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[2016] ZACT 27
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Cell C Service Provider Company (Pty) Ltd v Altech Autopage, A Division of Altron TMT (Pty) Ltd (LM117Aug15) [2016] ZACT 27; [2016] 1 CPLR 165 (CT) (30 March 2016)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM1
1
7Aug15
In
the matter between:
CELL
C
SERVICE
PROVIDER
COMPANY
(PTY)
LTD
Primary Acquiring Firm
and
ALTECH
AUTOPAGE,
A D
I
VISION OF ALTRON
TMT
(PTY)
LTD
Primary Target Firm
Panel
: Andreas Wessels (Presiding Member)
: Andiswa Ndoni (Tribunal
Member)
: lmraan Valodia
(Tribunal Member)
Heard
on
:
09 December 2015 and 10 February 2016
Order
Issued on
:
12 February 2016
Reasons
Issued on
: 30 March
2016
Reasons
for Decision
Conditional
Approval
[1]
On 12 February 2016, the Competition Tribunal ("Tribunal")
conditionally approved the merger between Cell C Service
Provider
Company (Pty) Ltd and Altech Autopage, a division of Altron TMT (Pty)
Ltd.
[2]
The reasons for approving the proposed transaction follow.
Parties
to proposed transaction
Primary
acquiring firm
[3]
The primary acquiring firm is Cell C Service Provider Company (Pty)
Ltd ("Cell C SP"), a company incorporated in accordance
with the company laws of the Republic of South Africa. Cell C SP is
in tum controlled by Cell C (Pty) Ltd ("Cell C"),
a company
incorporated in accordance with the laws of the Republic of South
Africa.
[4]
Cell C is a mobile network operator ("MNO") active in the
telecommunications sector and provides mobile services to
corporate
and consumer subscribers.
Primary
target firm
[5]
The primary target firm is Altech Autopage Cellular ("Altech
Autopage"), a division of Altron TMT (Pty) Ltd. Only
Altech
Autopage's post-paid subscriber base subscribed to the Cell C network
("Altech Autopage's Cell C Subscriber Base")
is being
acquired. Altron TMT (Pty) Ltd is a wholly-owned subsidiary of Bytes
Technology Group (Pty) Ltd.
[6]
Altech Autopage is an independent telecommunications service provider
in South Africa and delivers a range of customized mobile
and fixed
line, voice and data packages and services to both consumers and
corporate clients.
Proposed
transaction
and
rationale
[7]
Cell C intends to acquire Altech Autopage's Cell C Subscriber Base
from Altech Autopage.
[8]
As a result of Altech Autopage exiting the telecommunications market,
it will also terminate its retail and supply agreements
with the
retailers that operate its distribution outlets. While some of these
outlets are operated by Altech Autopage, others are
operated by
franchisees, dealers and agents ("Channel Partners").
[9]
The proposed transaction is one of three transactions that have been
notified to the Competition Commission ("Commission")
involving Altech Autopage. The other two transactions are for the
disposal of Altech Autopage's Subscriber Bases of Vodacom (Pty)
Ltd
("Vodacom") and Mobile Telephone Network (Pty) Ltd ("MTN"),
which were separately notified to the Commission
under case numbers
20150ct0584 and 20150ct0583 respectively.
[10]
The merging parties submitted that Altech Autopage has decided to
exit the telecommunications market, given that it is no longer
viable
to sustain a multi-party independent service provider model.
According to Altech Autopage, over the past year, market and
industry
changes have resulted in a sustained decline of the independent
multi-party SP channel. A notable development has been
the
alternative routes to market created by the MNOs which include the
rolling out of their own store networks. As a result, Altech
Autopage
has offered to sell its MTN, Vodacom and Cell C subscriber bases back
to the respective MNOs. A number of other such SPs
have exited the
market and pre-merger, Altech Autopage is the only independent multi
party SP channel operating in the market.
[11]
It is worth noting that following the Altech Autopage/Nashua Mobile
transaction on 29
September
2014
[1]
Altech Autopage
had
viewed the acquisition
of
the
Cell
C Subscriber
Base
from
Nashua
Mobile
as
a
strategic
investment.
Altech
Autopage
further
submitted
that
while
it
was
aware
that
its
business
model
would
be
placed
under
pressure, it did not foresee the regulatory changes in respect of
both fixed line
and
mobile
termination
rates which would further erode
i
ts
revenues.
