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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No.: LM174Feb24
In the matter between:
VCAP1 Alliances (Pty) Ltd Primary Acquiring Firm
And
Utilities World (Pty) Ltd, Prepaid Utilities World CC,
Softline Software CC, Winciki Investment (Pty) Ltd
and Intelli Meter (Pty) Ltd
Primary Target Firm
Introduction
[1] On 18 April 2024, the Competition Tribunal (“Tribunal”) conditionally approved the
transaction in which VCAP1 Alliances (Pty) Ltd (“(“VCAP1”) intends to acquire the
following five interrelated firms: (i) Utilities World (Pty) Ltd 1
, (ii) Prepaid Utilities
World CC 2
, (iii) Softline Software CC 3
, (iv) Winciki Investment (Pty) Ltd and (v)
Intelli Meter (Pty) Ltd (hereinafter, the “Prepaid Utilities World Group”).
Panel : T Vilakazi (Presiding Member)
: G Budlender (Tribunal Member)
: A Ndoni (Tribunal Member)
Heard on : 17 April 2024
Order issued on : 18 April 2024
Reasons issued on : 03 May 2024
REASONS FOR DECISION
1Utilities World is controlled by , a private individual ( ) and the remaining non-
controlling shareholders are Blue Label Telecoms Ltd ( ) and , a private individual ( ).
2 Prepaid World, Winciki and Intelli Meter are owned by .
3 Softline Software is owned by
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The parties and transaction
[2] VCAP1 is a special purpose vehicle entity, set up to facilitate the acquisition of
Switchone Proprietary Limited ("Switchone") and Virtual Payments Solutions
Proprietary Limited ("VPS"). Switchone is a private company that is a technology
enabled Third Party Payment Processor. VPS is a private company with a core
business that involves the repackaging, bundling and on-selling of airtime and
data through multiple channels. VPS also offers value-added services ("VAS")
which enable its customers to purchase airtime and data, prepaid electricity
tokens, and lotto and Powerball tickets.
[3] The core of the Prepaid Utilities World Group technology offering is the
tokenisation and distribution of electricity tokens in the prepaid environment as
well as the provision of revenue enhancement systems for both prepaid and
postpaid utility customers. The focus is on smaller municipalities and to a lesser
extent metropolitan regions and private utilities.
[4] Prepaid World has developed and owns the intellectual property which it provides
to Utilities World. Prepaid World has also developed and patented its own smart
meter hardware solution that is currently being deployed in various municipalities
and private utilities throughout the South Africa. Softline Software focuses on
developing the software used by Prepaid World.
[5] Winciki holds an import and export license relating to the importation of
components required to build and assemble Prepaid World’s smart meters.
Winciki has never traded and serves no commercial purpose other than to hold
the licenses.
[6] Intelli Meter owns intellectual property relating to the group's smart meter and
vending solution, as well as the associated trademarks. Intelli Meter has never
traded and serves no commercial purpose other than holding the intellectual
property.
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Indivisibility of transaction
[7] The Prepaid Utilities World Group comprises inter-related and codependent
businesses that operate in the prepaid and postpaid utilities industry. All the
businesses except Softline Software share a common shareholder,
. Softline Software is owned by ,
and as such does not share a common shareholder with the other businesses.
[8] The transaction is appropriately characterised as a single transaction, the
constituent parts of which are both legally and factually indivisible.
Competition Assessment
Rationale
[9] The proposed transaction will enable VCAP1 to diversify its portfolio of offerings
as it will acquire businesses that complement its current product offering. The
combination of the offerings of Prepaid Utilities World Group with Switchone will
result in a broader product basket such that the merged entity will be able to offer
end-to-end solutions.
[10]
.
Overlaps
[11] Prepaid Utilities World Group is active in prepaid electricity token generation on
behalf of municipalities and private utilities. In addition, it reconciles, and on-remits
bill payments received from end customers through distributors, to municipalities
and private utilities. Prepaid electricity tokens are also generated on behalf of
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Eskom directly; however, Prepaid Utilities World is not currently generating any
electricity tokens for Eskom.
[12] VCAP1, through VPS, is active in the distribution of prepaid electricity tokens.
However, this forms a part of VPS’ business (
). In its investigation, the Competition Commission (“Commission”) noted
that VCAP1 through Switchone plans to introduce an e-commerce platform which
will enable distribution of prepaid electricity tokens and collect bill payments.
[13] We are satisfied based on the above that the merging parties operate at different
levels of the value chain and that there is no horizontal overlap in their activities.
