IN THE COMPETITION APPEAL COURT OF SOUTH AFRICA

							 Date delivered:
In the matter between:

and

J U D G M E N T

Comprehensive Reasons

1996 and currently, in terms of section 93 of the Electronic Communications Act, Act 36 of 2005. The licence enjoins Telkom to publish annual telephone directories in each geographic area of subscribers to its telephone lines, listing, in light print, minimum information, being the names, addresses and telephone numbers of subscribers.

[2] In terms of the licence no charge may be levied to subscribers for publishing the minimum information set out above in light print; however, subscribers may be charged for "enhanced" directory listings or advertising entries in which is included information additional to the minimum information; e.g. fax numbers, email and web addresses. Enhanced listings are usually in bold type and are presented in typographical block, which makes them more prominent to readers of telephone directories. The appellant charges its customers approximately R300.00 per annum per enhanced listing entry.

[4] For marketing its enhanced and advertising listing services, the appellant employs internal sales workers to contact existing Telkom subscribers to ascertain whether they wish to purchase enhanced directory listings in the forthcoming editions of the telephone directories in which they are listed. The first respondent then enters into agreements with those customers who wish to do so and the amount payable in respect of each enhanced entry is billed, as periodical payments, in the subscriber's Telkom accounts.

[5] The appellant publishes the Telkom telephone directories annually. Enhanced listing instructions are obtained for each edition (on a cyclical basis). A deadline is published in each edition of the directories, informing customers of the date by when they must submit new or amended entries for inclusion in the next edition of the particular directory. New and/or amended entries can only be accepted up to a particular time (usually up to three months prior to publication), to afford the appellant sufficient time to process instructions and compile and publish the next edition of the relevant telephone directory.

[6] In 2005, the appellant imposed, as a condition in respect of placements by the first respondent in the Telkom telephone directories, that the first respondent or the relevant subscribers who engage the services of the firstrespondent, make an upfront payment to the appellant, of the applicable subscription fee for their enhanced entries to be published in the telephone directories and also to lodge with their entries, a power of attorney authorising the first respondent to act on behalf of the subscribers in procuring insertion of their entries for publication. It is the upfront payment condition, albeit four years after its imposition, that caused the first respondent to approach the Competition Commission and the Tribunal. On 25 March 2009 the first respondent lodged a complaint with the Competition Commission alleging that the refusal by the appellant to publish entries of its (the first respondent's) customers/clients (without the upfront payment) was discriminatory, unlawful and in breach of competition laws (Annexure to the complaint form CC1). Thereafter, in November 2009, the first respondent launched an application, seeking interim relief under section 49 C of the Competition Act, Act No. 89 of 1998 ("the Act") in terms of which the appellant would be ordered to publish all entries submitted by the first respondent in the relevant (2010/2011) telephone directories without the upfront payment.

[7] The order granted by the Tribunal is set out in the judgment by Davis JP. In essence, the appellant (and Telkom) were ordered to accept from the first respondent, without the requirement of upfront payment of its charges, all subscriber entries provided by the first respondent in respect of the (then) forthcoming Telkom directories for certain specified geographical areas (South Cape and Karoo, Boland and West Coast, Johannesburg and the East Rand).
[8] At the appeal hearing the appellant and the first respondent were the only parties before us, Telkom having noted no opposition to the appeal.

[9] As set out in the judgment by Davis JP, on appeal we had to consider the appealability of the order of the Tribunal, in view of it having been an interim order. If the order was appealable we would then consider the merits of the appeal.

Appealability of the Order

[10] Section 37(1)(b)(ii) of the Act provides that this Court may consider an appeal arising from the Competition Tribunal in respect of:

[11 ]   Further, section 49C(8) of the Act provides that:

[15] When the application was launched (before the Tribunal), the closing dates for submission of entries in respect of all but six of the directories (as per region) had already passed. Closing dates in respect of the six remaining regions were in January and March 2010 and the directories would be published from July to October 2010. The application and the order of the Tribunal dated 8 April 2010 was clearly directed at these publications. (In the founding affidavit it is stated that it might still be possible to submit entries with regards to these (six) remaining directories where, although the closing date had passed, the directories had not yet been printed or where printing had not yet commenced.)

[17] It was these considerations that persuaded us to conclude that the interim order was final in effect and therefore appealable.

The merits

(2) The Competition Tribunal-
(a)	must give the respondent a reasonable opportunity to be heard, having regard to the urgency of the proceedings; and
(b)	may grant an interim order if it is reasonable and just to do so, having regard to the following factors:

(i)      The evidence relating to the alleged prohibited practice;

[20] Nowhere in the founding affidavit that served before the Tribunal does Roberta Seymour set out details of the conduct on the part of the appellant constituting a prohibited practice. The most that appears in the founding papers are allegations in Annexure "A" to the complaint which is annexed to the founding affidavit, in which Seymour alleges that:

"29. Telkom is a dominant firm as defined in terms of Section 7 of the Competition Act, 89 of 1998.
30. TDS is partly owned by Telkom and is accordingly classified as a dominant firm.
31. The refusal to allow the Complainant to publish lawful entries of customers in the telephone directory, which is a facility open to everyone in the Republic of South Africa is an abuse of a dominant position and prohibited in terms of Section 8 of the Act. Such conduct is also exclusionary and for that reason is unlawful and should be stopped.
[21] But in essence, and as the appellant contended before the Tribunal the only basis for the relief sought by the first respondent is the averment, in the notice of motion, that the appellant had contravened section 8 of the Act.
[22]   Section 8 of the Act provides that:

[25] My view is that the Tribunal misdirected itself in simply brushing aside the first respondent's failure to set out a coherent case of abuse of dominance in its founding papers, as an unimportant omission. The appellant and Telkom had to answer to the case made out by the first respondent in its founding papers and the first and crucial aspect of the enquiry into whether it was reasonable to grant the order sought was whether, on the prescribed test, a case of a prohibited conduct had been established.

