COMPETITION IN THE DIGITAL ECONOMY

VERSION 2

a growing, deconcentrated and inclusive economy 1 TABLE OF CHAPTER 5: CONTENTS INDUSTRIAL POLICY IN THE DIGITAL ECONOMY ...... 58

CHAPTER 6: IMPACT OF COVID-19 ON THE DIGITAL ECONOMY ...... 61

ABBREVIATIONS AND ACRONYMS ...... 04 CONCLUSION ...... 64 EXECUTIVE SUMMARY ...... 06

CHAPTER 1: INTRODUCTION LIST OF TABLES, FIGURES AND BOXES 1.1 Who Is This Publication For? ...... 11 1.2 Why The Need For This Publication? ...... 12 1.3 What Is The Digital Economy? ...... 12 Table 1: Key indicators of digital connectivity in BRICS countries ...... 16

1.4 Structure Of This Publication ...... 16 Table 2: Examples of two-sided digital platforms ...... 19 1.5 Basic Features Of The Digital Economy ...... 17 Table 3: Digital platforms active in South Africa ...... 20

CHAPTER 2: Table 4: Trends in notified mergers in digital markets, 2011 – 2018 ...... 27 DIGITAL PLATFORMS IN SOUTH AFRICA Table 5: Summary of the Commission’s previous cases in digital markets ...... 45

2.1 What Is A Digital Platform? ...... 18 Table 6: List of stakeholder submissions received ...... 67 2.2 Digital Platforms In South Africa ...... 20 2.3 Big Data, Data-Rich Markets And Cloud Computing ...... 22 2.4 Financial Technology And Banking ...... 23 Figure 1: Digital usage around the world in 2020 ...... 14

Figure 2: Digital penetration in South Africa in 2020 ...... 15 CHAPTER 3: Figure 3: Growth of digital penetration in South Africa in one year ...... 15 COMPETITION LAW IN DIGITAL MARKETS Figure 4: Internet usage predictions for South Africa ...... 16 3.1 Merger Control ...... 27 Figure 5: The Fintech Value Chain ...... 23 3.2 Cartel Conduct ...... 33 3.3 Abuse Of Dominance And Vertical Restraints ...... 35 Figure 6: Shares in Zoom, Netflix and Amazon on the rise...... 62 3.4 Commission’s Previous Interventions In Digital Markets ...... 44

CHAPTER 4: Box 1: Big tech disruptions in banking ...... 25 REGULATORY ISSUES IN THE DIGITAL ECONOMY Box 2: The Naspers/WeBuyCars Merger ...... 29

4.1 Promoting Access & Connectivity: Infrastructure & Digital Penetration ...... 47 Box 3: The US Airline Case ...... 33

4.2 Regulatory Responses To Tech Disruptions In Markets ...... 48 Box 4: The Microsoft case: foreclosure of access to essential facilities ...... 39 4.3 Consumer Protection: Data Privacy And Sovereignty ...... 48 Box 5: The Google Search (Shopping) Case: Abuse of Market Power ...... 39 4.4 Digitalising Government Services ...... 52 Box 6: The European Commission’s Google Android Case and Microsoft Windows Player case: Tying...40 4.5 Promoting Inclusion In Financial Services ...... 53 4.6 A Role For Regional Coordination ...... 56 Box 7: Bundeskartellamt & Facebook ...... 50

2 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 3 FTA Free to air

FTTH Fibre to the home

ABBREVIATIONS AND ACRONYMS GPS Global positioning system

HDI’s Historically disadvantaged individuals

ICASA Independent Communications Authority of South Africa

ICT Information and communication technology

IFWG Inter-Governmental Fintech Working Group

IMF International Monetary Fund ACCC Australian Competition and Consumer Commission IoT Internet of things ACF African Competition Forum LTE Long term evolution AfCFTA African Continental Free Trade Area MFN Most favoured nation AI Artificial intelligence NPS National Payments System B2B Business to business OECD Organisation of Economic Cooperation and Development BRICS Brazil Russia India China and South Africa OTT Over the top CAC Competition Appeal Court PoPI Act Protection of Personal Information Act of 2013 CADE Brazil’s competition authority REC Regional Economic Community CCBG Committee of Central Bank Governors RTC Real-time clearing CMA Competition and Markets Authority SA South Africa COFI Conduct of Financial Institutions SADC Southern African Development Community COMESA Common Market for Eastern and Southern Africa SAPO South African Post Office Commission Competition Commission of South Africa SARB South African Reserve Bank CT Competition Tribunal SME’s Small and medium-sized enterprises DGIC Discussion group on international cooperation SMS firms Firms with a strategic market status DMU Digital Markets Unit The Act or The Competition Act The Competition Act 89 of 1998, as amended DSMI Data services market inquiry UK United Kingdom DTIC Department of Trade, Industry and Competition UNCTAD United Nations Conference on Trade and Development EU European Union USA United States of America FAS Russia’s Federal Anti-monopoly Services USDOJ United States Department of Justice Fintech Financial technology WOAN Wholesale open access network FSCA Financial Sector Conduct Authority WTO World Trade Organisation FSRA Financial Sector Regulation Act

4 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 5 SOUTH AFRICA’S DIGITAL LANDSCAPE

More than a market, the digital economy cuts across all South Africans participate in many digital platforms EXECUTIVE SUMMARY markets in which goods and services utilise an internet including search platforms, share-economy platforms base for production, distribution, trade and consumption and financial services. The most popular digital platforms by different agents. South Africa’s level of participation in around the world are widely used in South Africa but the digital economy is reflected in several key indicators internet usage takes on a local flavour in financial service set out in Table 1. For context, these numbers are platforms and e-commerce, where some traditional compared with those of other developing economies stores with an online presence and Takealot – which is in the BRICS network. The numbers reflect that South part of the Naspers group - dominate the scene. Africa has a 62% internet penetration rate, compared to South Africa’s financial technology platforms are Russia’s 81%. From 2019 to 2020 South Africa showed dominated by the “big four” banks, whilst Capitec, Tyme COMPETITION IN THE DIGITAL ECONOMY, VERSION 2 19% growth in the number of active social media users Bank and Discovery Bank have increased their presence compared to India’s 48% growth. These numbers were by introducing innovative lifestyle solutions. There This is the Competition Commission’s second version their valuable perspective to the Commission’s strategic reported in early 2020 and are expected to increase are also numerous start-ups in the broader financial of the publication, following submissions received on approach to the digital economy. significantly by 2021 due to the effects of COVID19 on payments space that are simultaneously disrupting and our September 2020 version. This version incorporates online activity. The stakeholder submissions received are summarised enhancing South Africa’s financial service offering. views taken from stakeholder submissions and our in the Introduction and are addressed more directly in dynamic thinking on the digital economy. We are the sections most applicable to each. grateful to all stakeholders – who included regulators, COMPETITION ISSUES IN THE DIGITAL ECONOMY think tanks, corporates and industry bodies – for adding AND THE COMMISSION’S APPROACH

RATIONALE FOR THIS PAPER There are novel features of the digital economy that shape growth with the more immediate stated preferences interventions in digital markets and lead competition of consumers; and practitioners to approach competition regulation in the The arrival and rapid rise of the digital economy This paper sets out the ways in which South Africa’s 4. the rapid pace of change which calls on regulators digital economy with a different mindset than we would presents South Africa with an opportunity to reverse the competition laws can be implemented to achieve to constantly monitor developments and be willing the traditional economy. Although we list these features pervasive, triple scourge of unemployment, inequality equitable outcomes in the digital economy and the to adapt their thinking as circumstances change. more fully in the report, we note stakeholder cautions and poverty. But in order to harness the promised Competition Commission’s intentions in this regard. against presuming these features exist without further benefits of digitalisation South Africa must create a Since competition policy alone is insufficient to attain the Merger control inquiry. These features are: commercial and regulatory environment designed to goals South Africa desires, this paper also sets out the South Africa’s history in assessing mergers in the digital extract those benefits and distribute them in a way that features of the regulatory environment required in order 1. the rapid and responsive innovation present in economy suggests that until the MIH/WeBuyCars merger ensures inclusive economic growth, that is 1) greater to extract maximum benefit from the digital economy. digital markets which are also the desired outcome was prohibited, there may have been under enforcement participation by black and women-owned firms and 2) An enabling regulatory environment – including sound of competition policy. Regulatory interventions, in this area. This can be seen in the Commission’s statistics increased and meaningful employment. competition policy – along with a vigilant, informed therefore, need to balance the need for inclusivity which show that of the 87 mergers in digital markets consumer base, innovative business culture, and willing with the desire to maintain innovation; Unfortunately, for all its promise, the digital economy notified between 2011 and 2018, 82 were approved commercial partners can turn the tide in South Africa and in developing countries already threatens a new 2. the possible tendency towards concentration arising without conditions and the remaining 5 were approved ensure that the digital economy delivers on the promise era of global concentration and, with it, the further from first-mover advantage, data accumulation and with public interest conditions. Notably, no conditions of inclusive economic growth. marginalisation of vulnerable countries and businesses. network effects as well as exclusionary conduct. This have been imposed to address substantive competition Therefore, intentional regulation is required to avoid requires competition policy to pro-actively identify concerns. The history, however, must be seen against outcomes that could harm the development of small and prevent entrenchment strategies before they a backdrop of low numbers of prohibitions in merger businesses, consumers and ultimately the economic are too difficult to reverse; cases generally. growth so needed in South Africa’s developing economy. 3. well informed consumers, coupled with ease of The complex, cumulative and global nature of digital The need for intentional regulation has become all the entry in some secondary and tertiary levels of digital mergers may be partly responsible for this state of affairs more urgent with the advent of COVID19 which has markets, which means that consumers can define but the Competition Tribunal’s prohibition of the merger moved more products and services online at a rapid their preferred benefit with relative speed and between Naspers and WeBuyCars suggests this trend pace. accuracy. This again calls for competition agencies may be changing. The Tribunal has since issued reasons to balance the long-term policy goals of economic for its decision. In order to improve its knowledge and

6 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 7 bring about a more robust assessment of digital markets vertical restraints in digital markets. First, the global the likely impact of increased conglomeration raises so and the outcome of the mapping will feed into the Commission intends to: reach of digital markets means that conduct found to barriers to entry for potential entrants; future interventions in this market; be anti-competitive in one jurisdiction could easily be • issue a guidance note which clarifies the valuation • Online resale price maintenance has also been • Proactive investigations against conduct, by considered anti-competitive in other jurisdictions. We of assets for digital companies in respect of merger investigated in European cases resulting in decisions dominant online firms, that may be excluding rivals note however that each case would need to be assessed thresholds; against manufacturers of consumer electronics; and entrenching dominance; on its merits to determine the existence or otherwise of • require specific tech companies that dominate anti-competitive effects in South Africa. Second, digital • Issue guidelines, where appropriate, in respect of Outside of the globalised search and social media different digital markets in South Africa to inform markets tend to be “tipping markets”, though this may not conduct which the Commission deems likely to digital markets, there exists a contestable digital space the Commission of all small domestic acquisitions, apply to all digital markets, which means that there is a contravene the Competition Act; for South African firms to take part in. To ensure that this including investments in start-ups and global likelihood for the rapid expansion of one large dominant space remains contestable, the Commission intends to • Institute a market inquiry into digital markets; acquisitions of targets with some presence locally; platform within a particular market. Possible examples are Amazon.com in the US, Alibaba in China and Takealot pursue the strategy set out below. • Global cooperation and coordination, with other • prioritise digital markets within merger control for in South Africa. Finally, regulated incumbents tend to be • Mapping the digital landscape of South Africa in competition agencies, in respect of addressing the 2020-2025 period; at a disadvantage when global unregulated digital firms order to inform proactive initiations on market market conduct of firms such as Google, Facebook enter the local market. Cases against dominant digital • develop a practice note on the assessment of digital conduct by dominant firms and to focus a future and Apple which also dominate domestically, and companies are often challenging to investigate because market mergers, updating the existing toolkits to market inquiry or research into specific digital potentially also second-tier globally important of jurisdictional reach and the high bar set by legislation account for the specific features of digital markets; markets. Indeed, the Commission has now done digital firms such as Uber, Airbnb, Bookings.com. to prove an abuse-of-dominance contravention. • issue a practice note on the assessment of merger creep and when such mergers would warrant Forms of abuse in digital markets intervention; REGULATORY ISSUES IN THE DIGITAL ECONOMY The accumulation of big data – which has become a AND THE COMMISSION’S APPROACH • ensure that domestically notifiable global tech most valuable asset in the digital economy – coupled mergers are concurrently filed in South Africa and with network effects, can confer market power and a Besides the competition issues raised in the paper, there • While consumer protection law remains the main other major jurisdictions such that the Commission durable competitive advantage. We note stakeholder are regulatory issues that link with competition policy. As legislation to address potential big data harm to may benefit from collaboration with other major views, however, that the possession of data may not, of mentioned, in order to achieve lasting benefits from the individual privacy - as opposed to competition law - jurisdictions in the assessment of the merger. itself, present competition concerns. Market power is not digital economy, the regulatory environment should be personal information has become the currency with in and of itself a competition concern, but this market conducive to inclusive growth in the ways set out below. which consumers purchase services from digital Cartel conduct power has become the source of several concerns raised markets where the product is “free”, which makes in the digital economy including those listed below. • South Africa must invest in digital technology and Digital markets present new forms of collusion and, the protection of personal information an issue that its infrastructure with a sense of urgency. Access consequently, new challenges for competition agencies • Vertically integrated digital firms can benefit from extends beyond consumer protection laws. This to data services and indeed the digital economy whose aim it is to detect and investigate collusion. In owning a platform and, at the same time, competing warrants a more collaborative effort across regulators remains highly problematic as there is a real threat particular, the use of algorithms – though creating a host with sellers on that platform. This enables the in developing countries, especially where there are of not just economic exclusion, but also exclusion of market efficiencies – can facilitate agreements on price platform owner to use the information it collects from separate enforcement mandates, like in South Africa from full participation in society. Current plans to and other trading conditions. The successful detection, the seller to its advantage and the disadvantage of on competition, consumer protection and privacy. increase broadband connectivity in under-served investigation and prosecution of such cartels mean the the seller; Hence, to better achieve the common goals and communities, the rollout of 5G networks, the Commission must have the requisite tools, skills and avoid inconsistent approaches, it is recommended • Vertical integration also incentivises self- creation of an open access network (WOAN) that jurisdiction to do so. In order to achieve these outcomes strong cooperation and close dialogue between preferencing: an act by which digital platforms will provides access to essential facilities, infrastructure the Commission intends to: these institutions. Despite stakeholder submissions give preferential treatment to their services over the sharing and rapid infrastructure deployment, and urging the Commission to distinguish between services of other companies and as such maintain digital terrestrial television are opportunities for • develop appropriate tools for detecting digital consumer-related concerns and competition-related their positions of dominance. Again here we note growth in the ICT sector which should stimulate local cartels and assessing the effects of agreements concerns, we believe that the sole reliance on data stakeholder cautions against importing conclusions manufacturing. amongst competitors; protection law to address the data-related concerns drawn in foreign jurisdictions but rather to consider • We should avoid regulatory responses that distort raised above would be a mistake, as they cannot • pilot a tender bid-rigging detection programme; matters on their merits within the South African markets. Regulation should adopt a technology- deal with these issues when they arise in mergers or economy; • build and staff a cartels forensic lab. neutral approach, without differentiating whether exploitative abuses. • Conglomeration has the potential to negatively firms traditionally operate their business or whether • Beyond protecting personal information market impact inclusive growth, even where several they make use of digital platforms. The Commission Abuse of dominance and vertical restraints participants, including the government, should big players are competing. This is particularly advocates for regulatory responses that are geared take heed in commercial interactions with IT service Several features of digital markets inform the concerning in the South African context where at levelling the playing field and reducing regulatory providers, to maintain and preserve their data Commission’s stance on the abuse of dominance and market concentration levels are already high, and barriers to entry and expansion. sovereignty. They should impose minimum controls

