EDITORIAL: The irony of competition exemptions

It is not too hard to see why SA’s mobile network operators want to hop on the competition exemption bandwagon, nor why the government department that oversees them supports their cause.

The CEOs of MTN and Vodacom told parliament last week that they seek exemptions from competition legislation to enable them to collaborate to roll out telecommunications infrastructure around SA, especially to underserved rural areas.

Co-share arrangements would allow them to minimise cost and accelerate the provision of infrastructure, they argued. A senior department of communications and digital technologies official chimed in, saying the department supported the sharing of infrastructure.

The government has ambitious plans to roll out digital public infrastructure and to digitise public service delivery and payments. It recently launched a new digital road map to transform government. President Cyril Ramaphosa pitched this as “an opportunity to deliver services differently and to build seamless government services”, taking inspiration from countries such as India and Brazil, which have done this successfully.

The road map will require that SA has much more affordable and extensive mobile and broadband infrastructure. That’s especially so for the millions of poor South Africans whose access to the economy and to public services is limited because of the high cost of data and the lack of access in many rural areas.

For all those reasons it could make sense for trade, industry & competition minister Parks Tau and the Competition Commission to grant the mobile network operators an exemption from the prohibitions on collusion contained in the Competition Act to allow them to work together on building infrastructure.

Nor are such exemptions unusual these days, despite the competition authorities’ historical aversion to collusion in any form. Legislative amendments in 2019 opened the way for the minister to grant these block exemptions, in consultation with the Competition Commission.

Tau has in recent months used them to grant block exemptions to players in SA’s port, rail and key feeder road corridors to enable them to collaborate to help fix Transnet’s ailing operations and infrastructure. He has granted a block exemption to retailers, producers and sugar cane farmers to help them implement the sugar industry master plan. In addition, draft regulations have been published for the healthcare sector that would essentially put the national health department in charge of an initiative to curb medical aid costs.

But while block exemptions do seem to be in vogue, to grant one for SA’s mobile networks to roll out digital infrastructure would be quite ironic after the competition authorities prohibited a merger that would have fast-tracked exactly that.

This is the proposed R14bn merger between Vodacom, SA’s largest mobile network, and Remgro’s Maziv — which owns SA’s largest dark fibre operator as well as Vumatel, its largest fibre-to-the home provider.

The merging parties had committed to invest billions in rolling out much-needed fibre infrastructure, particularly to a million low income households. The Competition Tribunal ruled the merger would prevent or lessen competition and the public interest commitments didn’t offset this. The merging parties are taking the ruling on appeal. Tau himself has come out against it.

Nor is this the only thing that is notable about the Vodacom-Maziv merger: even more so is the more than three years it has taken the competition authorities to evaluate it. And if block exemptions have become something of a trend lately, so too have the ever longer timelines for competition scrutiny of mergers in SA. Afrimat is another company that weighed in on the issue recently.

The Competition Tribunal approved its purchase of Lafarge only a year after the deal was announced, so that by the time Afrimat took over the cement operations they were in significant disrepair, not to mention short of cash.

The long delays and often unpredictable outcomes have become a significant deterrent to deal making and to foreign direct investment, all of which weighs on growth and investment. It makes little sense for Tau to keep granting block exemptions to SA’s competition regime without taking action to make the regime itself more efficient and investor friendly.