REPRESENTATIONS BY M-NET AND MULTICHOICE ON THE COMPETITION SECOND AMENDMENT BILL, 2000
25 August 2000
MultiChoice Africa (Pty) Ltd ("MultiChoice") and Electronic Media Network Ltd ("M-Net") welcome this opportunity to make representations on the Competition Second Amendment Bill, 2000 ("the Bill").
FOCUS OF REPRESENTATIONS
These representations will focus on the respective jurisdictions of the competition authorities and the sector-specific regulators. We will therefore consider the following:
- s3(1)(d) of the Competition Act provides that the Act applies to all economic activity within the Republic, except acts subject to or authorised by public regulation. The Bill proposes the deletion of s3(1)(d).
- The Bill proposes to add to s82 the following subsections:
"(1) A regulatory authority which, in terms of any public regulation, exercises jurisdiction over competition matters within a particular sector –
(a) may negotiate agreements with the Competition Commission, as anticipated in s21(1)(h); and
(b) in respect of a particular matter within its jurisdiction, may exercise its jurisdiction by way of such an agreement.
(2) Subsection (1)(b), read with the changes required by the context, applies to the Competition Commission."
These issues affect MultiChoice and M-Net directly, since aspects of our business activities are regulated by the Independent Communications Authority of South Africa ("ICASA") in terms of broadcasting legislation and the Telecommunications Act, 1996.
SUPPORT FOR COMPETITION ACT APPLYING TO ALL ECONOMIC ACTIVITY
We understand the deletion of s3(1)(d) and the amendments to s82 are intended to remove confusion about the jurisdiction of the Competition Act in respect to entities that are subject to sector-specific regulation in terms of other legislation.
We support this objective. We believe that the jurisdiction of the Competition Act ought to extend to all economic activity in the Republic.
RESERVATIONS ABOUT WHETHER OBJECTIVE WILL BE ACHIEVED
However, we are concerned that the proposed amendments may not end the confusion about the respective jurisdictions of the competition authorities and the sector-specific regulators. The reasons for our concern are set out below. Our representations relate to the communications industries (print media, broadcasting, telecommunications and information technology industries), since it is these industries with which we are familiar.
Bill will result in concurrent jurisdiction on numerous issues
We have analysed the broadcasting and telecommunications legislation. In annexures "A", "B" and "C" we have identified the provisions of the IBA Act, the Broadcasting Act and the Telecommunications Act respectively which raise, or potentially will raise, competition and economic regulatory issues. In terms of the Bill, these are the matters in respect of which the competition authorities and ICASA will potentially have concurrent jurisdiction.
South African policy and legislation regulating communications industries does not accord with best international practice
An analysis of the regulation of the communications industries indicates that these industries have been, or are being, liberalised and opened up to competition. Second, there is a marked shift away from prospective sector-specific regulation, particularly competition and economic regulation, to generally applicable competition law. Third, statutory limitations on control of commercial services and on cross-media control are either being relaxed or completely removed. This analysis is attached marked "D".
These trends are not evident in annexures "A", "B" and "C" to these representations.
There are a number of reasons as to why the shift to generally applicable competition law, particularly in the communications industries, is appropriate. These reasons are listed in annexure "E".
Concerns about "negotiating" jurisdiction
s21(1)(h) of the Competition Act states that the Competition Commission is responsible for negotiating "agreements with any regulatory authority to co-ordinate and harmonise the exercise of jurisdiction over competition matters within the relevant industry or sector, and to ensure the consistent application of the principles" of the Competition Act.
The Bill proposes inserting two new subsections into s82 (see paragraph 2.2 of these representations).
First, we do not consider it appropriate to leave it to the competition authorities and the sector-specific regulators to negotiate agreements "to co-ordinate and harmonise the exercise of jurisdiction over competition matters". A delineation of areas of jurisdiction should be done by the legislature to ensure certainty, accountability, and to obviate deadlock situations arising between the regulators.
Second, these provisions do not compel the sector-specific regulators to negotiate agreements.
Third, these proposals are only likely to work if consensus is reached between the competition authorities and the respective sector-specific regulators.
