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[2015] ZACT 79
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City of Johanneburg Metropolitan Municipality v CitiConnect Communications (Pty) Ltd and Another (LM051Jun15) [2015] ZACT 79; [2015] 2 CPLR 629 (CT) (14 August 2015)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM051Jun15
In
the matter between:
City
of
Johannesburg Metropolitan
Municipality
Primary Acquiring Firm
and
CitiConnect
Communications (Pty) Ltd
BWired
(Pty)
Ltd
Primary Target Firms
Panel
: Norman Manoim (Presiding Member)
: Medi Mokuena (Tribunal
Member)
: Andiswa Ndoni (Tribunal
Member)
Heard
on
: 15 July 2015
Order
Issued on
: 15 July 2015
Reasons
Issued on
: 14 August
2015
Public
Reasons for Decision
Approval
[1]
On 15 July 2015, the Competition Tribunal ("Tribunal")
unconditionally approved the merger between City of Johannesburg
Metropolitan Municipality ("CoJ") and the business of
CitiConnect Communications Proprietary ltd ("CitiConnect")
and the business of BWired Proprietary ltd ("BWired") as
going concerns.
[2]
The reasons for approving the proposed transaction follow.
Parties
to transaction
Primary
acquiring firm
[3]
The primary acquiring firm is the CoJ, which as is well-known, is a
local government comprising the metropolitan area of Johannesburg.
[4]
The CoJ renders a variety of services through profit generating
state-owned companies. This merger relates to the extension
of the
CoJ's services into telecommunications infrastructure.
Primary
target firms
[5]
CitiConnect
owns
a
network
of
telecommunications infrastructure
in
Johannesburg, known
as
the
Johannesburg
Broadband
Network
which
comprises network infrastructure,
spurs,
fibre,
ducting
and
plant
equipment,
movable
assets
and
software.
[1]
[6]
Citiconnect controls the other target firm in this transaction
BWired. BWired is the operating company established for the provision
of services arising out of the Broadband Network to the CoJ.
Proposed
transaction and rationale
[7]
The target firms in this transaction were established in order to
design and build the Johannesburg Broadband Network and provide
services arising from it in terms of a Build, Operate and Transfer
Agreement ("BOT Agreement"). The BOT agreement was
initially concluded between the CoJ and Ericsson South Africa
Proprietary Limited ("ESA"). ESA had transferred the BOT
agreement to CitiConnect and BWired. Importantly, according to the
agreement, the Johannesburg Broadband Network and all ancillary
assets and software would be transferred to the CoJ after a period of
12 years.
[8]
This transaction involves the early transfer of the Johannesburg
Broadband Network which involved the purchase of CitiConnect
and
BWired by Ericsson South Africa Proprietary Limited ("ESA")
which will then immediately be on-sold to the CoJ. The
early transfer
of the network was due to a commercial dispute between the parties;
i.e
The CoJ elected to terminate this agreement before 12 years had
lapsed and take control of the Johannesburg Broadband Network
now.
Impact
on competition
Horizontal
overlap
[9]
The target firms operate in the upstream market of wholesale fibre
access ("WFA") and the downstream market of wholesale
internet access. The Competition Commission found no horizontal
overlap between the merging parties, as the CoJ does not operate
in
either of these markets.
[10]
In the
upstream
market
the
Commission
calculated
the
market
share
based
on the distance of metropolitan fibre networks owned by
wholesale
leased lined operators in 2014. The Commission found the
target
firms enjoy 4% of
the market
share.
[2]
Accordingly,
due to the
small market share as well as the
prevalence
of competition
from Telkom
and Dark Fibre Africa, the Commission found that the merger is
unlikely to raise competition concerns.
[11]
In the downstream market the Commission used the provision of
internet services between 2011 and 2013 to calculate market shares.
It found CitiConnect and BWired's market shares of 0.2% to be low.
The existence of larger market players such as Telkom and Neotel
also
assisted the Commission in finding that the proposed transaction
would not raise any competition concerns.
