Commission overreach

ITS POOR DECISIONS OPEN THE POSSIBILITY THAT IT IS BEING INFLUENCED BY POLITICS

You have to ask, does the Competition Commission actually know what abuse of a dominant position is? The commission is completely unabashed by its surprise announcement that it would open a case of the abuse of a dominant position against Vodacom for concluding a contract with the government to supply government employees with cellphone services.

The contract is large, valued at R5bn over four years, and it is exclusive. But it was won on an open tender in which all the other cellphone companies participated. Neither was there anything in the contract that stipulated that Vodacom’s offer was conditional on it winning the contract exclusively. Most importantly, as a result of the contract, it has been estimated that the government’s costs would decline by 30%-40%.

As a result of the commission’s announcement, R16bn was wiped off Vodacom’s market capitalisation at one point. Most of the loss was regained once the market began to appreciate the flimsiness of the commission’s case. But still, you have to ask whether the commission has once again jumped the gun, announcing an investigation without really establishing whether it has a real case.

The abuse of a dominant position includes excessive pricing, but it can’t be that, since it seems the government is, in fact, getting a discount. It could be denying competitors access, but it can’t be that either because the other firms participated in an open tender. There are other aspects of abusing a dominant position and it’s possible that the commission has a valid claim under exclusionary acts or charging prices below cost.

It’s hard to prejudge the case, nor should one, but it would be fair to say that the commission has its work cut out. Particularly so since, though Vodacom is the largest cellular network operator in SA, it is hugely overshadowed by MTN in terms of total customers inside and outside SA. Even in SA alone, Vodacom has just 42% of the market, compared with MTN’s 35% and CellC’s 17%.

The problem is that the commission is making a habit of poor decisions, opening the possibility that it is being influenced by politics. Ironically, simultaneously with making the announcement on the Vodacom investigation, the commission withdrew three investigations against pharmaceutical companies accused of abuse of dominance.

In respect of its case against Equity, it said it was dropping the case “because an excessive prices case cannot be sustained” against the company.

That phraseology might lead you to conclude the company could be guilty, but the commission feels it cannot prove its case. In fact, it turns out there is no case and never was.

The drug in question is called Xalkori, which was not actually registered in SA. It was imported once with permission of the Medicines Control Council, but Equity had to buy the drug in Germany so naturally, it cost a lot. The question is, why was it impossible to find that out prior to announcing that the company was under investigation?

The problem is that powers granted to the commission are enormous and the potential fines — 10% of annual turnover in some cases — are so huge that the mere announcement of the initiation of an investigation constitutes a significant market event. That should place extra responsibility on the commission to announce investigations only when it really fancies its chances of a conviction.

As it happens, the commission is under political pressure to announce as many investigations as possible because the dominant ideology in the ANC at the moment is that the country is crawling with monopolies. The fact that the commission is yielding to this political pressure is just one more concern in a growing list of problems business has to deal with in its relationship with the government.