Fourth, even if agreements are concluded, it is unlikely that these agreements will cater for all eventualities that may arise in a particular industry.
Fifth, these provisions do not compel the sector-specific regulators to exercise their jurisdiction as agreed with the competition authorities.
More general concerns about concurrent jurisdiction
We have a number of additional concerns if an undefined concurrent jurisdiction between the competition authorities and the sector-specific regulators is permitted :
- There may be disputes as to whether matters fall within the concurrent jurisdiction of the competition authorities and a sector-specific regulator.
- Parties may forum-shop.
- Deadlock situations are likely to arise on important issues such as mergers and whether a "prohibited practice" or an "abuse of dominance" exists.
- Consistency in the approach to competition and economic regulation is likely to be jeopardised. This in turn may impact on national economic policy.
- Whilst the institutional design, and the staff and resources, of the competition authorities are geared to properly dealing with competition issues, the same is not true of the sector-specific regulators.
- The competition authorities and the sector-specific regulators may be caught up in expensive and time-consuming debates concerning jurisdictional and procedural matters, instead of dealing with substantive issues.
- The competition authorities and the sector-specific authorities may well be prevented from focusing and developing an expertise in their respective areas. Their roles are different and their resources and expertise ought to be focused on those different roles.
- The above adverse consequences will undermine the competition authorities and the sector-specific regulators. They will also have a negative impact on business entities in sectors subject to sector-specific regulation. Certainty and predictability are important for the private and the public sectors.
We support the deletion of s3(1)d). Furthermore, despite our concerns we are not suggesting that its deletion be delayed. What we do suggest is that as a matter of urgency steps be taken to minimise the scope of the concurrent jurisdiction of the competition authorities and the various sector-specific regulators. Where concurrent jurisdiction remains, it ought to be dealt with clearly in the legislation, and not left to the competition authorities and sector-specific regulators to try and resolve on an ad hoc basis. The competition authorities and the sector-specific regulators ought to be included in this process. Parliament may want to consider requiring that the process outlined below be completed according to a specified timetable.
Determine extent of concurrent jurisdiction
Using the communications industries as an example, we propose a rigorous analysis be conducted of the broadcasting and telecommunications legislation, as well as any other legislation that gives ICASA jurisdiction, to identify those issues in respect of which the competition authorities and ICASA will have concurrent jurisdiction. Annexures "A", "B" and "C" could assist in this process.
Amend legislation to minimise concurrent jurisdiction
The next step should be to consider whether, in relation to each issue, it is appropriate for the legislation to allow ICASA to regulate the issue by way of prospective regulation, or whether the issue will be more appropriately dealt with by the competition authorities in terms of the Competition Act. International precedent ought to be considered. The broadcasting and telecommunications legislation ought to be amended so that as far as possible, competition and economic regulation, and issues concerning limitations on control, are shifted primarily to the competition authorities.
There may be isolated issues concerning which concurrent jurisdiction is desirable, at least for the immediate future. In relation to these issues, the legislation ought to spell out exactly how the concurrent jurisdiction is to be exercised. An example of where this has been successfully done is in Australia. In their Broadcasting Services Act, the role of the Australian Competition and Consumer Commission in relation to broadcasting issues is spelt out clearly.
Similar exercise required for other regulated sectors
An exercise similar to that outlined above will need to be conducted in relation to legislation regulating sectors where there are sector-specific regulators. We attach, as annexure "F", a schedule taken from a document prepared by the competition authorities that identifies these sectors and these sector-specific regulators.
Deletion of provisions allowing "negotiation" of agreements
Once the above exercises have been conducted in relation to all relevant sectors, s21(1)(h) and s82(1) and (2) ought to be deleted, as there will no longer be a need for these provisions.
Even where there is no concurrent jurisdiction, s21(1)(i) allows the competition authorities to participate in the proceedings of sector-specific regulators. The Competition Act ought to be amended to allow sector-specific regulators to also participate in the proceedings of the competition authorities. s21(1)(j) allows the competition authorities to advise, and to receive advice from, sector-specific regulators. The Competition Act ought to be amended to also allow sector-specific regulators to advise, and receive advice from, the competition authorities.