Regulatory
concerns raised by competitors
[12]
During the Commission's investigation various competitors raised
concerns about the proposed transaction. In order to lay
infrastructure in the Johannesburg Metro competitor firms would have
to get permission from the City acting as regulator in order
to do
so. These permits are referred to as wayleaves. Wayleaves are permits
required in order to lay fibre on municipal land.
The concern
from the competitors was that the CoJ had a commercial
incentive to deny rivals to its networks this permission
to lay fibre
within its area of service. Further the CoJ would have an incentive
to charge competitors higher prices for digging
and laying the fibre
cables on municipal ground. Competitors cited examples where two
other metros, the City of Tshwane and City
of Cape Town Municipality
had allegedly done so to illustrate their concerns.
[13]
The
competitors,
Dark Fibre
Africa,
Link Africa
and MTN
were
invited to participate at
the
hearing.
[3]
Although
not
present
at the
hearing
these
concerns
were
raised with
the merging
parties by
the
Tribunal.
[14]
In response to allegations that it would withhold permits, the
CoJ submitted that it does not have a commercial
incentive to do so. It further submitted that potentially aggrieved
parties would be protected by legislative checks and balances
and any decisions taken on the granting of wayleaves would be subject
to administrative review. At the hearing the CoJ further
submitted that it was not among the municipalities where complaints
concerning the granting of wayleaves were raised.
[16]
In determining whether the CoJ, acting as both a player and referee
would raise any competition concerns, we find that the
issues raised
by the competitors are not merger specific as concerns
around the issuing of wayleaves could arise regardless
of the merger.
Whilst admittedly we are not in a position to comment on the
effectiveness of the current regulatory structure in
the granting of
wayleaves, at least
prima facie,
it would appear that there
are sufficient regulatory and judicial frameworks
in place to cater for disputes that
could arise. We further find
that imposing conditions would not remedy the concerns raised
by competitors as they would not
be able to improve on rights already
in existence. We are also of the view that the CoJ's incentives
remain the same despite the
merger, as the infrastructure would in
any event have been taken over in terms of the BOT agreement after
the 12 year period had
lapsed.
[18]
We conclude that the proposed transaction does not warrant any
conditions and we approve the merger unconditionally.
Public
interest
[19]
The
target
firms
submitted
that
30
retrenchments
occurred prior
to
the
proposed
transaction but
that
they
were
conceived
of
and
implemented
prior
to
the
commencement
of
negotiations
between
itself
and
the
CoJ.
[4]
The
merging
parties
confirmed
that
the
proposed
transaction
will not
result in
an
adverse
impact
on
employment.
[5]
The
proposed
transaction
further
raises no
other
public
interest
concerns.
Conclusion
[20]
In light of the above, we conclude that the proposed
transaction is unlikely to substantially prevent or lessen
competition
in any relevant market. In addition, no public interest
issues arise from the proposed transaction. Accordingly, we approve
the
proposed transaction unconditionally.
14
August 2015
DATE
_____________________
Norman
Manoim
Medi
Mokuena and Andiswa Ndoni concurring
Tribunal
Researcher:
Aneesa Raval
For
the merging parties:
Marianne Wagener of Norton Rose Fulbright representing
the CoJ
assisted by Gerald Duma and Bianca Beyleveldt representing
CitiConnect and BWired.
For
ESA:
Derek Lotter of Bowman Gilfillan
For
the Commission:
Maanda Lambani and Lindiwe Khumalo
[1]
CitiConect
is
in turn
controlled
by
the Wired
Corporation
(
Ply)
Ltd.
[2]
The Commission and merging parties bundled the two target firms
together in their submissions hence our reference to target firms.
[3]
MTN
indicated
that
they
accepted
the
merging
parties'
written
response
to
these
allegations.
[4]
Inter
alia
Merger
transcript page 15.
[5]
Inter
alia
merger
record page 8.