8 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 9 on the information being stored and hold firms each segment of the value chain- from currency to accountable for what they do with the data and banking and insurance- has been affected. This calls assign responsibility and accountability for specific for a rethink in the manner in which the financial databases. system is defined and regulated. Whereas licenses were the traditional barriers for new entrants in • The shift to an Internet-based economy necessitates financial services, “big learning” from big data is digitalisation and synchronisation of e-government CHAPTER 1 now the regulatory frontier. Whilst the historical services such as e-health, online education revenue markers for financial stability focused on incumbent collection and finance. The government can players, digitization requires a regulatory shift that leverage advances brought upon by technological encompasses financial networks (which include firms innovations (such as cloud computing, internet of in telecoms, e-commerce) more broadly. Definitions things (IoT), big data, and mobile innovations) to of institutions which are “systemically important” drive the success of digitising government and must be reviewed, with the advent of Big Tech. delivering public services to its citizens. INTRODUCTION • The disruption brought about by digitalisation in banking and financial services are monumental; “Digital advances have generated enormous wealth in record time, but that wealth has been concentrated around a small number of individuals, companies and countries. INDUSTRIAL POLICY IN DIGITAL MARKETS Under current policies and regulations, this trajectory is likely to continue, further contributing to rising inequality. We must work to close the digital divide, where more • Competition and industrial policy require updating • Due to the COVID19 pandemic, the rapid shift to than half the world has limited or no access to the Internet. Inclusivity is essential to for the digital age to help start-ups effectively the online economy will reduce the timelines for building a digital economy that delivers for all.” compete. Several industrial policy instruments can regulation and action. A decisive and proactive António Guterres, Secretary-General United Nations (2019) enable competition in the digital economy including stance needs to be taken in order to ensure the investment, incentive schemes, public procurement balance of economic forces favour a shift to and trade instruments. These strategic industrial facilitating entry and a more competitive digital 1.1 Who Is This Publication For? policy levers should feature in a national digital market. This requires removing the entry barriers, framework that will act as a roadmap for the wider including those erected by dominant platforms, and This publication is drafted to inform government and conduct and apply for exemption from the application industrial effort in the digital economy. preventing consolidation at this critical moment in corporate stakeholders of the Competition Commission’s of the Competition Act No. 89 of 1998, where necessary. the development of the online economy in South (Commission) approach to regulating competition in • In the developing world, there is some evidence The stakeholder submissions received are addressed Africa. the digital economy. This is the Commission’s second to support the idea that targeting and prioritising more directly in the sections most applicable to each. In version of the publication, following submissions specific industries for large scale and accelerated broad terms, however, stakeholder submissions can be received on our September 2020 version. This version digital penetration can spur on faster, deeper characterised as set out below. incorporates views taken from stakeholder submissions and more meaningful growth in digital markets and our dynamic thinking on the digital economy. We than if digital development were to occur without • Stakeholders welcomed the Commission’s are grateful to all stakeholders – who included regulators, prioritisation. It is in financial technology, for articulation of a position on the digital economy and think tanks, corporates and industry bodies – for adding instance, that both India and China report the most supported the objectives the Commission seeks to their valuable perspective to the Commission’s strategic potential for growth in the digital economy. South achieve; approach to the digital economy. To acknowledge their Africa could benefit from a strategy of prioritising • Stakeholders called for a more precise definition of efforts, we have attached a list of submissions received at specific industries for accelerated digital growth in the digital markets covered by the Commission’s the end of the publication. order to achieve maximum effectiveness. strategy; The publication aims to inform South African regulators • Stakeholders urged the Commission to take account of the Commission’s position on the digital economy to of positions already articulated and interventions facilitate coordinated regulatory and advocacy efforts underway both nationally and internationally; in this area. The publication is also intended to assist business to anticipate the Commission’s broad stance • Stakeholders urged the Commission to adopt a more on corporate conduct in the marketplace to enable global view of the digital economy while positioning business to distinguish between pro-competitive and South Africa to harness local benefits from it in the anti-competitive practices in the digital economy thus best way possible; empowering them to comply with the objectives of competition law and policy; report anti-competitive

10 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 11 • Stakeholders cautioned against the conflation of • Stakeholders also corrected inaccuracies or More than a market, the digital economy cuts across all industrial economy as the primary base for economic competition policy with issues better suited to incorrect assumptions and agreed with assertions markets in which goods and services utilise an internet activity. consumer policy and other policy instruments; where necessary. base for production, distribution, trade and consumption The dynamic and ever-evolving nature of the digital by different agents. While a market is considered to be • Stakeholders urged the Commission not to Some stakeholders asked if the Commission’s digital economy means that commonly used concepts may one stream within an economy – for example, a financial adopt a blanket approach to concerns raised in strategy represents a binding position on the various carry different meanings to different stakeholders. market – the digital economy has become an entire foreign digital markets as some concerns may be conclusions and future actions stated in it. The answer For this reason, we have defined the concepts that we economic system running parallel to the industrial competition neutral or represent consumer benefits is no. The Commission concurs with stakeholders who frequently refer to in the remainder of this guide. economy and threatening to, one day, overtake the when assessed through a local lens or on the merits highlighted the ever-changing, fluid nature of digital of any one case; markets and therefore aims to approach each proposed intervention on its merits considering the relevant market • Stakeholders supported the institution of a market circumstances operating at the time of the intervention. 4IR Big data inquiry as a means to better understand the workings The fourth industrial revolution is a new era of innovation Refers to the use of predictive analytics, user behaviour of South Africa’s digital economy, the features in technology that will enhance human-machine analytics or other advanced data analytics methods to unique to it and those that are common with foreign relationships, unlock new market opportunities, and fuel extract value from a large data set. The advanced analysis digital markets; growth across the global economy. Previous industrial of large data sets can find new correlations to spot business revolutions are listed as (1) the use of water and steam trends, prevent disease, combat crime and so forth. 1.2 Why The Need For This Publication? power to mechanise; (2) the introduction of electricity; Big Tech and (3) the use of information technology and the internet Big Tech refers to the major technology companies such The purpose of an economy is to organise the Digital markets, therefore, threaten a new era of global to digitalise operations. The digital economy is thus a as Apple, Google, Amazon and Facebook, which have allocation of available resources . Unfortunately, for all concentration and the marginalisation of developing foundational part of the fourth industrial revolution. inordinate influence. They are also referred to as GAFA the achievements of the industrial economy, it has also country businesses unless purposefully regulated. App and high tech. resulted in the skewed allocation of available resources.1 If South Africa is to harness the promised benefits Short for application, an app is a computerised program South Africa is a case in point as it exhibits high levels of Blockchain of a digital economy, we must regulate intentionally. that runs inside another digital service. Many mobile inequality, poverty and unemployment. The arrival and A system in which a record of transactions made in bitcoin We need unified direction, enabling legislation and phones allow apps to be downloaded, leading to a rapid rise of the digital economy as a disruptive force or another cryptocurrency is maintained across several a business environment poised for innovation and burgeoning economy for modestly priced software. presents an opportunity to reverse these outcomes and computers that are linked in a peer-to-peer network. dynamic growth. Competition policy and regulation achieve an equitable allocation of available resources Algorithm have a major contribution to make in this regard and Browser thus shifting us from inequality to equality, from poverty A set of instructions or procedures used to accomplish this publication explains how a pro-competition ethos This is the program that a website visitor is using to view to shared prosperity and from unemployment to a task such as creating search results in Google. In the can help to bring about the desired results. Of course, a website. Examples are Safari, Firefox, Internet Explorer, meaningful participation. These would be the attributes context of search, algorithms are used to provide the competition regulation alone is insufficient to achieve Google Chrome and Opera. of an inclusive digital economy. most relevant results first, based on this instruction. these outcomes; therefore this publication also speaks Cloud computing However, as much as the digital economy may to how other regulators and corporate stakeholders can AI An increasingly popular computing model in which beneficially disrupt existing concentrated markets, coordinate and contribute to more equitable, inclusive Sometimes called machine intelligence, artificial information and software are provided on demand from experience shows that digital markets are themselves and competitive outcomes from the digital revolution. intelligence is intelligence demonstrated by machines, over the internet rather than staying on a local computer. prone to extreme ‘winner takes all’ outcomes due in contrast to the natural intelligence displayed by The ultimate purpose of this publication is reflected in Cloud computing is appealing because companies can to several factors, including first-mover advantages humans. The term may also be applied to any machine how each section ends: with a set of strategic actions that reduce the amount they spend on their computer servers yet combined with ‘tippy’ market dynamics. This frequently that exhibits traits associated with a human mind such as the Commission and its stakeholders can take in moving their storage capacity can quickly and easily expand as the plays out on a global interconnected and virtual stage, learning and problem-solving. us closer to a more inclusive digital economy for the resulting in tech giants dominating entire areas of company grows. Examples of cloud computing applications benefit of all South Africans. global commerce, such as social media, search, digital Back-end are Google Docs, Yahoo Mail and Amazon’s EC2 and S3. The back-end of a website is the part hidden from the advertising, mobile operating systems and e-hailing. Cost per action view of the regular website visitor. The back-end generally Also referred to as CPA. A pricing model in which the includes the information structure, applications and the advertiser is charged for an advert based on how many 1.3 What Is The Digital Economy? content management system. users take a specific, pre-defined action such as buying a Bandwidth product from an online store based on viewing the advert. Several stakeholders urged the Commission to define, approach, seeing the digital economy as one running This term can refer to two different things: the rate at This is the ‘gold standard’ for advertisers because it most more precisely, the digital markets it intended to parallel to the industrial economy and thus requiring an which data can be transferred or the total amount of data directly matches the cost of an advert to its effectiveness. target with its digital strategy. It should be emphasised overall strategy. Further research and experience in this allowed to be transferred from a web host during a given In contrast, the cost-per-click model charges companies that, at this point, the Commission has not delineated area may, in future, highlight specific digital markets that period. It is generally calculated in bits-per-second (bps) based on how many users click on a link and the cost- any specific digital markets for targeted competition require direct interventions. alternatively kilobits-per-second (kbs). per-mile model charges companies based on a specified interventions. Rather the Commission has taken a broad number of views.

12 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 13 E-commerce Operating system Is short for electronic commerce and refers to the process A basic layer of software that controls computer Figure 2: Digital penetration in South Africa in 2020 of buying and selling goods online through websites. hardware, allowing other applications to be built on it. Goods sold could be physical, requiring shipping, or digital The most popular operating systems today for desktop products delivered through an app like music or a program. computers are Microsoft Windows, Mac OS X and Linux. For smartphones, the most popular are iOS and Google Fintech Android. Short for financial technology, fintech refers to computer programs and other technology used to create, support Platform or enable banking and financial services. A digital service that facilitates interactions between two or more distinct but interdependent set of users Internet (whether firms or individuals) who interact through the A global computer network providing a variety of service via the internet. information and communication facilities, consisting of interconnected networks using standardised communication protocols.

The digital economy operates globally offering endless compared with those of other developing economies in opportunities for innovation and trade yet presenting new the BRICS network. challenges to a world designed around physical borders. Its global reach is evident in figure 1 below while figures It is worth noting that figure 4 was constructed in a 2, 32 and 43 focus on the extent of digital penetration in pre-COVID19 world. Post COVID19 it is probable that South Africa. South Africa’s level of participation in the South Africa will experience higher internet penetration digital economy is also reflected in several key indicators than previously predicted due to an accelerated shift set out in Table 1 below. For context, these numbers are to remote working and online eCommerce to reduce contagion risks.

Figure 3: Growth of digital penetration in South Africa in one year

Figure 1: Digital usage around the world in 2020

14 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 15 the Commission’s interventions across various sectors If South Africa can attain a coordinated and pro- Figure 4: Internet usage predictions for South Africa and through different levels of the value chain. As such competitive approach to the main areas in the digital this paper examines the nature of South Africa’s digital economy, it is the Commission’s view that we could economy, explores the competition issues presented harness the promised benefits of the digital economy by the digital economy and considers the regulatory and achieve what the industrial economy has, as yet, enablers required to achieve the outcomes we desire. failed to do: greater levels of equality shared prosperity and improved levels of employment.