[12]
According to Cell C, the proposed transaction presents an opportunity
for Cell C to protect its subscriber base and maintain
those
subscribers on its network. In addition, Cell C intends on appointing
Seventy2 Telecommunications (Pty) Ltd ("Seventy2")
to act
as its agent in administering this base on an exclusive basis.
Seventy2 already distributes Cell C contracts on an exclusive
basis
and thus the proposed transaction will enable Cell C to optimize this
distribution channel by having subscribers serviced
by Seventy2.
I
mpact
on competition
[13]
During its investigation the Commission identified a horizontal
overlap between the activities of the merging parties. Altech
Autopage and Cell C are both active as retailers of handsets,
products and services related to the mobile telecommunication
industry.
The proposed transaction also has a vertical dimension
since Cell C is active as a MNO (upstream market) and provides
products
and services to Altech Autopage (a downstream service
provider).
[14]
The Commission assessed the competitive effects of the proposed
transaction in the national market for the resale of Cell C
post-paid
subscription and services.
[15]
The Commission found that the MNOs operate in upstream markets,
providing mobile network access, which is then sold in downstream
markets through various channels. One of these channels is the
service provider channel, wherein Altech Autopage operates as an
independent service provider. In this way, service providers provide
a link between the MNOs and the customers, both corporate
and
individuals. Altech Autopage has service provider agreements with all
MNOs, and as such, it is not exclusively associated with
any single
MNO.
[16]
The Commission further found that the service providers have the
responsibility for marketing and selling different MNO's services;
billing customers; setting credit limits; collecting debts; and
offering after sales service and technical support. There are two
classes of customers in the downstream market, (i) pre-paid customers
who purchase airtime to obtain mobile services each time
they need
it; and (ii) customers on contracts, i.e. post-paid customers.
Post-paid customers are considered more credit worthy
and hence pay
after usage, hence post-paid. Traditionally, the service providers
have served this customer segment because they
assume the risk of
non payment. Hence, service providers receive discounts from the
MNOs for selling the MNOs products.
[17]
The Commission's assessment of market shares revealed that Altech
Autopage accounted for less than 10% of the total market
for
post-paid services in South Africa, of which the Cell C Altech
Autopage subscriber base accounted for less than [0- 10]%. The
Commission concluded that regardless of the market share assessment
adopted, the post-merger market share of the merged entity
would
remain below 15% and too low to raise any significant competition
concerns.
[18]
In terms of intra-brand Competition, the Commission found that there
were various channels through which Cell C sold its products
to the
market of which Altech Autopage is one of those routes. In assessing
the strength of intra-brand competition the Commission
compared
the various packages offered by Cell C and Altech Autopage,
specifically in relation to Cell C's packages. The Commission
found
that customers had a choice between Cell C and Altech Autopage
depending on their preference for data versus voice or airtime.
While
the packages were priced similarly they were still different in order
to address customer preference for benefits. In other
words the role
of the service provider is providing structured deals tailored to
capture a particular clientele base.
[19]
In assessing intra-brand competition, the Commission further made
reference to Tribunal Case Number 87/LM/Oct04, in which it
was noted
that contract services, tariffs (approved by ICASA) and terms are set
by the cellular networks, as such the service provider
has no product
or pricing power. As a result, the package offered by the service
provider will always be similar
I
match that of the network
provider. The Commission was therefore of the view that the proposed
merger did not appear to remove strong
intra-brand competition.
[20)
In terms of inter-brand competition, the Commission assessed the
extent to which Altech Autopage was able to provide a platform
through which the three MNOs in South Africa, being MTN, Vodacom and
Cell C, compete. The importance of Altech Autopage in this
regard was
that it offered a platform for customers to compare packages offered
by all MNOs in one store. While the Commission
noted that Altech
Autopage would effectively be removed as a route to market, the
Commission found that post-merger customers will
still have access to
the products and services of other third parties and will be able to
compare prices directly from the MNOs.
Therefore, while inter-brand
competition may be dampened as a result of the removal of Altech
Autopage from the market, the Commission
was of the view that that
there would not be significant competition concerns given that
customers could still approach the MNOs
directly for packages.
