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[2018] ZACT 74
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Cell C Limited and Cell C Service Provider Company (Pty) Ltd v Glocell Service Provider (Pty) Ltd (LM314Mar18) [2018] ZACT 74 (27 June 2018)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM314Mar18
In the matter between:
Cell C
Limited and Cell C Service Provider
Company
(Pty) Ltd
Primary
Acquiring Firm
and
Glocell
Service Provider (Pty)
Ltd
Primary Target Firm
Panel
: Andiswa Ndoni (Presiding Member)
: lmraan Valodia (Tribunal Member)
: Medi Mokuena (Tribunal Member)
Heard
on
: 06 June 2018
Order
Issued on : 06 June 2018
Reasons
Issued on : 27 June 2018
Reasons
for Decision
Approval
[1]
On
06 June 2018, the Competition Tribunal ("Tribunal")
approved the proposed transaction between Cell C Service Provider
Company (Pty) Ltd and Glocell Service Provider (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 (Ply) Ltd
("Cell CSP"), which is controlled by Cell C Limited
("Cell
C"). Cell C is not controlled by any firm.
[1]
Other than Cell CSP, Cell C directly and indirectly controls a number
of other firms.
[2]
[4]
Cell
C is South Africa's 3
rd
largest Mobile Network Operator
("MNO") and operates through its subsidiaries, including
Cell C SP.
[5]
Cell
C is a MNO active in the provision of mobile network access and
distribution of its products through various channels. Cell
C is
active in the telecommunications sector in South Africa, and
specifically in providing mobile services to corporate and consumer
subscribers. Cell C, through Cell C SP, retails a variety of products
and service including
inter alia,
handsets, sim cards,
accessories as well as pre and post paid phone contracts.
Primary
target firm
[6]
The
primary target firm comprises of certain assets
[3]
of Glocell Service Provider (Ply) Ltd ("GSP") relating to
the Cell C post-paid subscriber base ("Target Business").
GSP is controlled by GloCell (Ply) Ltd ("GloCell")
[7]
GSP
is an independent Service Provider ("SP") that provides
post-paid as well as prepaid services including prepaid airtime,
electricity and handsets. The post-paid part of GSP's business is
provided by the Target Business and
only
relates to Cell C
subscribers/contracts.
[8]
The
activities of the Target Business includes,
inter alia,
billing,
collections and customer servicing functions relating to Cell C's
post-paid customers. The Target Business is also tasked
with
invoicing the Cell C subscriber base and collecting amounts owed to
Cell C.
[9]
Questshelf
is the insurance cell captive for GPS. It provides insurance services
in relation to the products that GPS offers on
behalf of Cell C
including handsets, sim cards, accessories, as well as pre-paid and
post-paid contracts. It was submitted by the
merging parties that as
part of the proposed transaction, the insurance policies associated
with the Subscriber Base will move
with each relevant subscriber
comprising part of the Target Business.
Proposed
transaction and rationale
Primary
acquiring firm
[10]
GSP
submitted that should the transaction not take place, the Cell C
subscribers it services will be cut off from the Cell C network.
This
could be detrimental to subscribers and businesses that may be
subscribers.
Primary
target firm
[11]
Cell
C submitted that MNO's currently have an increased need to engage
with their subscriber base directly due to changes and successes
in
the market such as the introduction of prepaid products and
regulatory developments over time. MNO's now invest heavily at the
retail level and have therefore diversified their distribution
channels, rather than using third party SP's.
[12]
In
terms of the proposed transaction, Cell C SP intends to purchase the
Target Business which comprises of certain assets of GSP
relating to
the servicing of Cell C post-paid subscribers.
Impact on competition
[13]
The
Tribunal noted the Commission's observation that there is an existing
trend of MNO's vertically integrating by acquiring their
subscriber
bases, leading to the demise of the role and services offered by
independent SP's.
[14]
The
Commission found a horizontal overlap in the activities of the
merging parties, as they are both involved in the provision of
Cell C
post-paid contracts/services. This is because GSP is a reseller of
Cell C pots-paid contracts and Cell C, through Cell C
SP is also
involved in the reselling of Cell C contracts.