Regular reviews required
The review of legislation should not be a once-off exercise. Regular reviews of legislation regulating sectors where there are sector-specific regulators ought to occur. As the scope for competitive behaviour in a market increases, there should be a greater shift towards generally applicable competition law.
ROLE OF SECTOR-SPECIFIC REGULATIONS
Sector specific regulators have an important role to play. However, it is a role different from that of the competition authorities. The regulators’ resources and expertise ought to be focused on their area of speciality. In the case of ICASA, this is, in summary -
- the regulation of the radio spectrum frequency;
- the licensing of broadcasting services, broadcasting signal distributors, telecommunications services, new services, and persons using the radio frequency spectrum;
- content regulation;
- technical issues; and
- public interest issues.
Annexure A: Analysis of IBA Act
The provisions of the IBA Act set out below raise, or may have a bearing upon, competition and economic regulatory issues. In terms of the Bill, these are the provisions where the competition authorities and ICASA may have concurrent jurisdiction.
- s2(i) requires ICASA to "ensure that commercial … licences, viewed collectively, are controlled by persons … from a diverse range of communities in the Republic";
- s2(j) requires ICASA to "impose limitations on cross-media control of commercial broadcasting services";
- s2(k) requires ICASA to "promote the most efficient use of the broadcasting services frequency bands";
- s2(o) requires ICASA to "ensure fair competition between broadcasting licensees";
- s13(1)(d)(v) requires ICASA to design and implement broadcasting conditions of licence relating to ownership and control compliance;
- the regulation of the broadcasting services frequency bands in terms of Chapter IV;
- the licensing of broadcasting signal distributors;
- s37(a) requires a common carrier to provide broadcasting signal distribution "on an equitable, reasonable, non-preferential and non-discriminatory basis";
- the licensing of broadcasting services;
- s49 imposes limitations on control of commercial broadcasting services;
- s50 imposes limitations on cross-media control of commercial broadcasting services;
- amendments to broadcasting licences – in terms of s52(1)(d), ICASA may amend a licence "to ensure fair competition between licensees"; and
- the transfer of broadcasting licences, as governed by s74;
- Schedule 2 elaborates on the meaning of "control".
Annexure B: Analysis of Broadcasting Act
The provisions of the Broadcasting Act set out below raise, or may have a bearing upon, competition and economic regulatory issues. In terms of the Bill, these are the provisions where the competition authorities and ICASA may have concurrent jurisdiction.
- s2(h) requires ICASA to "ensure fair competition in the broadcasting sector";
- s2(i) requires ICASA to "ensure efficient use of the broadcasting frequency spectrum";
- s2(m) requires ICASA to "ensure that commercial … licences, viewed collectively, are controlled by persons … from a diverse range of communities in South Africa";
- s31 requires ICASA to conduct an inquiry into the economic feasibility of the provision of additional subscription television services. If ICASA determines that it is feasible to provide additional subscription television services, it must immediately conduct a process to licence additional services; and
- s33(2) requires ICASA to issue recommendations as to whether s49 (dealing with limitations on control of commercial broadcasting services) and s50 (dealing with limitations on cross-media control) of the IBA Act apply to broadcasting services carrying more than one channel, and the extent and terms upon which these sections must apply.
Annexure C: Analysis of Telecommunications Act
The provisions of the Telecommunications Act set out below raise, or may have a bearing upon, competition and economic regulatory issues. In terms of the Bill, these are the provisions where the competition authorities and ICASA may potentially have concurrent jurisdiction.