[21]
The Commission also conducted a vertical assessment in which it
considered potential input foreclosure and customer foreclosure
concerns. However, it noted that this relationship was not a typical
vertical relationship between a customer and supplier as it
originated from a commercial agreement between Cell C and Altech
Autopage, whereby Altech Autopage has been appointed by Cell C
to
distribute its products.
[22]
In terms of input foreclosure, the Commission found that there was
unlikely to be input foreclosure given that Cell
C
currently distributes less than [0-10]% of its
products through Altech Autopage while
the
remainder is done through other distribution
channels.
[23]
In terms of customer foreclosure, given that Cell C distributes less
than [0-10]% of its products through Altech Autopage,
Altech Autopage
only contributes to a small proportion of Cell C's business.
Secondly, the Commission noted that Cell C is not
acquiring the
business of Altech Autopage but only its subscriber base.
The Commission therefore concluded that it
was unlikely that any
upstream competitors would be foreclosed of Altech Autopage as a
customer post-merger given that it is also
exiting the market.
[24]
The Commission therefore concluded that the proposed transaction was
unlikely to substantially prevent or lessen competition
in any
relevant market and recommended that the Tribunal approve the
proposed transaction without conditions, but subject to certain
employment-related undertakings provided by the merging parties.
Employment will be dealt with separately below.
[25)
At the Tribunal hearing of 09 December 2015, Saicom Holdings (Pty)
Ltd ("Saicom Holdings"), a customer of Altech
Autopage, was
allowed to make oral submissions and raised certain concerns
regarding the above-mentioned transactions involving
MTN and Vodacom
as buyers.
[26]
Saicom
Holdings,
Saicom
Voice
(Pty)
Ltd
("Saicom
Voice")
and
Tariffic
(Pty)
Ltd
("Tariffic"),
collectively
referred
to
here
as
Saicom,
deal
directly
or
indirectly
with
Altech
Autopage.
Saicom
stated
that
Saicom
Holdings
held a large number
of
sim
cards
purchased either directly from Altech Autopage or indirectly from the
Post-Paid
company
(a reseller of Altech Autopage)
on
both the Vodacom and MTN networks.
[2]
In
addition,
Saicom
Voice, which
is
also a telecommunications
company,
uses
the
SIM
cards purchased by Saicom Holdings for the routing of international
voice traffic to third party destinations. Finally, the
third
business, Tariffic, optimizes company cell
phone
bills
and
supplies
contracts
to
such
companies.
[27]
Saicom classified itself as a so-called "on-biller" in the
supply chain and submitted that Altech Autopage was responsible
for
having created what is referred to as the "On-Biller Model",
through which Altech Autopage has structured innovative
contracts and offered discounts to its customers.
[28]
Saicom raised the concern that the Commission had failed in its
investigation to consider the "on-biller" segment
of the
market and had not contacted a number of on billers who comprise
Altech Autopage's largest customers. In addition,
the Commission had
also not considered the effect of the proposed transaction on call
centres who sell products supplied to them
by Altech Autopage
to ordinary consumers.
[29]
In a submission made to the Tribunal prior to the hearing, Saicom
ventilated a number of issues and allegations which it raised
at the
hearing and which it submitted should have been considered by the
Commission. Briefly, Saicom's concerns included that the
proposed
transaction
inter
alia
would result in
(i) the complete destruction of the "on-biller" model
created by Altech Autopage; (ii) the price to customers
who have
benefited from the existence of the Service Provider ("SP")
structuring and discounts provided by Altech Autopage,
would rise
substantially post merger; (iii) a loss of jobs at call centres
which sell the contracts to consumers which are
currently supplied at
discounted rates by Altech Autopage; and (iv) the closure of the
business of Saicom if the merger proceeds.
Saicom requested that
certain conditions be imposed on the merging parties to ensure
security of supply to Saicom and other on-billers
in the market. In
light of the above, Saicom requested that the matter be referred back
to the Tribunal for further investigation.
[30]
In addressing the concerns raised by Saicom, Cell C submitted that in
terms of the Sale Agreement between Altech Autopage and
Cell C, no
re-sellers (or on-billers) formed part of the Altech Autopage Cell C
Subscriber base. As a result, any impact on on-sellers
or on
competition arising from the transfer of the on-sellers' contacts to
the other MNOs, would not arise as a result of the Cell
C
transaction.