[14] We considered the Commission’s assessment that there is a vertical overlap in
the activities of the merging parties. Prepaid Utilities World Group is active at the
upstream level for the generation of prepaid electricity tokens and associated
vending, bill payment and revenue enhancement services to municipalities and
private utilities. VCAP1, through VPS, is active
in the distribution of prepaid electricity tokens to end customers at
retail points of sale as well as the collection of bill payments from end customers
at retail points of sale.
a nd as such the
vertical overlap was assessed.
Relevant markets
[15] The following markets were considered by the Commission in assessing the
effects of the proposed transaction:
15.1 The upstream market for prepaid electricity token generation and
associated bill payment services nationally, and
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15.2 The downstream market for the distribution of prepaid electricity tokens
and collection of payment at retail points of sale and e-commerce
platforms nationally.
Input foreclosure
[16] Prepaid Utilities World Group currently distributes prepaid electricity tokens
through EasyPay and Cigicell only. We are satisfied with the Commission’s
findings that at the upstream level, approximately 55% of prepaid electricity tokens
are generated by Eskom. Prepaid Utilities World Group is currently not contracted
to generate tokens for Eskom. The remaining 45% are generated through
municipalities including private utilities. It was also found that Prepaid Utilities
World currently generates prepaid electricity tokens for out of a
total of 257 municipalities nationally. Other firms active in this market include
Cigicell (22 municipalities), Contour (11 municipalities), Landis + Gyr (8
municipalities), Ontec (25 municipalities), Spectrum Utility Management (3
municipalities), Conlog, EasyPay, Nyitis Consulting, Ice Cloud SA Operations,
Ntlangani Group, Power Metering Africa, Sandulela Technology and Africa Utility
Solutions, amongst others.
[17] EasyPay submitted a concern to the Commission, stating that the merger is likely
to place the merged entity in a position to block EasyPay from continuing to source
prepaid electricity tokens and bill payment services in respect of certain
municipalities for downstream distribution. According to EasyPay, this is likely to
negatively impact end consumers as EasyPay has a very wide retail distribution
footprint (90 000 points of service) particularly in the informal sector. EasyPay
submitted that a remedy that prohibits the merging parties from limiting access to
the prepaid electricity and bill payment product sourced from its municipal
suppliers to other industry players (its competitors) is likely to address its
concerns.
[18] In response, the merging parties submitted that this concern is in the downstream
[18] In response, the merging parties submitted that this concern is in the downstream
market where EasyPay and Cigicell are the two largest players accounting for
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70% to 80% of the market. Both firms have a vast network of distribution points
(mainly retail points of sale). Further, EasyPay and Cigicell have established
relationships with large national retail chains, banks and entities that serve many
informal businesses.
. Post-merger , the merging parties will
develop an e-commerce platform, however, for retail points of sale distribution,
they will still require the services of firms such as EasyPay and Cigicell.
[19] We are of the view that the merging parties are unlikely to have the ability to
foreclose EasyPay due to the presence of numerous upstream suppliers of
prepaid electricity token generation services and given their dependence on
EasyPay and Cigicell for downstream distribution.
[20] Based on the number of firms active in this market as well as the numerous
municipalities served by EasyPay and Cigicell, we agree with the Commission’s
view that the merging parties are unlikely to have the ability or incentive to
foreclose EasyPay and Cigicell in the downstream market for distributing prepaid
electricity tokens and collecting bill payment services.
Customer foreclosure
[21] VCAP1’s market share in distributing prepaid electricity tokens and collecting bill
payments in the downstream market is approximately based on 2023
revenues. Given VCAP1’s presence in this market, we find that the
merger is unlikely to result in customer foreclosure concerns.
Conclusion
[22] We find that the merger is unlikely to result in a substantial prevention or lessening
of competition in any market.
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Public Interest
[23] No employment concerns were raised.
Promotion of a greater spread of ownership, to increase the levels of ownership
by HDPs and workers in firms in the market.
[24] VCAP1 has HDP ownership of . The HDP ownership in the Target Firms
is held as follows: in Utilities World (based on
shareholding in Utilities World) and in each of Prepaid Utilities World,
Softline Software, Intelli Meter and Winciki. Post-merger, the HDP ownership in
the Target Firms will be reduced to .
[25] To address the promotion of a greater spread of ownership, the merging parties
proposed to implement an Employee Share Ownership Programme (ESOP) of
, for the b enefit of all employees of the merged
entity which includes VCAP1 and its subsidiaries, VPS and Switchone as well as
each of Utilities World, Prepaid World, Winciki, Intelli Meter and Softline Software.
There are currently a total of employees at VPS and Switchone, of which
are HDPs, are female and are youth (younger than 35 years). Prepaid Utilities
World Group has a total of employees, of which are HDPs, are female
and are youth. The Commission is of the view that the introduction of an ESOP
of at the merged entity remedies the HDP ownership concerns arising and
justifies the merger on public interest grounds.
[26] In terms of the remedy -
.