1.5 BASIC FEATURES OF THE DIGITAL ECONOMY

In broad terms, certain basic features of the digital It should be noted that in the submissions received, some economy lead competition regulators the world over to stakeholders disputed the assertion that concentration approach competition regulation in the digital economy is a characteristic of the digital economy or that such with a different mindset than we would the industrial concentration is difficult to reverse, citing that some of economy. Each of these is addressed extensively today’s dominant firms were not themselves the first throughout the report but introduced here for context. movers in these markets but rather employed innovative and creative strategies to assume their current positions The first characteristic of the digital economy is the rapid when they entered. This, they say, is still a course of rate of technological change and innovation, providing action open to any firm operating in the digital economy. scope for market disruption through new entrants and new products to the benefit of consumers. Competition Thirdly, consumers tend to have more information policy aims to achieve precisely such benefits and should in the digital economy than they do in the industrial therefore encourage and facilitate this innovation. economy. This means that consumers: their needs and However, in doing so, competition policy must also their response to a product or service, naturally play ensure these technologies are accessible to consumers a far bigger role in the innovation that takes place in and that digital markets remain accessible to rivals. This digital markets. This factor, coupled with the relative Table 1: Key indicators of digital connectivity in BRICS countries requires a careful balancing act and forward-thinking ease of entry for innovative firms into some secondary on the part of competition regulators executed in a fast- and tertiary levels of digital markets, means that the Brazil Russia India China South Africa moving and dynamic environment. digital economy at times presents the ideal competitive Population 211.8 million 145.9 million 1.3 billion 1.4 billion 58.9 million environment. Moreover, competition regulation favours The second characteristic of the digital economy is Mobile phone connections 205.8 million 237.6 million 1.06 billion 1.6 billion 103.5 million innovation and is ultimately designed for the benefit of the tendency for the product/service line to cause Internet penetration 71% 81% 50% 59% 62% consumers. Since innovation is integral to digital markets conglomerate concentration which is subsequently Active social media users 66% 48% 29% 72% 37% and consumers can define their preferred benefit with difficult to reverse once entrenched. This is in part due Growth in internet penetration in one year +6% -0.4% +23% +3.1% +3.1% relative speed and accuracy in digital markets, this to economic features of these markets such as first- Growth in active social media users in could necessitate a less interventionist approach from +8.2% 0% +48% +1.5% +19% mover advantages from the positive network effects of one year regulators in some instances. two-sided markets and further product development advantages from data accumulation. However, it may It should be noted here that some stakeholder also be due to deliberate strategies to retain early submissions cautioned against the presumption that leadership (such as most-favoured-nation pricing rules entry into digital markets may be easier than entry into 1.4 STRUCTURE OF THIS PUBLICATION with partners), acquire competitive threats (so-called the industrial economy as these entrants are subject to ‘killer acquisitions’) and leverage dominance in some significant regulatory constraints and the high costs of While it is tempting to compartmentalise South Africa’s viewed through a different lens. Given the extent of areas to exclude or limit rivals in others (such as self- cybersecurity, data and digital infrastructure amongst industrial economy and assess the digital state of each connectivity that is brought about by digitalisation, a preferencing of data and platform access). This requires others. sector, it should be noted that the status and importance change in one digital area can impact other digital areas, competition law to not only consider new theories of Owing to the rapid rate of change we mentioned above, of South Africa’s individual sectors was based on their consequently sectors, with great speed. Blockchain harm but also to act proactively against entrenchment the Commission acknowledges that its position may respective contributions to the industrial development is an example of a digital advancement developed strategies to keep markets competitive and prevent change with time. For this reason, this publication is of the country. For example, agriculture was considered specifically for financial transactions but rapidly grew in irreversible concentration. It also requires competition titled Version 2 in anticipation of changes to regulatory a key sector for development because it was a significant its usefulness for different sectors. Therefore, rather than policy tools to facilitate access by potential entrants thinking that may occur in future and developments in provider of employment and a major earner of foreign approach the digital economy concerning the industrial to enabling assets such as the private consumer data 4 current and future case law. exchange. In contrast, the potential for the digital economy, this publication focuses on the main over- accumulated and held by companies. economy to present growth opportunities must be arching digital economy themes that have emerged from

16 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 17 The nature of digital markets is such that there exists a platforms cover all other platforms using an internet high degree of interdependency and interoperability base to offer products and services. Two-sided digital between different platforms provided by different platforms, also referred to as ‘transaction platforms’ vendors. In mobile communications, for instance, if end in UNCTAD’s 2019 report on digital markets, connect users wish to log onto a social media platform such distinct but interdependent users to each other, through CHAPTER 2 as Facebook or WhatsApp, their smartphones must the platform, much like newspapers and magazines do. be operated by a smartphone operating system such Well known examples are Uber, which connects drivers as Android or iOS. Such operating systems are run by to customers needing a ride; AirBnB, which connects platforms known as chipsets that are pre-installed on a homeowners to consumers needing accommodation mobile device. An example of this is the ARM software and Facebook, which connects advertisers to potential for the Android operating system. buyers as they browse through their social connections. The two-sided nature of these platforms has implications Digital platforms provide the mechanism for bringing for competition regulation which are set out further below. DIGITAL PLATFORMS IN SOUTH AFRICA together a set of parties to interact online.9 A common For this reason, this paper makes a distinction between descriptor of this type of interaction is the distinction made one-sided and two-sided digital platforms. Table 2 below between two-sided platforms and one-sided platforms. provides examples of two-sided platforms and describes “[Digital] platforms can have both positive and negative effects on development, One-sided platforms represent a more traditional and the sets of interdependent users connected through the but the net impact on Africa will ultimately be shaped by the responses of industry, linear relationship between seller and buyer. One-sided platform. regulators, government and civil society.”

Insight2Impact, Global Resource Centre Table 2: Examples of two-sided digital platforms Digital platforms Examples 2.1 What Is A Digital Platform? e.g. Google and Bing provide an online search platform between web Online search platforms users and advertisers There are varying definitions for a digital (online) more broadly to ascertain the more dominant features of e.g. Microsoft provides a software platform that allows transactions be- PC operating systems platform which have evolved over the years given a digital platform and distinguish it from other products tween independent software vendors and users the dynamic nature of this market. The Commission or services. e.g. Android and iOS provide an interface between users of the device Smartphone operating systems considers the definition proffered by the OECD to be and content providers such as application developers Although digital markets are not new, they tend to be sufficient for this discussion: ‘an online platform is a Social networking platforms e.g. Facebook provides an interface for social networking and advertising significantly different from traditional markets and digital service that facilitates interactions between two or e.g. Amazon connect customers willing to buy products online with prod- introduce new ways of doing business. Firstly, business Online shopping platforms more distinct but interdependent sets of users (whether uct suppliers of the products models based on technology and product/service firms or individuals) who interact through the service via e.g. Sony PlayStation or Nintendo provides software tools that enable platforms are radically altering industry structure and the the internet’5. Video game platforms publishers to develop games and a device on which consumers can play terms of competition in a range of industries. Secondly, the games

The OECD goes further to describe digital (online) digital platforms introduce new sources of data that can Source: Adapted from Kuoppamaki, P (2015) Tying and two-sided digital platforms platforms as ‘a range of services available on the internet be used to create new insights, products, and services. including marketplaces, search engines, social media, Viewed superficially these factors present efficiencies creative content outlets, app stores, communications and consumer benefits but do not come without their Other common features of digital platforms are listed They can then subsidise their income with the income services, payment systems, services comprising the disadvantages, not only to consumers but also for below but may not necessarily apply to all digital derived from advertisers who wish to advertise on so-called “collaborative” or “gig” economy, and much business and regulators. platforms. the platform. more.’6 Digital platforms should also be understood in the context • Disruptive innovation - many platforms arise as a • Data generation - digital platforms tend to have It is clear from the above description that digital of what is often referred to as the digital ecosystem. The result of disruptive innovation to use technology to access to and generate a lot of data through their platforms can include a wide range of services including ecosystem depicts a value chain approach in which even offer a new and current service in a novel manner. various users, which may be used to enhance those by commercial players, non-profit organisations though digital platforms play a significant role often products or services, enabling continued leadership, • Network effects - there are network effects that and government. Further, it is not restrictive on the types controlling it, they are not the only component.7 The or develop new products or services. persist in digital platforms. These occur in these of users making use of the platforms. These comprise ecosystem is described as a combination of interoperable two- or multi-sided markets where, for instance, • Winner-takes-all or winner-takes-most - there are individuals as well as corporate entities. Another feature applications, operating systems, platforms, business advertisers or businesses benefit more as the strong first-mover advantages for platforms offering of digital platforms from this definition is that they models and hardware that are linked through data and number of buyers and subscribers increase on a new services or novel ways of bringing the service entail two or multi-sided markets. We acknowledge, that do not necessarily belong to one entity. An example platform and vice versa. to users. however, that what makes any infrastructure a digital of a digital ecosystem is Apple’s iPhone and iPad, its iOS platform depends on the facts presented at the time operating system, Apple TV, the App Store, with Apple’s • Cross subsidisation - some platforms offer their • Switching costs - switching costs may be high of assessment. This publication approaches the subject own and other interoperable apps. 8 services to users for free to increase subscriptions. depending on the customisation and functionality

18 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 19 of a platform. However, some platforms, like social The rise of digital platforms has allowed for the creation 2.2.1 Share-economy platforms 2.2.2 Social media platforms media platforms, allow for multi-homing by users of third-party vendors providing complementary Share-economy platforms typically operate in two-sided Social media or social networking sites are internet- thus switching costs become less relevant. products and services for specific platforms, including cloud computing that stores large amounts of data, and markets. The sharing economy involves short-term based services that allow individuals to construct a public • Global reach - as these platforms are available on the artificial intelligence platforms that process data collected peer-to-peer transactions to share the use of idle assets or semi-public profile within a limited forum, to articulate internet, they are largely available across the globe from customers into usable information for advertisers. and services or to facilitate collaboration. The sharing a list of other users with whom they share a connection, where users can access the internet and are thus not Notably, vendors such as cloud computing providers will economy often involves some type of online platform and to view and traverse their list of connections and limited by national boundaries. The low or no cost of not fall within the above description of digital platforms that connects buyers and seller. It is a rapidly growing and those made by others within the system. Some of these replication in new markets also provides the impetus as they are only one-sided and provide services only to evolving phenomenon but faces significant challenges are two-sided platforms while others operate linearly. for rapid globalisation to take advantage of the first- the entity requiring the storage. However, they form an in the form of regulatory uncertainty and concerns about In South Africa WhatsApp, Facebook, YouTube, Facebook mover advantages.’ important part of the digital economy infrastructure and abuses.10 Arguably the most well-known share-economy Messenger, Instagram and Twitter are amongst the most enabling environment. platforms are Uber and AirBnB which connect under- used social media platforms.13 South Africa currently utilized vehicles and accommodation, respectively, to does not have a locally-based social media platform. 2.2 Digital Platforms In South Africa consumers in need of these services. The platforms provide a service to consumers, for Concerning e-hailing platforms such as Uber, these instance, to connect and share information. However, it The platforms active in South African are described in South Africa. Moreover, the categories are as defined for platforms use a global positioning system (GPS) is notable that some of these platforms have become Table 3 below. The list is not exhaustive but is illustrative this discussion and are not prescriptive. technology to connect the nearest active linked operator a means by which advertisers can reach users. It is a of some of the different types of platforms found in to a commuter who needs the service. E-hailing services profitable relationship for both sides, as users receive provide upfront pricing to passengers that are agreed on information about products they may wish to purchase, Table 3: Digital platforms active in South Africa before the journey begins and automatically generates and advertisers can reach their customers. Digital platforms Examples Function an electronic notice with the cost of the trip and a map of the route to be taken. Passengers can pay with a debit or 2.2.3 Online retail Online search platforms Google, Yahoo and Bing Provide an online search platform between web users 11 and advertisers credit card, cash or prepaid voucher. Online retail is a component of the wider digital PC operating systems Microsoft Provides a software platform that allows transactions With platforms that provide for sharing of transformation of the economy. While it presently between independent software vendors and users accommodation, Airbnb is highly active in South Africa still represents a smaller proportion of all retail sales, Smartphone operating Android and iOS Provide an interface between users of the device and and is the dominant accommodation matching service. systems content providers such as application developers these sales are increasing significantly in some product Using this service, consumers can select accommodation categories such as books, electronic goods and clothing e-Government platforms eTshwane and Department of Used by government departments or spheres to option from various private and corporate owners for 14 Home Affairs deliver online services to citizens and online sales are growing rapidly overall. From rental without making use of travel agencies. Messaging platforms Outlook, Google Mail, Provide for messaging services the period 2018 - 2019, over 55% of regular internet users reported purchasing a product or service online, Facebook Messenger, Other platforms that have joined the share-economy WhatsApp, WeChat with 38% of these purchases being transacted via model, and are growing in popularity, are listed below: Share-economy platforms Uber, Bolt, InDrive, Point A2B, Provides for peer-to-peer based acquiring, providing, mobile devices. The total number of people purchasing Yookoo Ride, Taxi Live Africa, or sharing access to goods and services (including i. co-working platforms: companies that provide consumer goods via online platforms increased by 4.2% CheufHer, YoTaxi, AirBnB, accommodation, transport, cleaning services) shared open workspaces for freelancers, from 2018-2019.15 SweepSouth entrepreneurs, and work-from-home employees in Social networking platforms Facebook, LinkedIn, Pinterest, Provide an interface for social networking and South Africa has a range of online retailers across several major metropolitan areas; Twitter, Instagram, SnapChat, sharing of content products. Takealot is one of the largest online retailers WhatsApp, YouTube, TikTok ii. peer-to-peer lending platforms: companies that in South Africa in terms of market value, revenue Online shopping platforms Takealot, Superbalists, Bid or Connect customers willing to buy products online allow for individuals to lend money to other and volumes. Takealot is part of internet and media Buy, Zando and Amazon with product suppliers of the products individuals at rates cheaper than those offered conglomerate, Naspers, which operates in more than Financial services platforms All major banking apps, Provides for various financial services including through traditional credit lending entities; 120 countries. It has the highest share of online traffic StokFella transactional banking, crowdsourcing, obtaining loans, investing, access to stock markets in South Africa having surpassed its international rivals iii. fashion platforms: sites that allow individuals to sell Streaming platforms Netflix, Showmax, Amazon Provide for sharing of audio-visual content including eBay and Amazon as well as its local marketplace rival or rent their clothes; Prime TV movies and TV series Bid or Buy and Makro, the largest online competitor from 16 Video game platforms Sony PlayStation or Nintendo Provides software tools that enable publishers to iv. freelancing platforms: sites that offer to match the bricks and mortar space. develop games and a device on which consumers freelance workers across a wide spectrum ranging can play the games 2.2.4 Audio-visual streaming platforms from traditional freelance work to services Foodservice platforms UberEats and MrD Provide for the delivery of food service from traditionally reserved to handymen.12 Streaming media refers to multimedia that is constantly restaurants received and presented to an end-user while being Payment platforms SnapScan, Zapper, Masterpass, Provide a payment system between merchants and delivered by a provider. By contrast, downloaded media PayFast customers refers to a process by means of which the end-user

20 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 21 obtains the entire file of content before watching or From a competition perspective, the availability and the accumulation of data, on its own, can be used as a is accumulated, stored and used by different firms to listening to it. Popular streaming services include Netflix, rapid growth of streaming platforms offer many benefits tool for eliminating competition. Rather, stakeholders determine the competition effects of such actions Hulu and Prime Video. for consumers but presents regulatory challenges which urged, the Commission should have regard to how data we consider in more detail further on. Live streaming is the delivery of internet content in real-time much as a live television broadcast over the 2.4 Financial Technology And Banking airwaves via a television signal.