[15] The Commission's
investigation showed that the post-merger market share of the merged
entity would remain below 15%, with an accretion of 0.5%. The
Commission concluded that this was too low to raise competition
concerns.
Further, the merging parties will continue to face
competition from other integrated MNO's such as MTN and Vodacom.
[16]
Further,
the Commission found a vertical relationship between the merging
parties. Cell C is active as an MNO (upstream) and it
provides or
distributes its products or services through downstream SP's such as
GSP. Cell C as an MNO distributes its products
and services through
Independent SP's such as GSP and Cell CSP who are both active in the
downstream market for the provision of
post-paid and pre-paid
services of the MNO.
[17]
The
vertical relationship between Cell C and GSP originates from a
commercial agreement whereby GSP is appointed by Cell C to distribute
its products. This relationship is effectively terminated by the
transaction. Therefore, the Commission was of the view that typical
input and customer foreclosure associated with vertical relationships
will not arise as the Target Business only provided post-paid
contracts services to Cell C subscribers on behalf of Cell C.
Post-merger these services will still be rendered by Cell CSP.
Further,
the merging parties will continue to face competition from
other integrated MNO's such as MTN and Vodacom.
[18]
Lastly,
the Commission found that there may be a potential overlap in the
provision of handset insurance. Questshelf is active in
the
short-term insurance market, providing insurance to various GloCell
subscribers, including GSP subscribers. Cell C also has
its own
insurance offering known as C Surance which covers Cell C subscriber
contracts purchased from Cell C.
[19]
The Commission found that these products are not available in
the open market for non-Cell C subscribers and are offered only in
relation to the products they would have purchased from Cell C as
value added services. Thus this aspect of the proposed transaction
was unlikely to prevent or lessen competition.
Public
interest
[20]
The
Commission found that as a result of GSP's decision to close down
business operations and sell back its subscribers to Cell
C,
approximately 38
[4]
of GSP's employees (the total workforce as of April 2018) will be
retrenched.
[21]
The
Commission was of the view, that although this number is significant,
the retrenchment would have occurred regardless of the
proposed
transaction because GSP had already taken the decision to wind down
the business before the merger. The Commission contemplated
employment conditions but was cognisant of the fact that Cell C is
only acquiring the subscribers and not the business as a going
concern. The merging parties have further committed to providing
support to the affected employees including:
a.
Communicating monthly any and all job opportunities within
Cell C to the affected employees and provide them with equal
opportunity
to apply.
b.
GloCell has made undertakings through the s189 notice to
commit to finding alternatives for the affected employees and to
consider
any application for MSA
[22]
The
Commission was of the view that given the circumstances, the above
measures aimed at ameliorating the effect on employment are
appropriate.
[23]
There
are no other public interest concerns arising from the proposed
transaction.
Conclusion
[24]
In
light of the above, we concluded that the proposed transaction is
unlikely to substantially prevent or lessen competition in
any
relevant market Accordingly, we approved the proposed transaction
unconditionally.
Ms
Andiswa Ndoni
Prof.
lmraan Valodia and Mrs Medi Mokuena concurring
27 June 2018
DATE
Case Manager:
Kameel
Pancham
For
the merging parties: Judd Lurie and Sarah
Jackson of Bowmans
For
the Commission:
Busisiwe Ntshingila and Themba Mahlangu
[1]
The shareholding of Cell C is as follows: Blue Label Telecoms
("BLT") (45%); Cedar Cellular Investment 1 (11.8%);
Magnolia Cellular Investment 2 (16%); Net1 Universal Electronic
Technological Solutions (15%); Cell C Management and Staff (10%);
and Yellowwood Cellular Investment 3 (2.2%). Note: the merging
parties submit that Cell C is not controlled by any of its
shareholders.
The Commission disagrees and is investigating the
control of BLT over Cell C. This will not affect the present
transaction as
BLT is not involved in the services provided by the
Target Business.
[2]
Cell C Property Company, Cell C Tower Company, Number Portability
Company, Fibreco Telecommunications.
[3]
The assets include agreements, the post-paid subscriber base,
handset revenue, fixed assets, and GSP's 45% interest in Questshelf.
GSP currently shares joint control of Questshelf with Water Time
Investments.
[4]
This number has since been reduced to 37 employees as the result of
a resignation -Transcript page 9.