- s2(e) requires ICASA to "encourage the development of a competitive and effective telecommunications manufacturing and supply sector";
- s2(j) requires ICASA to "ensure fair competition within the telecommunications industry";
- s2(p) requires ICASA to "ensure efficient use of the radio frequency spectrum";
- the regulation of the radio frequency spectrum in terms of Chapter IV;
- the granting of frequency and station licences in terms of s30;
- the licensing of telecommunication services;
- Telkom’s exclusivity till May 2002 or May 2003, and the terms and conditions of its licences;
- the interconnection of telecommunication systems, as governed by s43;
- the leasing of telecommunication facilities, as governed by s44;
- fees and charges of telecommunication services;
- amendments to telecommunication service licences, particularly as regards Telkom’s licence and s48(1)(c), which allows amendments to ensure fair competition between licensees within the same category;
- the transfer of telecommunication service licences in terms of s50;
- s52 empowers ICASA to make regulations imposing limitations on ownership, control or the holding of financial or voting interests in telecommunication services; and
- s53 provides:
"If it appears to the Authority that the holder of a telecommunication licence is taking or intends taking any action which has or is likely to have the effect of giving an undue preference to or causing undue discrimination against any person or category of persons, the Authority may, after giving the licensee concerned an opportunity to be heard, direct the licensee by written notice to cease or refrain from taking such action, as the case may be."
Annexure D: Analysis of regulation of communications industries in other jurisdictions: shift away from prospective sector-specific regulation to generally applicable competition law
- In 1996 the USA enacted the Telecommunications Act. This legislation deregulates much of the telecommunications and media industry :
"The Act commands policymakers and industry to move away from … over-regulatory origins of communications policy and toward a world in which the market, rather than bureaucracy, determines how communications resources should be utilised."
- The Telecommunications Act repealed or modified many of the limitations on control, including the number of television broadcasting licences a person could control, and cross-media control. In terms of the Act, the Federal Communications Commission ("the FCC") has conducted a bi-annual review of the limitations on control. Each of these reviews has resulted in a lessening of the limitations on control. For example:
- The numerical limit on the number of television stations a person could own nationally has been eliminated and the national "audience reach" of television station ownership has been increased from 25% to 35% of television households nationally.
- In local markets, the FCC has amended the limitations on control to permit television duopolies in the same local market.
- Although the limitations on print/broadcasting cross-media remain, the FCC has indicated that it intends adopting a more flexible approach to the application of these limitations.
- In the USA there are no multiple ownership limitations, nor are there cross-media limitations, for DTH satellite services, except for case-by-case limitations in which the general principles of competition law are applied.
- The FCC is presently drafting a five-year strategic plan to build a new regulatory and competition communications agency. The plan builds on the Telecommunications Act of 1996, recognising that competition ought to be the organising principle of communications policy. The FCC intends to avoid direct intervention in competitive and well-functioning markets and to find ways to encourage market-based solutions.
- Commentary on the relationship between sector-specific regulation and competition law, the Green Paper on Convergence stated that many commentators in the EU are arguing :
"for a preference to be given to the application of competition rules to individual cases within a converged environment, rather than the further development of extensive regulation."
- The Treaty of Rome, and particularly Articles 85 and 86 (now Articles 81 and 82), deal with prohibited restrictive practices and abuse of a dominant position. The EU has also introduced regulations dealing with mergers. These Articles and the merger regulations apply to all sectors of the economy. Thus the competition authorities in the Member States deal with competition issues concerning the communications industries. On appeal, these issues are determined by the European Court of Justice.
- The European Commission’s 1999 Communications Review Towards a New Framework for Electronic Communications Infrastructure and Associated Services proposes to amend the regulatory framework for the communications industries. There will be three key elements : binding sector-specific legislation: complementary non-binding sector-specific measures (i.e. self-regulation); and competition law. The legislation is to be simplified and competition law will have an increased importance as full competition develops in the communications market place.
- The European Commission’s initiative to develop a legislative measure concerning media concentration and cross-media ownership has to date come to nought. Numerous European members states (for example France in 1994 and Germany in 1996) have relaxed limitations on control in the communications industries.
- In 1998 the UK introduced a new Competition Act that came into effect in March 2000. The Act represents a key step in modernising UK regulation to take account of convergence by providing a basis for the coherent treatment of competition across all sectors and a basis for the gradual rolling back of sector-specific economic regulation in favour of a more horizontal approach.