Fintech platforms also typically operate in two or multi- platform and have allowed individuals or businesses to 2.3 Big Data, Data-Rich Markets And Cloud Computing sided markets. Even outside the digital space, financial pool funding from a variety of sources all in the same transactions often involve more parties than only the place. Instead of having to go to a traditional bank for buyer and seller. They may involve an agent, a financier a loan, it is now possible to go straight to investors With the advent of digital platforms comes the era of first stage, a firm collects the data, whilst in the second and a processor. In the same way, financial technology for support of a project or company. And while their big data, data-rich markets and the need to store the stage, it transforms the data into some benefit that involves multi-sided markets which present their own applications range from family and friends funding to resulting amounts of data via cloud computing. These ultimately increases profitability. It is argued that this competition concerns. fan and patron funding, the number of crowdfunding segments of the digital economy have arisen because classification allows linking big data to familiar concepts platforms have multiplied over the years. of the growing need to support and enhance the of competition such as economies of scale, learning by Broadly, financial technology or ‘fintech’ refers to any functionality of digital platforms and themselves present doing, and research & development. 19 company using the internet, mobile devices, software Blockchain and cryptocurrency are hallmark examples a set of competition regulation challenges. technology or cloud services to perform or connect with of fintech in action. Cryptocurrency exchanges like The operations conducted by big data users, or data-rich financial services. Many fintech products are designed to Coinbase and Gemini connect users to buying or selling The digital economy and the use of platforms have entities, are supported by ICT infrastructure providers. connect consumers’ finances with technology for ease cryptocurrencies like bitcoin or litecoin. Blockchain increased the value and usability of data. However, this ICT infrastructure providers not only develop adequate of use, although the term is also applied to business-to- services like BlockVerify help to improve the security of does not entail that digital platforms are the only entities software to handle big data but they also provide cloud business (B2B) technologies as well.22 online transactions. Mobile payment systems, such as that can process and use data. For many years, firms in computing and storage, where companies can store and PayPal, present even more examples of fintech. The list the traditional economy have been collecting and using process their data. Initially, fintech referred to technology that was applied goes on to include technology used in insurance, robo- data, for instance, about their customers. What the digital to the back-end systems of banks or other financial In the digital economy data is a class of asset that varies advising, stock trading and even personal budgeting apps economy has brought about is the ability to use tools institutions - but has since grown to encompass a widely in its competitive significance and value. Data for home use. SnapScan, WalletDoc and Nomanini are such as AI and other software to discern other patterns plethora of other applications that are more consumer- can be a product or an input for some other product. three examples of fintech that operate in South African. not previously seen that can now be monetised. focused. In 2020, it is possible to manage funds, trade However, given the technology required to collect and stocks, pay for food or manage insurance through this The fintech value chain covers banking, banking Data-driven firms are those that employ a data-centric analyse certain types of data, proprietary data exists as technology and often from a smartphone. infrastructure, blockchain, business tools, crowdfunding, approach in their business. These can be described it is necessary to compete effectively, thereby opening digital currencies, donations, financial research, as those firms that make use of data in their strategic the possibility of anti-competitive conduct or anti- Examples of fintech go beyond traditional definitions of insurance, investments, lending, money transfers, decisions regarding their operations. They can determine competitive effects.20 It is also notable that the position money, financial services or banks. They are challenging payments, personal finance, security services and the most efficient way of serving their customers. They can that data takes in our society has brought about questions the meaning of these very concepts as they grow. For regulation technology. These can be condensed as go as far as being able to customise services or products regarding the ownership of data, its value and its use in instance, crowdfunding platforms allow internet and illustrated in Figure 523 below. for customers or even predict consumer behaviour various markets across the world. The regulation and app users to send or receive money from others on the based on what they have learnt from the data. The data privacy concerns arising from big data are discussed collected and used by data-driven firms can be described further below. as ‘rich data’. These firms include both traditional firms Figure 5: The Fintech Value Chain Owing to the central role of data in powering the digital and digital platforms. Notably, governments are data- economy, market power - coupled with the ability and rich entities as they collect volumes of information about incentive to use it - is the most common competition their citizens and can use this information in the provision concern arising from data-rich entities and other of public services. companies that own and process big data. It could be Big data is commonly understood as the use of large- argued that data is to the digital economy what oil is to scale computing power and technology to collect, the industrial economy21. Therefore, any company with process and analyse data characterised by a large significant influence over this all-important resource volume, velocity, variety and value. Big data can thus be would need to be kept under scrutiny to avoid it abusing used by firms to forecast market trends and develop new its market power to the detriment of rivals and the products and services.17 18 competitive process as a whole.

Some commentators state that big data should properly While this may be the case, submissions from some be considered a two-stage process. For instance, in the stakeholders cautioned against the presumption that

22 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 23 The emergence of fintech has caused digital disruption business model is centred on simplicity and affordability, in banking and financial services, with mostly positive with an increasing focus on out of branch transacting, outcomes for competition. Fintech is a driver for cloud computing, big data and analytics, blockchain, AI, Box 1: BigTech disruptions in banking efficiency and competition in many respects. With more biometrics and quantum computing.26 Discovery Bank, efficient operational design and the employ of modern a recent entrant into the banking space but a giant in The emergence of fintech has led to the restructuring became the subject of a lawsuit in 2011 when PayPal technologies, fintech’s have the advantage of being agile medical insurance, is marketing itself as the world’s first of the banking industry, this disruption has a potentially accused two former employees of giving trade secrets to in their ability to respond to consumer preferences and behavioural bank by using incentives to reward good deeper impact should “Big Tech” firms enter the banking Google shortly after Google terminated talks with PayPal trends. Unencumbered by old technologies or physical financial decision-making.27 fray. “BigTech” refers to the large, dominant digital firms about powering payments on mobile devices. branch networks, they can challenge traditional banks Discovery Bank is particularly noteworthy from a such as Google, Apple, Amazon and others. with regards to their product offering and the delivery The entry of BigTech in banking brings new sources competition perspective, as its genesis is demonstrative of the service. Fintech’s have less of a regulatory burden Big Tech firms have the capabilities to quickly and of systemic risks: the first is the potential blurring of of the ability of tech- and data-enabled firms to than traditional banks and can customise their offerings seamlessly enter many banking segments, including boundaries between commercial and banking activities. leverage off their capabilities in one market to enter since they often operate in niche spaces in the market. payments and settlements, lending and insurance. Should Big Tech enter banking, the risk for contamination and compete effectively in another. This is because The points at which they compete with traditional banks Unlike smaller Fintech firms, BigTech has the economies of bank and non-banking activities in the platforms significant investment has already been made to collect, for customers are plenty, including ease of banking, of scale which positions it equivalently with traditional remains high. process and analyse behavioural data; and behavioural efficiency, convenience, variety and consumer choice, banks. Most banking segments are markets where insights on factors relevant to the entry market have Big Tech’s advantages on consumer data means that among others. network effects are present- a competitive advantage for already been garnered in the primary market. Indeed, they can engage in behavioural biases such as price BigTech. There are various ways in which Fintech firms enter Discovery Group Chief Executive, Adrian Gore stated discrimination, which may not always be transparent markets, adopting various strategies to suit the that Discovery’s approach to banking is “to do nothing BigTech firms have superior technology, free of legacy based on the structure of their business models. This circumstances24: One option of for the incumbent (e.g. differently”, Discovery Bank is built “on the same systems that traditional banks have; moreover, they have raises the issue of the adequacy of consumer protection a traditional bank) to accommodate the Fintech firm: architecture”28 and the same way Discovery Health, leaner operations as they are typically unencumbered laws- are typically spread across different regulators (e.g. this is a tactic employed if the Fintech is not considered through the Shared Value Insurance model, addresses by physical branch networks that incumbent banks financial regulators, consumer & competition regulators a significant threat and the incumbent is still able to the negative impact of human behaviour on health risk have. With their business being platform-based, they - to safeguard consumer interests. Finally, the standard profit from the Fintech’s dependency on its regulatory and the sub-optimal design of insurances systems will be have developed a friendly consumer interface, assisted banking-related risks such as failure of third-party infrastructure, such as high switching costs or interchange built into Discovery Bank in the context of financial risk by deep insights on consumer needs arising from their providers and cyber-attacks remain relevant for Big Tech fees payable. and banking systems.29 Big Data capabilities. Big Tech firms have the financial firms should they enter into banking, expanding the muscle and sturdy balance sheets to meet banking scope of risk areas over which regulators must oversee. Another market entry tactic is for the incumbent to enter While large companies have become increasingly active regulatory requirements. Moreover, one may witness increased risk-taking by into partnerships with the Fintech. In this scenario, the in the fintech space, the key force behind the explosive incumbent banks as they respond to the competitive Fintech firm commits to remain small, providing the growth of fintech in South Africa is, however, the One example of BigTech entering the financial market pressures of Fintech and BigTech on their profits. incumbent with its offerings whilst being able to ride numerous start-ups that are simultaneously disrupting can be found in Google’s launch of Google Checkout, on the scale, distribution channels and licenses of the and enhancing financial services. which operated in competition to PayPal from 2006 to How do policymakers design appropriate policy tools in traditional bank. Alternatively, the incumbent bank can 2013; Google Wallet, which replaced Google Checkout; the context of digital disruption? The rules which govern Submissions from stakeholders cautioned against acquire the FinTech altogether. Finally, an incumbent and finally Google Pay which replaced Google Wallet how banks interface with commercial activity should be the presumption that South Africa’s big banks receive could launch its own rival to the Fintech to compete in 2018. The service allows people to send and receive reviewed or clarified in a way that prevents such risks, disproportionate protection from finance regulations. head-to-head. The incumbent may even fight to prevent money from a mobile device or desktop computer at no whilst enabling competition. It is ultimately a question Stakeholders also urged the Commission to be mindful the entry of the FinTech by using various abuse of cost to either the sender or the receiver. Google Wallet of balance.30 of the work being undertaken by the Inter-Governmental dominance mechanisms, such as denying access to Fintech Working Group (IFWG) in the area of financial infrastructure. technology regulation and their advances in open Locally, one of the main drivers of fintech is that traditional banking and other areas. Moreover, stakeholders financial institutions are supporting and adopting highlighted the need to maintain the security of South these innovations by investing in-house and partnering Africa’s financial markets in the regulatory process. In with start-ups. The traditional financial institutions that this regard, it should be noted that the Competition are making significant headway in augmenting their Commission has forged relations with the IFWG and businesses practices with the use of technology include is taking account of the advancements being made in South Africa’s big 4 banks, Standard Bank, ABSA, fintech regulation. Nedbank and FNB, as well as Capitec and Discovery Bank (launched in 2019). The big 4 have embraced fintech as part of their strategic direction for the future primarily through more efficient distribution channels and to compete head-on with disruptors.25 Capitec’s

24 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 25 3.1 Merger Control

3.1.1 Challenges resulting in under-enforcement Meanwhile, it is likely that some false negatives will have occurred during this time. This suggests that there has Merger regulation in South Africa, similar to other been underenforcement of digital mergers, both in the jurisdictions, speaks to the weighing up of the identified CHAPTER 3 UK and globally”. substantial lessening of competition against possible efficiency benefits. However, merger control is subject South Africa’s merger control regime reflected a similar to two types of errors31. These are; false positives which trend until the recent MIH/WeBuyCars merger was occur when a merger that should have been allowed to prohibited, suggesting a degree of under-enforcement go through is blocked as well as false negatives, which and the risk of false negatives. Until 2019, the Commission occur when a merger that should have been blocked is had investigated 87 mergers in the digital markets space, allowed to go through.32 The objective of merger control prohibited none and had not even imposed conditions to COMPETITION LAW IN DIGITAL MARKETS is to limit both types of errors. address any substantial competition concerns. However, these statistics must be considered under the broader However, in the context of digital mergers, the Furman lens of merger investigations wherein by and large a far report found that “there have been no false positives “The biggest challenge we face with enforcement is making sure that we have the right greater proportion of mergers are approved without in mergers involving the major digital platforms, for the legal framework and powers to keep digital markets competitive and fair. They should conditions. offer consumers a good deal – a broad choice of the best, most innovative products, at simple reason that all of them have been permitted. a price we can afford. But in this age of digital gatekeepers, it’s becoming more difficult to keep markets working well with the powers we have. So to keep our markets fair and Table 4: Trends in notified mergers in digital markets, 2011 – 2018 open to competition, it’s vital that we have the right toolkit in place.” Total digital markets mergers notified 87 Vestager (2020), President of the European Commission - Mergers approved without conditions 82 - Mergers approved with public interest conditions 5

