a substantial prevention or
lessening of
competition as the market share accretion in all the relevant markets
is small and there are other significant players
who will continue to
constrain the merged entity post-merger.
14.
However in certain of the markets identified by the Commission there
were discrepancies between the market shares provided by
the merging
parties to the Commission as well as those that are contained in a
report compiled by BMI-TechKnowledge report (“BMI-T
Report”).
2
For
instance, the merging parties’ market share estimations in
relation to the markets for the retail of mobile data services
and IP
VPN were 1.53% and 18.81% respectively whereas the BMI-T Report’s
estimations were 7% and 30% respectively.
15.
At the hearing the merging parties explained that there is a
possibility that market share estimations by the BMI-T Report were
based on total IS and MWEB revenues, including revenues derived
outside of South Africa whereas the merging parties’
estimations
were based on actual relevant revenues. In their view the
BMI-T Report has over-estimated their market shares. We were
satisfied
with this clarification and noted that in the market for IP
VPN, even if it was assumed that the BMI-T estimate of 30% was
correct
(which the merging parties disputed) the accretion of 1% is
insignificant and unlikely to negatively affect competition in this
market.
Public
interest
16.
The merging parties submitted that the proposed transaction may
result in approximately 35 permanent skilled employees losing
their
jobs on a worst case scenario within 12 to 18 months of the merger
being approved.
17.
According to the merging parties, the reasons for these possible
retrenchments are (1) the closure of the IT Technical support
division of MWEB, resulting in approximately 10 retrenchments from
the transferred divisions (out of a total combined staff complement
of 327)and (2) the sale of the transferred divisions will result in
too many stuff remaining within MWEB who perform support functions,
resulting in approximately 25 retrenchments from MWEB (out of a total
combined staff complement of 550).
18.
In order to ensure that the proposed transaction does not result in
any further retrenchments, other than those of the 35 skilled
employees, the Commission proposed that the transaction be approved
subject a condition that no more than 35 employees of the merged
entity will be retrenched as a result of the transaction. The merging
parties have agreed to the proposed condition. The proposed
transaction raises no other public interest concerns.
Conclusion
19.
For the reasons mentioned above, we approve the proposed transaction
subject to the employment condition attached hereto market
as
“Annexure A”
28
January 2015
Date
Ms.
Yasmin Carrim
Mrs.
Medi Mokuena and Ms. Andiswa Ndoni concurring
Tribunal
Researcher : Ipeleng Selaledi
For
Dimension Data : Desmond Rudman of Webber Wentzel
For
MWEB : Dominique Arteiro of Werksmans
For
the Commission : Tshegofatso Radinku
NON-CONFIDENTIAL
Annexure
A
Dimension
Data Proprietary Limited
And
MWEB
Connect (Proprietary) Limited on behalf of its MWEB Business/VoIP
Division and Optínét Network Division & Optinet
Services Division
CC
CASE NUMBER: 2014Sep0517
CONDITIONS
1.
Definitions
The
following expressions: shall bear the meanings assigned to them,
below -
1.1
“
Approval
Date
” means the date referred to
in the Tribunal's merger clearance certificate (Form CT10);
1.2.
“
Commission
” means the Competition Commission of
South Africa;
1.3.
"
Conditions
" means these conditions;
1.4.
“
DiData
”
means
Dimension Data
(Proprietary)
Limited;
1.5
"Effective Date” means the date on which all of the
conditions precedent contained in the sale of business agreement
entered into between DiData and MWEB Connect giving rise to the
Merger have been fulfilled or waived, as the case may be;
1.6.
“
Labour Relations Act
” means the Labour Relations
Act No, 66 of 1996 (as amended);
1.7.
"
Merger
”
means the acquisition, as a going concern, of all of the-businesses,,
assets, contracts and employees of the Three Divisions
by DiData;
1.8.
“
Merged
Entity
”
means the merged business activities of Did at a and MWEB Connect;
19.
“
Merging Parties
”
means DiData; and MWEB Connect;
1.10.
“
MWEB Connect
” means MWEB Connect (Proprietary)
Limited; and
1.11
“
Three
Divisions
”
means the MWEB Business/VoIP Division, Optinet Network Division and
Optinet Services Division of MWEB Connect.
2.
Recordal
2.1
The Commission’s investigation of this Merger found that it
would not substantially prevent or lessen competition in the
markets
for the wholesale of ADSL/ fixed line data services; for the retail
of ADSL data services with potential sub markets separately
comprising large corporates
and residential and SMIV1E
customers and for the retail of mobile data services because there
are alternatives for customers in
a!! the affected markets.
2.2.
From á public interest point of view, the Commission’s
investigation found that this Merger is -likely to have
an adverse
effect on employment due to a duplication of certain roles in the
Merged Entity.
2.3.
On
a worst case scenario, the Merging Parties anticipate that, as a
result of the Merger, approximately 35 permanent skilled employees
of
the Merged Entity may possibly lose their jobs within 12 to
18
months of the Approval Date, According to the Merging Partie
s,
the
35 employees wilt be retrenched as a consequence of the following
factors: —
2.3.1.
the closure of the ST Technical support .division of MWEB
Business/VoIP division postmerger will resuít in a duplication
of roles as DiData has sufficient IT support employees in similar
roles. This duplication is likely to result in approximately
10
retrenchments from the Three Divisions); and
2.3.2.
with the sale of the Three Divisions, there wítf he a
duplication of roles within.MWEB: Connect, particularly those
roles
which perform shared service functions such as finance, legal human
resources and other support functions, This duplication
is likely to
result in approximately 25 retrenchments from M.WÉB Connect.
2.4.
In order to allay the Commission's concerns set out above, the
Commission imposes these Conditions with the view to ensure
that no
more-than 35 employees are retrenched as a direct result of the
Merger.
3.
Conditions to the approval of the Merger
3.1.
The Merging Parties, and their respective direct and indirect
.subsidiaries shall, subject to the consultation requirements
of
section 189 of the Labour Relations Act. ensure that the number of
retrenchments' does not exceed 35 (thirty-five) as a result
of the
Merger. Such retrenchments may only be effected within 18 months from
Effective Date.
3.2.
For the sake of, clarity, retrenchments as a result of the Merger do
not include (i) voluntary retrenchment and/or voluntary
separation
arrangements; (ii) voluntary early retirement
packages;
and (iii) unreasonable refusals to be redeployed in accordance with
the provisions of the
-
Labour
Relations Act.
4.
Monitoring of compliance with the conditions
4.1.
The Merging Parties shall circulate a copy of these Conditions to all
their employees and/or their irrespective employee representatives
within 5 days of the Approval Date.
4.2.
As proof of compfïanee therewith, the Merging Parties shall
within 5 business days of circulating the Conditions, provide
the
Commission with an affidavit by a senior official of the Merged
Entity attesting to the circulation of the Conditions and attaching
a
copy of the notice circulated. .
4.3.
Any employee who believes that his/her
employment
has been terminated in
contravention of these Conditions may approach the
Commission
with' his or her
complaint.
4.4.
All correspondence with the Commission in relation to
these'Conditions shall foe submitted to the following email address:
m
ergercondrtions@compcom.co.za
4.5.
An
apparent breach by the Merging: Parties of any of the Conditions
shall be dealt with in terms of Rule 39 of the Rules for the
Conduct
of Proceedings in the Commission.
5.
Duration of the Condition
5.1.
These Conditions shall remain in effect for a period of 18 (eighteen)
months from the Approval Date.
1
NTT
does not have any business activities in South Africa other than
those conducted through the subsidiaries of DiData Holdings.
2
This
report is titled
“
SA
Internet Services Market - October 2013”