[26] The High Court standard of proof stipulated in Section 49C (3) of the Act for interim relief requires that an applicant in motion proceedings must set out, in the founding affidavit, the necessary allegations on which he or sherelies as he or she will not generally be allowed to supplement the affidavit by adducing supporting facts in a replying affidavit. This is particularly so where, as in this case, the allegations made by the applicant in the replying affidavit were known to him or her when the founding affidavit was made. In the replying papers it is stated that the first respondent relied on sections 8(b), (c), (d) (i) and (d) (ii) of the Act. The appellant contends, correctly in my view, that the absence in the first respondent's founding affidavit, of specific averments under section 8, particularly subsection 8(b) and 8(d)(i) or (ii) deprived it of opportunity to address those requirements in the answering affidavit.

[30] In the founding affidavit, Seymour merely refers to the complaint lodged by the first respondent with the Competition Commission, the request by the Competition Commission subsequent to the filing of the complaint, that she provides proof that the appellant had caused harm to consumers, a letter written to the Commission by her attorneys in which it is mentioned that acertain Mrs Lezelle Paterson who had conducted a business similar to the first respondent's had to close her business as a result of refusal by the appellant to publish entries of subscribers submitted by Mrs Paterson. She also refers to a High Court order, per Jansen J, in a related matter between the parties in which is expressed the view that the conduct of the appellant was grossly unfair, and the publication dates of the 2010/2011 telephone directories and the urgency emanating therefrom.

[31] The Tribunal set out correctly, the following as the approach it would follow in considering the application:

If the applicant has succeeded in doing so we then consider the 'doubt' leg of the enquiry. Do the facts set out by the respondent in contradiction of the applicant's case raise serious doubt or do they constitute mere contradiction or an unconvincing explanation. If they do raise serious doubt the applicant cannot succeed."
[32] On this approach the Tribunal had to consider the evidence in the papers before it, rather than requiring (as it did) the appellant to produce further evidence. And I agree with the submission in the appellant's Heads of Argument that, even on the additional evidence (and the first respondents replying affidavit), no case was made before the Tribunal for the order granted.

[34] The finding of a second relevant market (for solicitation of entries for publication in the "official" telephone directories and associated services) seems to be based on the word "official" or the fact that the appellant, through Telkom is the only agent operating under the licence referred to in paragraph 1 of this judgment. I agree with the submission on behalf of the appellant that this is a "misconceived" market.

"Even if the manufacturers had elected to perform all the distribution functions in-house, that is, through a fully vertically integrated distribution division, this would not make them competitors in the distribution market any more than performing security functions in-house would make them participants in the security services market. There is no iron law that says that the manufacturing process begins and ends at pre-ordained points, much less that it is illegitimate from a competition perspective for the manufacturer to engage in any activity beyond those points. The products belong to the manufacturers and our starting point is that they are entitled to distribute it totheir various customers as they see fit, just as they are entitled to secure their premises as they see fit."

[36] There is no evidence in the first respondent's papers that the marketing aspect of the wider advertising services in which the appellant is involved, constitutes a distinct market in which the appellant and the first respondent compete. There is also no evidence to justify a conclusion that the appellant's telephone directories are so specialized and unique to constitute a distinct advertising media, separate from others.

[37] Even if the first respondent had proved a relevant market, there is no evidence in the first respondent's papers on which justifying a conclusion that the demand by the appellant for an upfront payment has an uncompetitive effect or extends or entrenches the appellant's position in that market. It is trite that, by its nature, all competition is exclusionary. The important question is to distinguish between well functioning competition and malfunctioning competition. It is in this regard that the Act requires a weighing of the anti-competitive effect of an act against its technological, efficiency and other competitive gains.

"Rivals frequently lose custom or profits, and even go out of business, as a result of another firms actions in the cut and thrust of a healthy competition: such losses often result in the elimination of competitive deadwood and do not generally warrant state intervention."
[38] It is generally threatened harm to consumer's welfare that warrants intervention. The first respondent's application makes out no case of such threat to consumer welfare.

[39] The abovementioned may not be exhaustive of the aspects in which the first respondent's case fell short of the requirements for an interim order under Section 49(C) of the Act. But we were satisfied that for these reasons alone the Tribunal erred in granting the interim order. I therefore consider it unnecessary to deal with the requirements of serious or irreparable harm and balance of inconvenience.

DAVIS JP and MAILULA JA AGREED

DAMBUZA AJA