As an open economy, South Africa has seen the same shifts this period can give way to entrenchment and concentration to a digital economy as observed elsewhere. The openness which reduces contestability and lowers consumer welfare. As highlighted by Motta and Peitz (2020)33, competition has resulted in many global tech giants establishing a Competition law has an important role to play in ensuring of the social platforms are internationally based. For authorities tend to be ill-equipped to deal with the commanding position in the domestic digital economy, that the markets remain competitive in emerging markets example, the Facebook/WhatsApp merger in 2015 was competition concerns attending mergers in digital especially in search and social media despite no substantial such as our own lest we end up in the predicament faced by not notifiable in South Africa because WhatsApp did industries. They attribute this, firstly, to the fact that investments in the country. In some other areas where more mature markets. not generate any revenue in the country. More recently investment is required, either global companies have been under the current merger notification thresholds, the the Google/Fitbit merger was not notified until the The proliferation of digital platforms and their regulation absent (such as Amazon in delivery) or they have moved vast majority of competition authorities would not be Commission insisted on the notification. While South is however not without its challenges. The major discourse rapidly to establish a domestic lead before their business in a position to even review some mergers in digital Africa does have the power to investigate small mergers in competition law relating to digital markets currently models are copied (such as Uber or Airbnb). In more localised markets as the turnover thresholds may not fully capture within six months after implementation, these do not is whether the current competition regime and its tools markets such as classifieds (horizontal and verticals) and all relevant mergers in this space. This is because the trigger a mandatory notification to the competition are sufficient to deal with competition problems in digital delivery infrastructure, local start-ups and larger local tech usual thresholds for merger notification are typically authorities. However, even where jurisdiction exists, markets. This chapter examines the different elements of firms have competed to control the leading position with turnover or asset-based and a nascent firm operating in there can still be a challenge in halting global merger competition law enforcement from the perspective of digital consumers. They have been joined by existing businesses the digital space may not necessarily record a significant activity that might have a disproportionate effect on the markets, identifying the challenges, the emerging thinking seeking to make the digital transition and building on pre- turnover nor will it have sufficient assets to trigger merger jurisdiction of developing countries given the relative globally and the strategic direction the Commission will take. existing non-digital positions. This is especially the case in notification. This is further compounded by the existence unimportance of those markets to these firms or the limits fintech, with banks and insurance giants using their data and Given some concerns received from stakeholders, it is of a merger creep situation where countless small of developing countries’ jurisdictional reach. There have gatekeeper role to be at the centre of innovation, but also in important to note at the outset that the Commission does startups are acquired, which are collectively significant been instances historically were a global firm threatened other areas such as classifieds where the media position is not intend to import concerns or solutions applied in foreign but potentially not individually so. The Furman report to cease servicing South Africa rather than be subject to leveraged into digital from paper. markets. However, there is much to be learnt from the (2019) observed that “over the last 10 years, the 5 largest a merger prohibition or remedy. experiences of foreign jurisdictions – both the concerns that firms have made over 400 acquisitions globally. None This disruption has in many instances been positive for Even where digital mergers are notifiable and assessed, arose and the remedies applied – which may be informative in has been blocked and very few have had conditions competition and consumers, providing new services at lower a key challenge experienced in merger assessment is how South Africa chooses to proceed with its interventions in attached to approval, in the UK or elsewhere, or even costs. The local market is in its infancy and is benefitting that of contemplating or investigating relevant theories digital markets. Nevertheless, all competition investigations, been scrutinized by competition authorities”. from a stage of new entry and penetration pricing models of harm particular to mergers in the digital space, inquiries and advocacy efforts will continue to be assessed to establish leadership in many more localised digital A further challenge for the Commission has in the past especially where the acquisition targets are smaller on their individual merits. markets. However, evidence from other jurisdictions is that been that of jurisdiction in merger control as many startups. Whilst outlining theories of harm is not novel nor

26 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 27 is it unique to mergers in digital markets, the difficulty with The common competition concerns that have arisen In the South African context, recent acquisitions by share payment by Takealot. Naspers however eventually mergers in these markets is that merger policy in digital internationally, when considering mergers and acquisi- Naspers and the identified competitive threat of the acquired control of Takealot in a merger approved in industries must take specific industry characteristics into tions in the digital economy can be summarised as fol- latest transaction with WeBuyCars serve to illustrate 2017. Naspers also acquired Autotrader to expand its account when they are key to evaluating the competitive lows: the point. Naspers is a multinational internet group. vertical classifieds position in motor vehicles. These impact of a merger. In some digital merger cases, Headquartered in South Africa, its principal operations platforms have also been expanding their product • Removal of a potential competitor: The capability for access to data plays an important role, network effects are in internet communications, entertainment, gaming range and moving into adjacent markets. For instance, platforms to process data can be leveraged to enter figure prominently, or firms involved in the merger and e-commerce. It built its position through acquiring Superbalist, a subsidiary of Takealot, which is an online and transform related markets with relative ease. operate multi-sided platforms offering ‘free’ services shares in Chinese social networking and gaming retailer of fashion including some in-house private label Thus, even in mergers where the merging parties to consumers.34 As investigators in authorities do not firm Tencent Holdings. It has been building its local brands. do not compete in the same market, if they have necessarily have the in-depth knowledge of the business e-commerce and online retail platforms, through a series mastered the ability to process data, they can still The proposed merger between Naspers and We Buy models used by companies in digital markets, there is an of acquisitions. The acquisition by Takealot Online (Pty) provide an indirect competitive constraint on each Cars, which was prohibited by the Tribunal in March 2020, inherent difficulty in outlining the specific theory of harm Ltd of a subsidiary of Naspers - Kalahari.com - in 2015 other. Digital platforms that are seeking to acquire presents an example of the Commission’s use of digital that accounts for the particular industry characteristics involved two of the largest online retailers in South Africa start-ups or emerging competitors, for instance, market-relevant tools to assess competition in a merger observed in digital markets. This likely makes sustaining which were approved at the time, the transaction resulted may do so with the express purpose of closing them context and mirrors many of the common concerns with findings of substantial lessening in competition in Naspers acquiring a greater but non-controlling down. These are the so-called “killer acquisitions”.35 such mergers. attributable to a merger harder. shareholding in Takealot as a result of the part cash, part These strategic acquisitions may play a role in Furthermore, as authorities make use of specific tools entrenching dominance and advancing scope to assist in guiding their decisions and investigations advantages. By expanding into related markets, a into mergers, such tools may also be ill-designed firm may remove possible rivals to its core products. Box 2: The MIH/WeBuyCars Merger for digital merger control. This may include relevant For instance, such strategic behaviour in merger market determination (for competitive constraints), activity has played an important role in entrenching market shares (for dominance), future dynamics based Google’s position in search and search advertising36 on predictable developments (such as known entry/ with acquisitions of companies such as YouTube and exit), and established theories of harm typically based DoubleClick. Facebook’s acquisition of Whatsapp37 on identifying potential price effects. Digital market and Instagram38 could be viewed in the same light. investigations require certain tweaks to these tools if • Input foreclosure: Mergers of a vertical nature decisions are to be accurate and effective. For instance, involving a platform or data provider at the upstream constraints on innovation or data privacy rather than or adjacent market providing the platform or data price may be relevant for free services, or the price of as an input into a downstream market raise the risk advertising and not the service itself; market power from of input foreclosure once the merger is concluded. data that is unique and non-replicable rather than a share The upstream or adjacent platform may engage of revenue; a market definition which determines the in self-preferencing on the platform or restricting extent to which old economy models interact with online the access of the data provided at the upstream versions which are disruptive and may replace them. level to its downstream competitors. This has the In particular, the removal of potential competition and effect of excluding rivals directly or raising rivals’ conglomerate effects are more prevalent sources of costs, leading to higher prices for consumers. This competitive harm in digital markets and yet have largely may take the form of an outright refusal to deal or taken a back seat in merger control assessment in constructive refusal to deal. industrial markets where their likelihood of substantial On 19 September 2018, the Competition Commission users to browse classifieds exclusively for new and used • Combination of different datasets: The purpose of harm has been questioned. In developing markets, was notified of a large merger in terms of which the vehicles. WeBuyCars is active in the sale of second-hand the merger could be to gain access to complementary global firms frequently look to acquire the largest local Naspers Group entity MIH intended to purchase a vehicles using a model described as “the guaranteed datasets that can be combined with the acquiring home-grown operator rather than enter themselves. controlling stake in WeBuyCars (Pty) Ltd (WeBuyCars). purchase model”, which has emerged as a disruptor to firm’s existing database. These datasets need not Such mergers deny consumers the benefit of additional the traditional approach of buying and selling used cars. be in the same market for it to benefit the acquiring Naspers is a global internet group and controls in excess competition and a potentially less concentrated market The model has a core focus on buying used vehicles from firm, as access to multiple data sources can improve of 79 firms in South Africa, including OLX and Autotrader. in the future. Another source of potential competition individuals at scale using a digital platform and then off- the overall quality of the database and contribute OLX is an online generalist classified advertising loading these vehicles to dealers and consumers. is from the move into adjacent markets as leading tech platform and carries advertisements for a broad range to greater economies of scope.39 This unique firms pursue conglomerate synergies. Such acquisitions of goods and services listed on its website under a The Commission considered the activities of the merging combination provides the merged entity with an give the conglomerate platform a foothold in an number of categories. Autotrader is a specialised online parties and found that the proposed transaction does not advantage over competitors to improve on products adjacent market that can be leveraged later, but also advertising portal which functions primarily to allow present any horizontal overlap as the Naspers Group is in a way that cannot be matched. deny consumers of entry and more competition.

28 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 29 or conditioning a merger”. that the Commission has jurisdiction to consider not active in the buying and selling of cars in competition collecting, processing and analysing data obtained from any acquisition, however small. Furthermore, the On the other hand, the Cremer report (2019) for the with WeBuyCars. However, during the investigation, the dealership listings on its platform. In the ordinary course thresholds are based on both turnover and assets, EU does not propose any formal change to the merger Commission learned that the Naspers Group had already of business, WBC collects data on thousands of actual where assets are not restricted in its definition and assessment test, nor does it seek to create any general acquired a stake in Frontier Car Group Inc (FCG) and vehicle purchases, inspections and sales per month. may include intangible assets (such as intellectual reversal of legal presumption41. The EU believes the through this acquisition, the Naspers Group intended to property) as well as data assets. enter the South African market for wholesale and online Based on extensive examination of the strategic best way to handle these acquisitions is to inject some buying of cars from the public and selling to dealers in documents of Naspers, the Commission determined “horizontal” elements into the “conglomerate” theories • Merger creep: recent amendments to the Act now direct competition with WeBuyCars. that there is little doubt that Naspers has every intent of harm with a heightened degree of oversight of require that firms filing a notifiable merger must of leveraging whatever synergies they can between the acquisitions of small start-ups by dominant platforms by set out in that filing all other acquisitions made FCG is currently not active in South Africa. It became businesses post-merger. One such synergy is the ability of asking questions such as “(i) Does the acquirer benefit in the period as stipulated by the Competition apparent from various internal documents and press OLX to provide leads of private car sellers to WeBuyCars from barriers to entry linked to network effects or use of Commission. This requirement provides a useful announcements that the Naspers Group, through FCG, harnessing its strength in processing data on private car data? (ii) Is the target a potential or actual competitive method to identify acquisitions that fall within the has been anticipating entering the South African market sellers. for the online purchase of used cars from the public in constraint within the technological/users space or small merger category. competition with WeBuyCars. The other synergy is leveraging off the importance of ecosystem? (iii) Does its elimination increase market • Partial shareholdings and cross-directorships: the Autotrader. Autotrader is the leading online automotive power within this space notably through increased recent amendments also require that a firm filing The Commission determined that FCG, together with listing site of dealer listings of vehicles for sale to private barriers to entry? (iv) If so, is the merger justified by a notifiable merger provide information on partial Naspers, was a likely entrant into the South African individuals. It collects data on dealer listings, consumer efficiencies?”. guaranteed purchase used car marketplace. The behaviour on the platform and consumer contact details if shareholdings and cross-directorships as part of evidence further indicated that the tie-up between FCG they enquire on a vehicle advertised on the platform. This 3.1.3 Strategic Actions on Merger Control that filing. This requirement provides a basis for and Naspers represented a formidable entrant relative data is useful for the efficient pricing of vehicles, which understanding the links between firms in the digital The Commission is of the view that a proactive and robust to existing start-ups due to the synergies arising from is core to the WBC’s business model. More importantly, space, including venture capital stakes taken in start- digital merger regime needs to be in place to ensure that the combination of OLX, Autotrader and FCG. The Naspers has the ability to harness this data due to its ups. Commission further found that WBC is the market leader experience as a global internet group and the processing digital markets remain competitive, whilst at the same in the car-buying space. capabilities of the Autotrader company itself. time not hindering venture capital investment in start- Whilst the legislative regime may be adequate to enable ups domestically. Such a regime needs to be positioned a higher level of scrutiny of digital mergers, the practice Combination of different datasets As such, the Commission determined that the to scrutinise even small domestic acquisitions by large of merger notification and assessment requires changes combination of these datasets would provide WeBuyCars tech companies where appropriate, and international to respond to the challenges in digital market merger The Naspers Group controls OLX and Autotrader. OLX, with an unmatchable competitive advantage over rivals the online generalist classified advertising platform, is in the guaranteed purchase used car marketplace. The mergers by globally dominant tech companies where control. The Commission’s strategy to bring about more particularly effective at collecting and processing data on Competition Tribunal has since prohibited the proposed there is a potential to impact on the SA market. The robust merger control involves the following elements: private car sellers. Autotrader, the specialised automotive MIH/We Buy Cars. The Tribunal’s reasons for the regime also needs to make use of an updated toolkit to • Guidance note on merger thresholds. The online advertising portal, is particularly effective at Prohibition are yet to be released. analyse the theories of harm more prevalent in digital Commission intends to issue a guidance note which mergers. clarifies the valuation of assets for digital companies The current legislative framework, including the recent in respect of merger thresholds. This will cover 3.1.2 Emerging views on merger control changes in shared by the Stigler report (2019) as well as the ACCC amendments to merger control regulation, is sufficient how data, intellectual property and staff assets may other jurisdictions (2019) report which states that it “may be worthwhile to allow for the scrutiny of all digital mergers and to be assessed for determining whether mandatory to consider whether a rebuttable presumption should understand the emerging ownership in start-ups where notifiable is required under the current legislation. Calls have been made for a change in measurement also apply, in some form, to merger cases in Australia. required. In particular: of merger notification thresholds considering the • Notice of mandatory requirements for specified ... Absent clear and convincing evidence put by the challenges posed by killer acquisitions of start-ups • Merger thresholds: The South African merger dominant tech companies to inform the Commission merger parties, the starting point for the court is that the with limited revenue streams. For instance, Germany regime provides for 3 categories of mergers (small, of small domestic acquisitions. The Commission acquisition will substantially lessen competition”.40 has lowered its merger thresholds in response to the intermediate and large) based on prescribed intends to require specific tech companies that challenge of digital markets. In Australia, where merger The Furman report (2019) suggests the introduction of financial thresholds. In terms of sections 13A and dominate different digital markets in South Africa notifications are voluntary, the ACCC is seeking to make a new “balance of harms” test, which would enable the 14 of the Competition Act, all intermediate and to inform the Commission of all small domestic certain businesses notify the ACCC in advance of all CMA to weigh up – in broad terms – both the probabilities large mergers require mandatory notification and acquisitions, including investments in start-ups proposed acquisitions of entities that carry on business and magnitudes of potential outcomes and as such reject approval of the competition authorities before its and global acquisitions of targets with some in Australia. the suggestion of a presumption of harm. The report is implementation. In terms of section 13, a small presence locally. This will enable the Commission to also of the view that its merger policy must be updated merger does not require mandatory notification determine if a small merger notification is required as Given the possible competitive risks of mergers in to be more forward-looking and take better account of and can be implemented without approval, unless permitted within the legislation, but without making digital markets (particularly those involving firms with an technological development. “This will require updated the Competition Commission requires notification this mandatory in all cases as that may inhibit pro- entrenched dominant position), Motta and Peitz (2020) guidance about how to conduct these assessments within 6 months of its implementation. The ability competitive venture capital investments in start-ups. propose a presumption of harm in relation to mergers based on the latest economic understanding, and to require the filing of a small merger means involving an actual or potential competitor. This view is • Prioritisation of digital market mergers within updated legislation clarifying the standards for blocking

