Relevant Market
Product market
8.
The MTN Group is a provider of communications services. MTN is South Africa’s second largest cellular network operators.
9.
MTN-SP is a service provider to the MTN network. Service providers may be appointed to exclusively deal with MTN’s network service requirements, alternatively can do so for
all three cellphone networks. MTN-SP operates various MTN Service Provider Service Centres around South Africa. It is charged with
taking care of all the customer’s MTN service needs in terms of his or her cell phone contract, including credit vetting, contract
connections, billing, customer care, upgrades, migration and other services relating to the administration of the cell phone account.
Cell phone users subscribe to either prepaid or post paid accounts.
10.
Other service providers such as Orion, Augopage, Nashua Mobile and iTalk sell MTN contract airtime
and prepaid airtime through their dealer networks. In addition to consumers’ MTN cellphone needs being attended to by the MTN
centers, there are also various independent distributors which sell MTN products as well as the large retail chain stores, such as
Pick ‘n Pay and Game, amongst others. These service providers are required to sign a distribution agreement for contract airtime
or prepaid airtime with MTN. These service providers enter into distribution agreements with “dealers” or distributors,
who on-sell the network’s products for a commission.
11.
Cell Place is licensed to act as an exclusive MTN dealer and operates 90 stores around South Africa
which sell contract airtime, prepaid airtime, as well as providing cell phone rentals and accessories.
12.
The overlap occurs in respect of the markets for the sale of MTN contract and prepaid airtime.
Geographic market
13.
We agree with the commission that the relevant geographic market is national.
Impact on competition
14.
It is common cause that there is an increasing trend amongst network providers to vertically integrate
downstream, by buying up their service providers and provide the services themselves. The merging parties assert that due to the
advent of the prepaid market, the role of service providers has become less important, as consumers can typically buy prepaid contracts
from retailers.
15.
This transaction has both a horizontal and a vertical dimension. Horizontal, because the MTN service
centers and Cell Place compete in the distribution market. Vertical, because MTN is consolidating with its dealer downstream, again
in the distribution market.
16.
Horizontally, post-merger, the merged entity will have less than 2% market share in the prepaid market. This is largely because of the presence of the large retailers in this market. In the market for the sale of MTN contract airtime, the post-merger market share will be 40%, which is quite high. We evaluate this latter market in the context of concerns
raised by various industry players.
Industry Concerns
17.
There is a vertical dimension to this merger. The upstream market is that for the sale of MTN cellular
services. Downstream, the MTN service providers are a channel between the dealers and the MTN network operator.
18.
Some concerns were expressed by third party service providers. They asserted there would be a loss of intra-brand competition brought about as a result of this merger. They were of the view that the merger would nullify the countervailing power the SPs have, insofar as they contended that MTN will, through CellPlace, itself
compete and be operative in the downstream market and favour its own retail partner. They argue that the loss of intra-brand competition
could lead to trading restrictions being imposed on the MTN dealers thereby luring away their customers, ultimately entrenching MTN's
upstream power vis-a-vis the consumer. In other words, they fear loss of competition amongst service providers selling the MTN product.
19.
Related to this concern, the third party service providers asserted that vertical integration by MTN-SP will result in increased dominance by the networks. This is because they will force out the "tri-service"
providers (like themselves) that compete by offering consumers a choice of network based on the best tariff. They contended that in the long-term, exit of these SPs could enable the networks to raise prices of deals and reduce their competitiveness.
Also, with the advent of number portability, they asserted that the role of the tri-service SP will become more important, as they
can facilitate customers switching networks more easily.
20.
The merging parties countered this allegation by asserting that due to the introduction of number
portability, it will now be easier for dealers to switch between network providers and therefore they will have even more market
power to switch from one network to the other. Furthermore, that the relationship is between the consumer and the network directly
and the dealer’s role is likened to that of an agent or go-between between the parties. The true competition takes place at
the network level, between the three different network operators, and competition at the downstream level is limited to competing
for commission from the relevant network. We agree with this last submission. The various package offerings by the cellular networks
are the same, therefore it would be irrelevant to the consumer which dealer she would go to. Again, in line with other mergers, we
find that there does not seem to be any significant competition at dealer level, which would be compromised by this merger.
21.
The commission further found that barriers to entry into the market for the sale of MTN contract
airtime is not prohibitive. We are also mindful of the parties’ point that this merger is not substantially changing the competitive
landscape, in that it involves an increase of shareholding from 35% to 51%. Accordingly any foreclosure effects that exist now would
have existed before this merger in any event. Furthermore, since Cell Place is an exclusive dealer for MTN-SP, this is another reason
why input or customer foreclosure is highly unlikely.
22.
As already explained, vertical integration of service providers is a well-documented international
trend and in view of the lack of horizontal concerns raised by this merger, we have no reason to impugn it on the basis of any vertical
concerns.
Conclusion
We conclude that the merger will not lead to a substantial lessening or prevention of competition. There are no public interest concerns
which would alter this conclusion.
The Tribunal therefore approves the transaction unconditionally.
20 December 2005
N. Manoim
Date
Concurring: D. Lewis
For the merging parties: M. Brassey instructed by KPMG
For the Commission: H. Ratshisusu, Mergers and Acquisitions
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