- In the broadcasting industry, the Independent Television Commission is responsible for giving effect to the broadcasting legislation. However, it does not have jurisdiction to apply and enforce the Competition Act. This is the responsibility of the Office of Fair Trading ("the OFT"). In the telecommunications industry, the Office of Telecommunications ("OFTEL") is responsible for giving effect to the telecommunications legislation, and has concurrent jurisdiction with the OFT concerning the application and enforcement of the Competition Act.
- The OFT has the power to vet mergers and acquisitions in the UK and refer mergers which raise public interest concerns to the MMC. The MMC may recommend to the government that such mergers be blocked.
- The Department of Trade and Industry has issued various papers concerning the regulation of the communications industries in the context of convergence. The Department’s approach can be summarised as follows :
- A distinction will be drawn between the regulation of infrastructure, content, and economic and competition issues.
- Competition law is increasingly to replace sector-specific regulation.
- If in a market competition is effective, formal regulation ought to be reduced and greater emphasis ought to be placed on industry self-regulation and co-regulation.
- Regulation ought to be as light-touch as possible.
- The British Broadcasting Act of 1996 liberalised the ownership rules in the context of accelerating technological change:
- The Act abolished numerical limits on the ownership of television licences. Holdings are restricted to 15% of the total television audience.
- The limitations on control of terrestrial, satellite and cable television broadcasting services were abolished.
- The cross-media limitations were abolished, except in the case of national newspapers having 20% or more of national circulation.
- There are no limitations on control imposed on DTH satellite services.
- Recent announcements in the British media suggest that the government is intending to do away with all cross-media limitations.
- The Australian government in increasingly relying on competition policy, rather than on industry-specific regulation. In 1991, the Commonwealth and State Governments agreed to examine a national approach to competition policy. In 1992 they commissioned the National Competition Policy Review chaired by Professor Hilmer. The Hilmer Report emphasised the need for nationally consistent competition rules covering all markets.
- Competition issues concerning the telecommunications industry were moved away from the telecommunications industry regulator. Similarly, competition issues concerning broadcasting were moved away from the broadcasting regulator. The Australian Competition and Consumer Commission ("the ACCC") is responsible for these issues.
- The recent report of the Productivity Commission proposes dramatic changes to the limitations on control, namely the removal of the limitations on –
- foreign control of commercial broadcasting services;
- control of commercial broadcasting services; and
- cross-media control.
Annexure E: Reasons why shift to generally applicable competition law appropriate
- Unlike regulation, competition law is not a substitute for the decisions and outcomes of the competitive market place. Furthermore, competition law, with the exception of merger control, is applied only once a competition concern is raised. In other words, it is applied as the need arises on a case-by-case basis.
- For a number of reasons, the shift to generally applicable competition law, particularly in the communications industries, is appropriate.
- Internationally, the communications industries are opening up to competition. There is a greater reliance of market forces. This necessitates a new regulatory environment.
Developments in technology, convergence and globalisation
- Prospective economic regulation cannot hope to deal with rapid technological developments, convergence and the globalisation of the communications industries. Competition law is far more appropriate to deal with these revolutionary changes.
Competition issues cannot be determined in advance
- Whether a practice constitutes a prohibited practice or an abuse of a dominant position cannot possibly be determined in the abstract, nor in advance. It will always have to be determined in a particular factual context at a particular point in time. Prospective regulation cannot do this, whereas competition law is eminently appropriate.
Difficulties in determining "relevant market"
- In competition inquiries, the first issue to be determined is the relevant market. Prospective regulation involves an attempt to determine the relevant market in advance. This is inadvisable, particularly in the communications industries. These industries are complex, given technological developments, convergence and globalisation. They are also undergoing revolutionary change at a blistering pace.
Prospective regulations costly
- Prospective regulation involves administrative and compliance costs, as well as substantial costs that may be incurred due to distortions produced in the market place. No matter how well intentioned, regulators cannot respond to technological change as fast as the market place can. At best, regulatory lags slow the rate of innovation and the introduction of new technologies. At worst, regulatory lags prevent innovation and new technologies from emerging.
In the interests of consistency and fairness, it is desirable to have a single national body dealing with competition issues.