30 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 31 merger control. The Commission will prioritise the assessment of the merger, including the relevant 3.2 Cartel Conduct digital markets within merger control for the 2020- markets, theories of harm and potential conditions. 2025 period. This means that digital market mergers This is of benefit to the merging parties as well as will be upgraded to phase 2 or 3 mergers for the Commission to ensure consistent treatment 3.2.1 New forms of collusion & detection challenges • At a more sophisticated level, it is argued that firms assessment purposes, receiving greater resources for global firms. For the Commission, there must may use big data to facilitate tacit collusion, either The current developments in digital markets have and closer scrutiny. be alignment concerning the conditions agreed by improving market transparency or by making challenged the traditional methods and approaches to across jurisdictions. However, the remedies actions more interdependent. For instance, by • Practice note on digital market merger assessment. that competition regulators and enforcers have relied should still consider the local dynamics, policy programming immediate retaliation to price falls. The Commission will develop a practice note on considerations and prevailing regulatory issues. on over the years. These developments have changed the assessment of digital market mergers, updating the conditions of the market, how market players behave • Companies may use AI to create profit-maximising the existing toolkits to account for the specific In addition, the Commission intends to keep a strategic and compete with one another. The use of algorithms has algorithms that, through machine learning, may features of digital markets. These include the focus on merger control in respect of the underlying created efficiencies for market players in digital markets, achieve tacit collusion, even in cases where the determination of relevant markets, market power infrastructure for the digital economy. The Data Services and it has also created modern and advanced ways for programmer did not initially foresee such an and the varied range of more relevant theories of Market Inquiry (DSMI) has found that competition issues market players to collude. Algorithms can facilitate or outcome.44 harm. It will also reflect a deeper appreciation of the exist within the infrastructure layer, which is concentrated. maintain collusion, by making use of the same third- The review of literature further suggests that digital cartels business models, strategies and tactics of firms in The DSMI recognised the need to develop alternative party IT service provider or by simply aligning market existed even before big data was ‘big’. In a well-known digital markets, as well as the consumer behaviour broadband infrastructure, especially fibre-based and strategies and conduct to achieve the same outcome. case investigated in the 1990s by the US Department of which shapes such models. The intent is to better public WiFi networks to enhance competition. As the Internationally it has been found that big data can be Justice (USDOJ), major US airlines were accused of using understand how strategic acquisitions by dominant shift occurs to FTTH and 5G mobile infrastructure used to facilitate collusion in the following ways. digital firms may serve to entrench the position of networks, it is important to ensure that these markets do a database with detailed airfare information to make the dominant digital firm, allowing it to benefit not consolidate in a manner detrimental to competition. • Firms may use real-time data analysis to monitor repeated tariff announcements and fast price changes, to further from reducing potential competition and compliance with an explicit agreement that may enable online collusion. However, after the investigation, Firms intending to enter into mergers and acquisitions impeding dynamic competition in the long term.42 resemble a traditional cartel. the case was closed with a settlement agreement should take note of the Commission’s existing guidelines 45 As such, the enforcement approach will also be between the USDOJ and the airline companies. for merger assessments as well as the additional • Firms may share identical pricing algorithms that decidedly more innovation-focused and forward- requirements set by the amendments to the Competition allow them to simultaneously adjust prices based on looking. The Practice Note will also set out the Act namely: (1) the extent of ownership by a party to a the inflow of market data, just as in the poster price- specific information to be requested to undertake 43 merger in another firm or firms in related markets; (2) fixing case. the relevant assessment. common members or directors in firms operating in • Practice note on merger creep assessment. The related markets; and (3) any prior mergers engaged in Commission intends to issue a practice note on by a party to a merger for a period yet to be stipulated the assessment of merger creep and when such by the Commission. Box 3: The US Airline Case mergers would warrant intervention. Whilst this In addition to the existing public interest guidelines, practice note is general, it will detail the specific the Commission will consider (1) the extent to which In the US airline industry, airline companies sent fare complex, involving the use of fare code numbers and approach to digital markets and the kind of merger a proposed merger promotes a greater spread of information daily to the Airline Tariff Publishing Company ticket date footnotes to send signals or negotiate creep analysis relevant to these markets. ownership amongst historically disadvantaged persons (ATPCO), a central clearinghouse that compiles all the multimarket coordination. • Notice of concurrent filing of global tech mergers. and workers; and (2) the extent to which a merger data received and shares it in real-time with travel agents, According to the DoJ’s case, it was the existence of a The Commission intends to ensure that domestically enables small, medium and historically disadvantaged computer reservations systems, consumers and even the fast data exchange mechanism to monitor tariffs and notifiable global tech mergers are filed in South firms and workers to effectively enter into and participate airline companies themselves. The database published react rapidly to price changes that enabled companies Africa as soon as they are notifiable in the prescribed in a market when considering the effect of a merger on by ATPCO included, among other things, information to collude without explicitly communicating. As tacit and will promote the concurrent notification of such the public interest. about prices, travel dates, origin and destination collusion is not forbidden by competition law and merger at the same time as they are filed in other airports, ticket restrictions, as well as first and last ticket any explicit coordination was very hard to prove in a major jurisdictions such that all parties may benefit dates, which indicate the time range when the tickets at criminal case, eventually, the DoJ reached a settlement from collaboration with other major jurisdictions in a particular fare are for sale. agreement with the airline companies, under which the According to the case presented by the DoJ, airline latter agreed to stop announcing most price increases companies were using first ticket dates to announce tariff in advance, except for a few circumstances where early raises many weeks in advance. If the announcements announcements could enhance consumer welfare. All were matched by the rivals when the first ticket date of the airline defendants’ fares had to be concurrently arrived all companies would simultaneously raise the available for sale to consumers. tariff. Some of the coordination strategies were more

32 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 33 These new forms of collusion also create a related was for the tool to identify evidence of cartels in • Pilot a tender bid-rigging detection programme: - and scrapping pricing data from the Internet. The challenge which is the ability of the competition public bids, like suspicious, implausible facts or the Commission has already initiated a tender bid- lab will be staffed by data scientists with the skill set authorities to detect and investigate cartels operating behavioural patterns, and the provision of relevant rigging detection programme which aims to use to undertake the analysis but informed by economic in the digital economy. The approaches that most information for the investigation of the cases. public sector tender data to develop an automated principles. authorities have been relying on to initiate cartel cartel detection tool similar to the other jurisdictions. • Russia - FAS makes use of an automated web-based Conversely, firms operating in digital markets should: investigations include corporate leniency programmes The purpose of the programme is to pilot some of service dubbed the “Big Digital CAT”, to analyze and and dawn raids. These traditional approaches seem the cartel detection techniques and build some • avoid developing and sharing algorithms that allow detect any violations of competition law within the to be less suitable for digital markets which are more experience in an environment where there are known competing firms to simultaneously adjust prices digital sector. The FAS has developed, implemented internet-based, potentially originating and conducted strategies that may be more readily identifiable. based on the inflow of market data. and successfully used a multi-parameter system from outside the country, and may require different It also aligns with domestic priorities around for exposing and proving bid-rigging cartels.48 analytical and technical skills to determine the nature of eliminating tender-rigging in public procurement, • avoid developing and sharing algorithms that The system is used to control auctions and expose any conduct. as well as associated corruption of tenders. This lead to price setting, market allocation or collusive anticompetitive agreements. The program works is also an environment where collaboration and tendering. The Commission investigations into three cartel cases based on the procurement information system and mutual learning can take place. Whilst the tender regarding the use of algorithm collusion are illustrative other data sources: mass media, e-trading sites, as • avoid using data to set prices amongst competitors bid-rigging detection tool is an end-product in itself, of the new challenges faced in assessing these types well as open information sources. and data analysis to monitor pricing agreements it also provides a learning platform and springboard of collusion. The Commission has been required amongst competing firms. 3.2.3 Strategic Actions on Cartel Enforcement to developing more sophisticated cartel forensic to outsource assistance from software developers/ capabilities. • avoid using data to facilitate tacit collusion, for programmers to assist in deciphering how the particular Collusion through the use of algorithms to set prices instance by programming collective retaliation to software applications are designed to set prices. • Build and staff a cartels forensic lab: - the and monitor compliance with agreed pricing would be price changes in a market. Furthermore, the sheer volume of data to be analysed captured by section 4(1)(b) of the Competition Act which Commission intends to build up its detection has challenged the in-house computing power of the prohibits restrictive horizontal agreements. Furthermore, capabilities from both an infrastructure and skills- • avoid entering into agreements amongst competing Commission in several other cases. the recent CAC ruling in the forex trading cartel case based perspective through the development of firms that could unjustifiably and substantially lessen involving international banks found that the South a cartels forensic laboratory. This will provide the competition in a market In cartel matters more generally, the issue of jurisdictional African competition authorities do have jurisdiction computing infrastructure for large scale data analysis reach to parties operating outside of South Africa has where there is a demonstrable effect in South Africa or been challenged. This issue is also likely to emerge on South African consumers and customers. As such, the in digital markets as many digital firms may lack an 3.3 ABUSE OF DOMINANCE AND VERTICAL RESTRAINTS legal framework currently exists for the prosecution of incorporated entity and presence in South Africa cartel activity using more novel means to collude and by although their service is available locally or they deliver digital firms located globally. products to South Africa. Section 8 of the Competition Act prohibits the abuse of 3.3.1 Challenges for abuse of dominance enforcement One of the challenges faced by the Commission in market power by a dominant firm and goes further to list 3.2.2 New tools and approaches in other jurisdictions 3.3.1.1 A multi-jurisdictional effect relation to cartel investigations is the lack of requisite the various types of conduct considered in law to be such Regulators and enforcers are now forced to rethink the skills for cartel detection using data analytical tools rather an abuse. In summary – and under defined circumstances From a unilateral conduct perspective, the Commission traditional ways of overseeing competition by exploring than leniency programmes. The Commission’s strategy – the Act prohibits a dominant firm from (1) charging an investigated a few cases and none of the cases led to new methods to adapt to the current developments in to address this gap is to build these cartel detection excessive price; (2) refusing a competitor access to an a conviction. However, given the nature of the digital digital markets. This has been occurring in several other capabilities in the following manner: essential facility; (3) engaging in an act that prevents markets which are typically rolled out globally in a leading jurisdictions globally, including the following or impedes another firm from entering or expanding largely uniform manner even if their rollout is staggered • Develop appropriate tools for detecting digital examples; in a market; (4) requiring a supplier not to deal with a over time across countries. The one implication of this cartels and assessing the effects of agreements competitor; (5) refusing to supply a competitor scarce feature is that behaviour identified as inconsistent with • United Kingdom - The Competition and Markets amongst competitors: - In light of the fact that goods; (6) bundling unrelated products or services competition law in one jurisdiction may also be prevalent Authority (CMA) makes use of a screening tool for other jurisdictions and BRICS partners are already together for sale; (7) selling below cost; (8) buying up in our jurisdiction. Further, South Africa, like any other cartels which looks for suspicious signs in a tender.46 developing cartel detection capabilities, the scarce resources needed by a competitor; (9) imposing country could equally be in a position to benefit from any Commission can accelerate its learning processes unfair prices or trading conditions on suppliers, and (10) • Brazil47 - CADE places great emphasis on the remedies achieved by the larger jurisdictions (such as in through collaboration with these institutions. This is discriminating on trading conditions between buyers. development and implementation of both reactive the Google case). necessary as the tools are new and untested, with International and local experience has shown us that and proactive investigation techniques. CADE even other jurisdictions having mixed results and instances of such conduct prevail amongst two-sided The global digital giants may pose an even greater managed to develop an interface called Cérebro needing to tweak their approaches to detection. A platforms in the digital economy. Below, we outline the enforcement challenge for developing countries whose (the “Brain”), incorporating data, data-mining collaborative problem-solving approach will ensure enforcement challenges experienced by the Commission own economies are dwarfed by the valuations of these instruments and statistical tests. In developing its that models can be developed and de-bugged as well as the proposed strategic direction to abuse of companies. In particular, jurisdictional reach is a challenge proactive analytical tool, CADE hired consultants quicker than would otherwise occur. dominance cases. for market conduct/abuse of dominance cases as with specialized knowledge in the field of statistics, competition authorities may sometimes struggle to hold IT, data mining, cartel and economics. The objective