[31]
In reacting to the concerns raised by Saicom, the Commission
confirmed that it was not given the customer details of Saicom
in the
merger filing and that it did not specifically investigate any
potential effects of the proposed transaction on the on
biller
segment. As a result the Commission was not in a position to confirm
the submissions of either Cell C or Saicom with regards
to the Cell
C/Altech Autopage transaction.
[32]
Given the
prima
facie
potential concern
relating to certain clusters of customers having not been interviewed
by the Commission, the Tribunal decided
to stand the matter down and
referred the matter back to the Commission for the further
investigation of specific issues. The Commission
was directed to
fully investigate the concerns raised by Saicom and any potential
competition effects arising from the proposed
transaction on certain
identified customer groups, specifically "on-billers" and
call centres. In addition, the Tribunal
also requested the Commission
to make a submission on the relevant counterfactual absent the
above-mentioned proposed three transactions.
[33]
Following the hearing, Saicom in a letter to the Tribunal dated 11
December 2015 confirmed that it had no concerns relating
to the
proposed transaction involving Cell C and that its concerns related
only to the above-mentioned Vodacom and MTN transactions
with Altech
Autopage.
[34]
In a supplementary report submitted to the Tribunal and presented at
the hearing on 10 February 2016, the Commission confirmed
that Cell C
does not have on-billers on its Altech Autopage subscriber base.
Furthermore, in relation to call centres, the Commission
found that
the merging parties had since addressed a concern raised by one of
the call centres in relation to the Cell C/Altech
Autopage
transaction and no further issues remained in dispute.
[35]
Given the above facts and in line with its original recommendation,
the Commission was of the view that the proposed transaction
should
be approved without conditions.
[36]
We concur with the Commission's finding that the proposed transaction
is unlikely to substantially prevent or lessen competition
in any
relevant market.
[37]
Although the Tribunal concurred with the Commission with regards to
the impact of the proposed merger on competition, the Tribunal
was
concerned about the effect of the proposed transaction on employment.
We deal with this aspect next.
Public
Interest
[38]
The proposed transaction raised certain employment concerns, but did
not raise any other public interest concerns. We deal
with the
employment concerns below.
Employment
[39]
The merging parties noted that as a result of Altech Autopage exiting
the market there would be a number of employment effects.
As noted
previously, in terms of the proposed transaction, Cell C will only
acquire the Cell C subscriber base and not the business
as a going
concern. Therefore, in terms of the merger agreement between the
parties, Cell C will not be taking up any of Altech
Autopage's
employees. However, the merging parties committed to taking certain
steps to mitigate the negative employment effects.
[40]
In its assessment of the public interest the Commission considered
firstly the retrenchments within Altech Autopage and secondly
the
retrenchments that will occur at Altech Autopage's Channel Partners
or franchise stores.
[41]
At the hearing on 09 December 2015, the Tribunal requested clarity
regarding the number of employees likely to be affected
by the
proposed transaction and the merging parties provided clarity. The
merging parties submitted
inter alia
that at the time of the
hearing all 51O employees of Altech Autopage had signed a mutual
separation agreement. The merging parties
however noted that certain
employees had elected not to take this up due to voluntary
resignations and/or redeployment back into
the Altron Group. In terms
of redeployment, at the time, the merging parties submitted that they
were still engaged in negotiations
with some third parties. At the 09
December 2015 hearing, the merging parties estimated that 282 people
still required redeployment
opportunities, although they had signed
mutual separation agreements.
[42]
With regards to call centres, the merging parties submitted that all
Altech Autopage call center employees have been guaranteed
a contract
of employment with Bytes People Solutions post their individual
termination dates. In addition, all the sister companies
of the
Altron Group had agreed to give preference to Altech Autopage's
employees during upcoming interview processes at their respective
companies, subject to certain provisions.
[43]
In addition, the merging parties also submitted that they had started
an employee assistance programme through a professional
service
provider which offers Altech Autopage employees and their families
various support services ranging from emotional
support,
financial support and legal support.
[44]
In terms of the additional employment effects arising from the
termination of the retail and supply contracts between Altech
Autopage and its Channel Partners, it was estimated that
approximately 520 employees may also be negatively affected by the
proposed
transaction. As such, Altech Autopage engaged with a number
of third parties such as Seventy2, Blue Label Telecoms Limited {"Blue
Label") and Buffet Investment Limited, trading as Glocell
("Glocell") with a view to take over its Channel Partners.
