The Competition Commission (Commission) has called for comments by 5 October 2020, on its paper titled
"Competition in the Digital Economy". Over the last few years, competition and regulatory authorities across the world have been grappling with multi-faceted competition and regulatory issues due to the rise of large tech players, and advances in the digital economy. Many of these large tech firms have faced intense regulatory scrutiny.
The paper details competition and regulatory issues in the South African digital economy and sets out the Commission's intended strategic actions in relation to competition law issues, and proposed strategic actions for other regulators to consider concerning their respective regulatory areas, namely telecommunication and broadcasting, data protection and financial services regulators.
Many of the Commission's strategic actions seek to revolutionise the manner in which competition law is applied to digital firms in South Africa. The Commission has also provided suggested actions for firms operating within the digital economy to mitigate the risk of competition law contraventions. The paper recognises that the digital economy in South Africa cuts across all markets in which goods and services utilise an internet base for production, distribution, trade and consumption by different agents. Firms participating in the digital economy with the usage of social media platforms, search platforms, share-economy platforms and financial services, to name but a few, should begin to carefully consider the possible effects of the Commission's suggested strategic actions on their businesses.
The table below sets out a brief summary of the key competition law issues identified, as well as some of the strategic actions recommended by the Commission.
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Key competition issues |
Commission's suggested strategic actions |
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Merger control |
- South Africa’s history in assessing mergers in the digital economy suggests there may have been under enforcement in this area.
- Jurisdiction (eg many social media platforms are internationally based).
- Contemplating or investigating relevant theories of harm particular to mergers in the digital space.
- Existing merger tools may be ill-designed for digital merger control.
| - Issuing a guidance note which clarifies the valuation of assets for digital companies in respect of merger thresholds.
- Requiring specific tech companies that dominate different digital markets in South Africa to inform the Commission of all small domestic acquisitions.
- Prioritising digital markets within merger control for the 2020-2025 period.
- Developing a practice note on the assessment of digital market mergers, updating the existing toolkits to account for the specific features of digital markets.
- Issuing a practice note on the assessment of merger creep and when such mergers would warrant intervention.
- Ensuring that domestically notifiable global tech mergers are concurrently filed in South Africa and other major jurisdictions.
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Cartel conduct |
- The use of algorithms to collude.
- Big data being used to facilitate collusion.
- The ability of the competition authorities to detect and investigate cartels operating in the digital economy.
- Jurisdictional issues - many digital firms may lack an incorporated entity and presence in South Africa.
| - Developing appropriate tools for detecting digital cartels and assessing the effects of agreements amongst competitors.
- Piloting a tender bid-rigging detection programme.
- Building and staffing a cartels forensic lab.
- Developing guidelines for establishing the Commission’s jurisdiction in cases of digital collusion that have an effect in South Africa.
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Market conduct and abuse of dominance |
- Behaviour identified as inconsistent with competition law in one jurisdiction may also be prevalent in South Africa.
- Jurisdictional reach - competition authorities may find it difficult to hold to account global entities with limited presence in South Africa.
- Appropriateness of current competition legislation and regulation to address the challenges of the digital economy.
- Broader regulatory frameworks in many cases do not apply to new, disruptive technology.
| - Mapping the digital landscape of South Africa ie identifying key emerging digital markets, the current trends of growth, conduct occurring in the market etc.
- Proactively conducting investigations.
- Issuing guidelines for key areas of abuse.
- Instituting a market inquiry into digital markets.
- Tracking foreign cases against the global giants.
- Ensuring proactive initiations and global cooperation where conduct is likely to be similar locally.
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Regulatory Issues
The paper recognises that competition policy cannot be considered in isolation of the regulatory issues that underpin the digital economy. The Commission is of the view that to derive lasting benefits from the digital economy, the regulatory environment should be conducive to inclusive growth. In order to attain such inclusive growth, the Commission has identified key regulatory issues impeding growth, as well as strategic actions to be taken to remedy such impediments.
The table below sets out a brief summary of the key regulatory issues identified, as well as some of the strategic actions recommended by the Commission.
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Key competition issues |
Commission's suggested strategic actions |
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Telecommunications / Broadcasting |
- Access to data services and the digital economy remains problematic, which may result in not only economic exclusion, but also exclusion from full participation in modern society.
- While mobile broadband coverage may be close to 100%, there is no universal access to broadband in South Africa.
- The price of data and the cost of digital devices exclude low-income individuals from accessing digital services.
- New technologies have changed the way that consumers access audio-visual content. However, the unequal application of regulation has resulted in digital platform operators acquiring a competitive advantage over traditional operators, as regulations governing digital platforms are often less onerous.
| - The roll-out of infrastructure (including 5G networks and the creation of a wholesale open access network (WOAN)), especially in low-income and rural areas, should be expedited.
- Due to the Commission's inquiry into data pricing in South Africa, the Commission concluded settlement agreements with mobile network operators to reduce the cost of data, with a specific focus on lower-income segments of the market.
- Regulation should be technology-neutral to "level the playing field" ie the regulation should not differentiate between digital platform operators and traditional operators, in order to reduce regulatory barriers to entry.
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Data Protection |
- Consumers cannot rely solely on the Protection of Personal Information Act, 2013 to address privacy-related issues. There is an intersection between competition, privacy and consumer protection.
- The South African government must not only concern itself with consumer data privacy, but also the control of the individual, national and sensitive data generated by the public sector eg the government must protect itself against a national security breach arising from the cross border flow of information about defence records.
| - A collaborative effort across competition, consumer protection and data protection regulators in relation to matters concerning the digital economy, where transactions involving the transfer of personal information frequency occurs.
- The South African government should ensure that its agreements with IT service providers adequately govern the principle of "data sovereignty" (ie the right to ownership and use of data).
- A national digital strategy empowering the South African government to review, investigate and take action against e-commerce that threatens data governance and the localisation of national data.
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Financial services |
- Fintech and large technology firms operate outside of traditional sector regulation.
| - A regulatory approach that promotes the inclusion of Fintech and enables their access to the national payments system, banking platforms and provides for their licensing in a fair regulatory landscape.
- Non-banks (eg mobile network operators) should be able to enter the national payments system; settlement and clearance system.
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Regional co-ordination |
- Individual authorities (for example, competition authorities) face resource constraints.
| - Regional or continental co-ordination will result in greater leverage and enforcement resources and possibly consistent regulation of digital firms. Such regional co-ordination could occur via, for example, the African Competition Forum, which consists of 32 African competition regulators.
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Although many of the Commission's suggested strategic actions may take a while to implement, it is evident that the digital economy will be prioritised. It is anticipated that the Commission may initiate a market inquiry into the sector, petition amendments to regulations and principle legislation and engage extensively with stakeholders.