34 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 35 to account global entities with limited presence in South apply to new, disruptive technology, which gives these market shares and market definition considerations were innovation. As such, a case-by-case analysis is required Africa. This is especially where the evidence is located new digital firms an unfair competitive advantage on therefore not necessary. The 2019 amendments to the to understand the degree of strong network effects and elsewhere and the competition authority faces numerous regulated incumbents. For instance, traditional metered Competition Act are examples of incorporating non- the prevalence of other features of tipping markets such legal hurdles in securing that evidence, typically without taxis have raised the concern that area restrictions and price dimensions of competition in the assessment. As as multi-homing, impede competition. success. Limited resources and the complexity of digital price regulation applied to their business model is such, the new prohibition of unfair prices or unfair trading 3.3.2.2 Where market power meets Big Data market cases are a further impediment to effective market not applied to e-hailing firms such as Uber and Taxify/ conditions required or imposed by a dominant firm in conduct/abuse of dominance enforcement in developing Bolt, placing the traditional model at a competitive designated sectors on small and medium businesses or The growth of the digital economy has moreover enabled countries. disadvantage. Public and Free-To-Air (FTA) broadcaster firms owned or controlled by HDI’s (section 8(4)(a), the the rise of business models based on the collection licensees subject to local content requirements express catch-all exclusionary conduct provision section 8(1)(c), and processing of big data.52 The ability of firms to 3.3.1.2 Modifying current approaches to abuse of concerns that streaming services are not licensed and the expansion of refusal to supply scare goods to include collect such data and process it for commercial use can dominance therefore not subject to the same regulations, which services and the extension of the refusal to supply scare provide a competitive advantage over rivals although A shared threat faced by competition authorities in threatens to erode their advertising revenue base by goods or services to customers, not only competitors the Commission is mindful of stakeholder concerns developing countries is that of the appropriateness the likes of Facebook and Google, undermining the in section 5 are wide-ranging concepts that could be that caution against assuming that the possession of of current competition legislation and regulation to investment in local content development. interpreted to address new forms of market abuse. The data is itself a competition concern. Firms may use this address the challenges of the digital economy. South Commission will consider the economics associated with accumulated data to improve services, deliver better- If competition authorities are unable to apply the abuse Africa shares these concerns as our own legislative the various theories of harm, and potential modifications individualised services for consumers and spur innovation of dominance prohibitions to digital business models, and regulatory systems have often been modelled on to existing frameworks. and new services. The narrative above has touched upon it may lead to questions about the broader relevance those in more mature jurisdictions which are currently the potential concerns arising out of the accumulation of abuse of dominance as a competition enforcement 3.3.2 Forms of abuse of dominance facing challenges in regulating digital markets. There is of big data. The OECD particularly notes that from a tool. As a result, some have called for modifying current a greater focus on meeting the evidentiary burden for This section sets out some forms of harm and key issues competition law perspective, “While the competitive approaches to abuse of dominance assessments and effects. For example, in terms of abuse of dominance, it arising for analysis of potential market abuses, based rivalry and drive to maintain a data advantage can be pro- require competition authorities to assess economic is currently the case in South African law that the authority on past competition authority cases and economic competitive, yielding innovations that benefit consumers features that are less common in more traditional bears the onus of demonstrating harm from potentially literature. These forms of market conduct abuse are not and the company, some competition authorities markets.50 exclusionary practices. As raised by the expert report exhaustive. It aids in understanding the phenomena emphasise that network effects and economies of scale for the European Union on competition policy in digital 3.3.1.3 Indicators of dominance and features of digital markets and implications for driven by Big Data can also confer market power and a markets, the preferred position may be for a reverse onus competition law. Importantly, it indicates digital market durable competitive advantage.”53 There is a trend to assess digital market players with in certain circumstances whereby dominant digital firms players and consumers of the market conduct abuse that less focus on market shares and more focus on their Network effects do not necessarily generate only should have to demonstrate why certain conduct is net may warrant the Commission’s intervention. competitive relationships and strategies. The current negative effects on competition. Some stakeholders efficiency-enhancing and not restrictive of new entry.49 dominant approach in competition regulation is based 3.3.2.1 Tipping markets where the winner takes all submitted to the Commission that network effects Digital platforms may manifest the kind of harm that on measuring harm to consumers in the form of higher can generate positive benefits for consumers or users A common pattern that has emerged when observing the abuse of dominance laws were designed to prevent. In prices. It could be broadened to consider more flexible of platforms. Another example is the phenomenon growing trend of digital markets, is that digital markets 2017, the European Commission fined Google €2.42 approaches to abuse of dominance assessments in the where users of a platform gain incremental benefits as tend to be “tipping markets” though this feature may billion for abusing its dominant position in the general data-driven digital economy. There are new types of additional users make use of a platform (such as users not apply to all digital markets. This means that there is a search market by favouring its own vertical comparison market power developing such as ‘gatekeeper’ market of Instagram and YouTube). However, the presence likelihood for the rapid expansion of one large dominant shopping service on its search results page. This case power. Gatekeeper market power allows dominant of network effects in digital markets means that these platform within a particular market. The potential for referred to a previous decision by the EU Court of Justice, platforms to behave like “private regulators” in that users markets tend to be quite concentrated with high barriers tipping will be affected by network effects, multi- Continental Can, which found it was not necessary to that need to have access to the platform have no choice to entry.54 The large endowments of data accumulated sidedness and multihoming (the practice of consumers show direct effects on consumers, but rather that it was but to accept the rules developed and enforced by the by incumbents contribute to these outcomes, as it utilising more than one platform in a given market such sufficient to demonstrate that the conduct in question platform, even if such rules are unfair or anti-competitive. provides incumbents with a competitive advantage that as online classified portals) which are present in some harmed competition. Market abuse investigations such The criteria for assessing the impact of a dominant is unlikely to be matched by challengers. Digital firms digital markets and not others. There are examples of as the Google case illustrate the allegations are being market position need to go beyond prices. Since prices which rely on the use of big data typically have unusual situations where physical markets that are the subject of framed within the existing competition law in the United express only a partial measure of the monopoly position cost structures, in that they have high up-front sunk costs. network effects have tipped. For example, in the US, the States and Europe. Some stakeholders, therefore, have of a digital platform, other, complementary metrics This is particularly true in the case of big data, where the UK, and Germany, Amazon.com has grown to become a view that the existing framework provides the scope should also be considered, such as consumer harm from information technologies required to store and process the largest platform, in China it is Alibaba (through to fully assess market abuse concerns raised by digital impingements on privacy, switching costs, entry barriers the data can be very costly, involving vast data centres, Taobao and T-Mall websites), in Japan is Rakuten, while platforms and the traditional way of thinking seems to and lock-in effects of dominant platforms. servers, data-analytical software, internet connections in South America it is Mercado Libre (Edquid, 2017) .51 In be sufficient. On the other hand, the analysis of this harm with advanced firewalls and expensive human resources, The Commission’s treatment of price gouging and short- South Africa, one could consider the growth trajectory of can be potentially complex. such as computer scientists and programmers. This term market failures in the context of a pending Covid-19 Takealot as an example of this tendency. Network effects cost structure is characterised by high economies The challenge faced by the Commission include concerns pandemic is indicative of an evolving test for market can therefore cause a market to tip and this will depend of scale and scope and can, therefore, facilitate the raised across several sectors about the fact that the power in market abuse cases. Market power was inferred on the strength of the network effects at play and the market concentration of big data in the hands of a few broader regulatory framework in many cases does not from the behaviour of the implicated firms and traditional ability of smaller players to overcome them through

36 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 37 market players.55 In this context, the main disciplining to voice concern about its potential monopoly power. mechanism against incumbents mitigating their ability In addition to being an online retailer, it is a marketing to exert market power is competition for the market by platform, delivery and logistics network, payment service, Box 4: The Microsoft case: actual and potential competitors. The mere presence or credit lender, auction house, book publisher, film and TV Foreclosure of access to essential facilities accumulation of big data within a firm is insufficient to producer, fashion designer, hardware manufacturer and conclude that conduct by that firm is likely to create anti- leading host of cloud computing services. Furthermore, competitive harm. Instead, assessments of the content, it has used the additional funding to subsidise products In 2014, the European Commission found Microsoft The Commission imposed on Microsoft a duty to replicability and dynamic importance of the relevant aimed at creating customer loyalty such as Amazon in violation of competition law because of its refusal to disclose interoperability information to its competitors datasets are important in determining the incentives and Prime which, for a subscription, provides services such supply information to competitors on how to design so that they could develop and distribute interoperable actions of the firms concerned, which in turn determine as movie streaming and free next day delivery, but competing work group server operating systems that products. the competitive outcome. ultimately creates a pool of customers that are less likely would be interoperable and compatible with Microsoft’s to switch. This growth which is partly a result of network Competition authorities have, however, typically not larger software ecosystem. effects otherwise means that these companies have isolated the handling and analysis of data as the source the potential to crowd out otherwise competitive local of market power but have rather evaluated theories of suppliers (both online and bricks-and-mortar). harm related to the possession of data. One such new These case examples emphasise that refusals to deal 3.3.2.5 Self-preferencing behaviour form of market power is gatekeeper market power. Amazon can also compete directly with sellers in its associated with technology involve a unique set of issues marketplace, benefitting from insight into their ordering Self-preferencing has been identified by competition 3.3.2.3 Digital conglomerates and gatekeepers because digital markets rely on certain technology data. Accusations have been made that they have authorities and governments as harmful to competition. standards and interoperability. When a firm withholds used their dominance in sales to benefit their e-book It is the act of digital platforms that give preferential Conglomerate effects play a much bigger role in digital the technology necessary for the implementation of 56 business over that of traditional publishers and have treatment to their own services over the services of markets. This is because firms operating in the digital that standard, it could be in a position to foreclose used it to demand better terms from publishers, leading other companies and as such maintain their positions economy often operate platforms that connect users in a competition.60 To break this cycle of market dominance, to consolidation in traditional publishing. Competition of dominance. The Google Search (Shopping) case61 single group to each other, or users in one group to users competition regulators have been raising interoperability 57 to Amazon has come from marketplaces (particularly below provides a practical example of self-preferencing in other groups. The “network effects” that characterise as a remedy. Interoperability is the ability to exchange eBay) and traditional retailers with an online offering conduct that has come under competition law scrutiny platform markets can lead to rapid horizontal growth and, data and functionality across platforms. It is a vertical (particularly Walmart). However, the different cost around the world. all else equal, a single firm that serves as the standard for remedy that allows different upstream or downstream structure faced by online companies (which does not all users to settle on. services to connect to one same essential infrastructure have the same high retail property costs) and the low- or facility. Such firms are then in a position to challenge the profit expectations have led to concerns that they will contestability of markets, may hinder innovation and eventually lead to closures in traditional retail. entrench positions of market power being leveraged to other markets. Conglomeration by global and local 3.3.2.4 Foreclosing access to essential facilities Box 5: The Google Search (Shopping) digital market firms also has the potential to negatively The most commonly-investigated conduct in digital impact inclusive growth, even where several big players Case: Abuse of Market Power markets is related to a refusal to deal. The observed are competing. This is particularly concerning in the conduct or market outcome is competitors of a firm South African context where market concentration levels cannot get access to an important input or technology In 2010, the European Commission decided to open services. are already high, and the likely impact of increased needed to compete. A dominant firm that owns or has an antitrust investigation into allegations that Google conglomeration raises barriers to entry for potential Google’s conduct was an abuse of dominance because exclusive access to such inputs and technology (referred Inc. had abused a dominant position in online search, entrants.58 This is because the digitalised firms become it (i) diverted traffic away from competing comparison to as “essential facilities”), can foreclose competition by in violation of European Union rules (Article 102 TFEU). ‘gatekeepers’ to access markets and hence potential shopping services to Google’s own comparison denying competitors access to the resource.59 The opening of formal proceedings followed complaints shopping service, in the sense that it decreased traffic anti-competitive exclusion may occur through any by search service providers about the unfavourable from Google’s general results pages to competing form of conduct that makes it harder for third-parties to Similar questions have been raised in the European treatment of their services in Google’s unpaid and comparison shopping services and increased traffic from distribute their products or services through a platform Commission’s investigation of Apple Pay. In 2020 the sponsored search results coupled with an alleged Google’s general search results pages to Google’s own while benefitting the platform owner’s competing European Commission opened an investigation to preferential placement of Google’s own services. product. assess whether Apple’s rules for app developers on comparison shopping service; and (ii) was likely to result the distribution of apps via the App Store violate EU This investigation resulted in a penalty imposed on in anti-competitive effects in the markets for comparison Although the Commission has not reached conclusions competition rules. The investigation concerns the Google related to Google Shopping. The investigation shopping services and general search services. on the nature and effect of dominant firms in South mandatory use of Apple’s own proprietary in-app found that Google engaged in ‘self-preferencing,’ by Africa’s digital economy, internationally, concerns Google’s conduct had several potential anti-competitive purchase system and restrictions on the ability of positioning and displaying more favourably, in its general have been raised over the size, scope and increasing effects, including (i) the potential to foreclose competing developers to inform iPhone and iPad users of alternative search results pages, its own comparison-shopping dominance of digital firms, particularly as they have also comparison shopping services, which may lead to higher cheaper purchasing possibilities outside of apps. service compared to competing comparison-shopping in many instances acquired smaller competitors. For example, the size and scope of Amazon have led some