In this regard Seventy2, while not in a position to absorb or take
over the employment of any persons at the retail outlets, made
an
undertaking that should any vacancies arise within its business, that
it would consider those employees that were not redeployed
by Altech
Autopage subject to its human resources policies and standard
employment interviews and vetting. The merging parties
submitted that
through these initiatives it is anticipated that the employment
effects will be significantly mitigated.
[45]
According to the Commission, while the number of affected employees
was significant, these retrenchments would have occurred
regardless
of the proposed transaction, given Altech Autopage's decision to sell
back the subscriber bases as well as its decision
to exit the market.
[46]
As stated above, the merging parties made certain undertakings
towards mitigating the employment effects, which the Commission
accepted. However, the Tribunal requested that these undertakings be
made conditions to the approval of the proposed transaction,
inter
alia
so that the undertakings could be properly monitored by the
Commission. The merging parties agreed to that and submitted a set of
conditions for the Tribunal's consideration.
[47]
After suggesting certain enhancements to the conditions at our
hearing of 10 February 2016, which the merging parties then
incorporated, we approved the proposed transaction subject to the
tendered conditions. Certain of the conditions that we have imposed
are applicable to Cell C and others to Altech Autopage
I
The
Altron Group. The imposed conditions are set out fully in the
Tribunal's Order and Merger Clearance Certificate dated 12 February
2016 and include appropriate monitoring conditions.
[48]
The conditions imposed on The Altron Group include that it will make
offers of redeployment to 86 employees (this includes
56 employees
who have already been redeployed to the Altron Group from 1 March
2015 to 11 February 2016 and 30 employees who have
redeployment
opportunities in the Altron Group post their employment termination
dates). Altech Autopage will further continue
to make certain
training initiatives available to all the employees within the employ
of Altech Autopage as at the date of approval
of the merger until the
date of implementation of the proposed transaction. Altech Autopage
will also make available for a specific
period an Employee Assistance
Programme covering certain counselling services to all employees
within the employ of Altech Autopage
as well as their direct
families.
[49]
The
conditions imposed on Cell C include that when an external vacancy
arises to be
filled
within Cell C, Cell C must, for a period of
12
(twelve) months after the date of
transfer
of Altech Autopage's Cell C Subscriber Base, forward a batch
communique
via
SMS
and/or
email
to
all
Identified
Candidates
[3]
, providing such
Identified
Candidates
with the information and details of the position as well as contact
details
as
to whom to contact within Cell C HR to enable them to apply should
they wish to
do
so. Under all circumstances the onus will rest on the Identified
Candidate to apply
for
a vacant position.
Conclusion
[50]
In light of the above, we conclude that the proposed
transaction is unlikely to substantially prevent or lessen
competition
in any relevant market. However, due to the significant
employment effects associated with the proposed transaction, we
approved
the proposed transaction subject to a set of conditions
aimed at mitigating those negative effects.
30
March 2016
DATE
________________________
Prof
Imraan Valodia
Ms
Andiswa Ndoni and Mr Andreas Wessels
Tribunal
Researcher: Karissa Moothoo Padayachie
For
the merging parties:Lara Granville from Norton Rose Fulbright for
Cell C and Advocate Arnold Subel SC instructed by Lee Mendelsohn
and
Derushka Chetty of ENSafrica for Altech Autopage
For
the Commission: Intervenor: Mogau Aphane, Kholiswa Mnisi and Lindiwe
Khumalo Rafik Shana with Luke Kelly instructed by Manong
Attorneys
for Saicom.
[1]
Tribunal case number LM046Jul14.
[2]
Saicom submitted that it did not hold any Cell C sim cards
(See
Transcript of 09
December
2015,
page
32).
[3]
"Identified
Candidates"
are
Affected
Employees,
who,
in
the
opinion
of
Cell
C,
are
potentially
suitable
for the position sought to be filled; and "Affected Employees"
means all employees within the
employ
of
Altech
Autopage as
at
the
Merger
Approval
Date
who
have
entered
into
voluntary
separation arrangements with separation packages who have not
already
been redeployed within the
Altron
Group, do not already have confirmed redeployment opportunities
within the Altron Group post
their
employment
termination date at
Altech
Autopage, and
who
have not
already
resigned.