38 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 39 fees for merchants, higher prices for consumers, and less monopolies in the markets for general search services, The Buyer Power Enforcement Guidelines published by innovation; and (ii) to reduce the ability of consumers to search advertising, and general search text advertising the Commission access the most relevant comparison shopping services. in the United States through anti-competitive and exclusionary practices, and to remedy the effects of this (http://www.compcom.co.za/buying-power/) In 2020, the United States Department of Justice filed a conduct. A tentative date has been set to start the trial in lawsuit to restrain Google from unlawfully maintaining 2023. 1. The provider fails to provide the terms and 3. Differential and favourable treatment to goods conditions of operating on its service in plain and or services supplied by the ecommerce or intelligible language, especially in respect of: online service provider itself or companies in 3.3.2.6 Tying and bundling which it has an ownership stake. 1.1. The grounds for decisions to suspend Tying can also be a strategy to prevent entry by entrants to the market for product B will be deterred. or terminate or impose any other kind 4. Restrictions on the ability of suppliers to offer competitors in digital markets. This can arise when two This is because there will be no demand for product B of restriction upon the suppliers on their the same goods and services to consumers complementary products cannot be used separately. If without product A. Any prospective entrant will need to service; through means other than the provider’s a firm with market power over one product (product A) produce both products, which can be an insurmountable 1.2. The effects of the terms and conditions on ecommerce or online service. ties it to its complement product (product B), potential challenge if there are high barriers to entry. 62 the ownership and control of intellectual 5. Restrictions on suppliers from offering their property rights and personal data of own ancillary goods and services (this refers suppliers; to products that typically depend on, and are Box 6: The European Commission’s Google Android 1.3. The main parameters determining the directly related to, the primary good or service ranking and display of suppliers on their in order to function), including through the Case and Microsoft Windows Player case: Tying service; and ecommerce or online service.

1.4. Notice of changes to the terms and 6. The use of data and information gathered by conditions that are reasonable and Google Android case Microsoft/Windows Media Player case the ecommerce or online service provider proportionate to the nature and extent on the supplier’s sales (incl. pricing, volume, The European Commission fined Google €4.34 billion for The European Commission found that Microsoft had of the envisaged changes and to their customer sales) to enter in competition with abuse of dominance, after finding that Google imposed abused its position by tying its Windows Media Player consequences for the suppliers. the supplier. illegal contractual restrictions on Android device to its desktop operating system. Users did not have 2. The ecommerce and online services provider manufacturers and network operators. The Commission the option of purchasing the operating system without 7. A requirement for automatic waivers of rights exclusively, or primarily, ranks suppliers based found illegal contractual tying. Google made access to its the media player. Microsoft was ordered to provide of the supplier as a juristic person under the on direct or indirect remuneration paid by app store (Playstore) conditional on the pre-installation interoperability information and to propose a version Protection of Personal Information Act, (Act No suppliers to the intermediation service. of its Google Search app and Google Chrome browser of its operating system without Windows Media Player. 4 of 2013) in order to supply on or through the on Android devices. The pre-installation of apps Microsoft appealed the decision but the European ecommerce or online service. reduced the incentive for both manufacturers and users Commission’s decision was upheld. to download competing apps, harming competition.

The outcome of these prominent cases and practices There are divergent views on the optimal strategy may raise the possibility of introducing a set of rules, to address the issues arising, with some jurisdictions 3.3.2.7 Exploitative abuses presumptions or per-se prohibitions that certain adding new tools to their competition toolbox, and practices, such as self-preferencing, are inherently others seeking to amend or update existing rules and The Commission also applies its abuse of dominance commonly referred to as ‘buyer power’. The Buyer Power anti-competitive when carried out by dominant online the use of market inquiries to regulate digital platforms. regime to exploitative abuses, such as (1) where a Enforcement Guidelines (http://www.compcom.co.za/ platforms. Dominant digital firms may however rely on 3.3.3.1 Thresholds for intervention dominant firm charges excessive prices; (2) where a buying-power/) issued by the Commission indicate the a reverse onus to provide a justification. A balanced dominant firm engages in price discrimination; and types of exploitative abuses that could raise competition assessment of market conduct abuse will require case- Regulators in the United States and the United Kingdom (3) where a dominant buyer uses its market power concerns when engaged in by dominant buyers in the specific analysis to account for the specific characteristics have indicated a strategy to introduce thresholds to impose unfair prices or other trading conditions digital economy. of each market. As such, the risk of applying blanket for intervention, on which they decide whether they on consumers and suppliers. The latter practice is presumptions and prohibiting practices that can have are going to intervene or not. This would involve pro-competitive efficiency benefits and impact can be scrutiny of transactions involving firms with a “strategic avoided. market status (SMS)” or firms with “bottleneck power” (intermediation power). These companies are described 3.3.3 New tools and approaches on abuse of as those in a position to exercise market power over a dominance assessments in other jurisdictions gateway or bottleneck in a digital market, where they

40 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 41 control others’ market access. The proposals are based search services, the supply of search advertising services manufacturers of consumer electronics products in strategy is to initiate investigations under section 8 on principles, rather than on rules or outcomes. The and bargaining power in its dealings with news media July 2018 and a decision about an online cross-border and 9 of the Act into these firms to determine if such Report of the Digital Competition Expert Panel (United businesses. Facebook was found to have substantial sales restriction in December 2018.64 In these cases, the conduct constitutes a contravention of the Act. Kingdom) recommends an ex-ante regime that will apply market power in the supply of social media services, the European Commission applied the traditional analytical • Guidelines for key areas of abuse: The Commission only to SMS firms (firms with “strategic market status”). supply of display advertising services and bargaining framework for vertical restrictions while noting that the also aims to issue guidelines where appropriate This means those with substantial entrenched market power in its dealings with news media businesses in findings in the resale price maintenance cases ‘shed light in respect of conduct which it deems is likely to power and where the effects of that market power are Australia. In addition to above, the inquiry also found that on the increased use of automatic software applied by contravene the Act. Whilst such a strategy is broader particularly widespread and significant. The new regime the advertising businesses of both platforms extend well retailers for price monitoring and price setting’ and that than simply digital markets, these guidelines will be based on three pillars: beyond their core owned and operated platforms. Both the use of algorithms may have had an exacerbating will incorporate specific focus areas on conduct platforms sell advertising opportunities on third party impact.65 1. A legally binding Code of Conduct consisting of in digital markets. The Commission has already websites and apps which are part of their respective high-level principles, accompanied by guidance 3.3.5 Strategic actions on abuse of dominance and issued such guidelines in respect of Buyer Power advertising networks, as well as on the platforms on how to apply these principles. A Digital Markets vertical restraints Provisions which apply to eCommerce and online they own and operate. The inquiry also found that the Unit (DMU) established within the Competition and services as designated sectors, and which outline acquisition of potential competitors by the two dominant As outlined at the beginning of this chapter, outside Markets Authority (CMA) will have powers to enforce trading conditions deemed to be unfair. The firms and economies of scope created via control of data of globalised search and social media digital markets, the Code. process of developing guidelines, much like the sets are the two factors that have contributed to Google there currently exists a more open and contestable practice note on digital market merger assessment, 2. Pro-competitive interventions by the DMU to address and Facebook’s dominant position in their respective digital space in South Africa. This space does provide is the opportunity to update the existing toolkits to sources of market power. Such interventions may markets. opportunities for domestic start-ups and established account for the specific features of digital markets. include measures that the Code does not tackle ‘brick ‘n mortar’ firms to open up new digital market With regards to data, the ACCC considers that opening These include not only the determination of relevant such as imposing interoperability requirements. products. However, evidence from other jurisdictions is up the data, or the routes to data, held by the major markets and market power but also how certain that this period of development and penetration pricing 3. Enhanced merger rules enabling the CMA to digital platforms may reduce the barriers to competition strategies and tactics of firms in digital markets may can give way to entrenchment and concentration which scrutinize transactions involving SMS firms more in existing markets and assist competitive innovation be used to exclude rivals and entrench dominance. reduces contestability and lowers consumer welfare. closely. The DMU is proposing that it should be in future markets. It recommends that this could be The evidence from other jurisdictions is also that this • Institute a market inquiry into digital markets: the mandatory for transactions involving such firms to achieved by requiring leading digital platforms to share concentration may be difficult to reverse once in place. Commission is of the view that market inquiries be notified. the data with potential rivals and the application of the Already there is evidence of this tendency in certain more represent more effective tools to promote and Consumer Data Right. The ACCC acknowledges that the established digital products in South Africa however the retain competition in markets where common 3.3.3.2 New rules for digital services existing tools and law frameworks remain applicable to Commission is equally mindful of stakeholder views that, industry practices may collectively contribute to digital markets, however, the opacity and complexity Instead of a reactive strategy of addressing competition in digital markets, concentration is not necessarily an the hindering of competition. These inquiries also of digital markets make it difficult to detect issues and issues in the digital economy, the European Commission insurmountable feature. provide a more effective means of drawing balanced can limit the effectiveness of the broad principles. has started to adopt a proactive approach and implement conclusions and addressing barriers to participation Thus, the ACCC recommends that existing investigative The primary strategy of the Commission will be to use ex-ante regulation. It introduced in December 2020 in such markets, particularly by SME and firms tools under competition and consumer law should be competition law in a manner to proactively regulate specific legislation and rules that will regulate digital owned and controlled by historically disadvantaged supplemented with additional proactive investigation, domestic digital markets to preserve the current services, including social media, online marketplaces, persons. The Commission intends to launch a digital monitoring and enforcement powers to achieve better contestability. In terms of market conduct regulation, this and other online platforms that operate in the EU. The markets inquiry in 2020/21. Through the market outcomes. Similar to what other jurisdictions have strategy involves the following: new rules, the Digital Services Act and the Digital Markets inquiry – and given the binding nature of market recommended, the inquiry recommended the creation Act, will prohibit unfair conditions imposed by online inquiry outcomes – there is room to resolve market of a branch within the ACCC to focus on digital platforms • Mapping the digital landscape of South Africa: The platforms that have become or are expected to become Commission is already in the process of mapping failures and concerns through advocacy while other gatekeepers to the single market, instil transparency 3.3.4 Vertical restraints the digital market landscape in South Africa. This concerns may be remedied through enforcement, in measures for online platforms, including the use of involves identifying key emerging digital markets, the normal course. consumer data and also facilitate scaling up of smaller In some jurisdictions, competition authorities are the firms within those markets, the current trends platforms, SMEs and start-ups. now pursuing enforcement action following various The relative contestability of many domestic digital of growth and tendency to domestic dominance, market studies and expert panel reports. It would markets is in stark contrast to the global dominance and some of the conduct occurring the market. 3.3.3.3 Market inquiries appear that these agencies have found that the current in search, social media and mobile operating system The purpose of the landscape study is to inform competition rules are sufficiently flexible to deal with markets. Given the global nature of these markets and the The Australian Competition and Consumer Commission proactive initiations on market conduct by dominant a range of potentially anti-competitive restrictions in extreme pre-existing dominance, the Commission can (ACCC) conducted a digital platform inquiry, which firms and to focus a future market inquiry or research an e-commerce environment. For example, based on neither proactively promote contestability nor address considered the impact of online search engines, social into specific digital markets. its E-commerce Sector Inquiry findings of May 2017, the underlying abusive conduct alone. For this reason, the media and digital content platforms on competition in the European Commission opened some antitrust Commission will deliberately pursue a strategy of global the media and advertising service market.63 The inquiry • Proactive conduct investigations: The digital investigations concerning online vertical restrictions. cooperation and coordination in respect of addressing found that both Google and Facebook have substantial landscape study is already identifying conduct by These investigations resulted in four decisions relating market conduct of firms such as Google, Facebook and market power in Australia. Google was found to have dominant online firms which may be excluding rivals to online resale price maintenance against four Apple which also dominate domestically, and potentially substantial market power in the supply of general and entrenching dominance. The Commission’s

42 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 43 also second-tier globally important digital firms such as Conversely, there are actions that large and dominant Uber, Airbnb, Bookings.com. firms can undertake: Table 5: Digital platforms active in South Africa • Tracking of foreign cases against the global giants. • As a start, firms should conduct business operations The Commission will actively track enforcement in a manner that promotes inclusivity, shared Parties involved Case summary Findings, Remedies / Recommendations action implemented globally against digital prosperity and equality. ABUSE OF DOMINANCE CASES services that are also available in South Africa. Complaint against The Complainant alleged that no distributor The Commission decided not to pursue the • Data-rich entities, in particular, should avoid refusing The jurisdictional scan will provide intelligence Microsoft South Africa or retailer would sell him a version of the investigation because there were remedies access to data that is considered indispensable to on what conduct exists but also whether it is likely and others (2009) Dell laptop without a Microsoft operating in the US case that applied globally. In compete; if the refusal prevents a new product from system pre-installed. The complaint was addition, the Commission found that there to contravene competition law. This would include emerging; if there is a current unmet demand for the investigated as possible exclusionary were a number of Dell resellers that supply instances where digital service firms have voluntarily conduct and inducement. ‘naked or open-source’ PCs with alternative data and if the refusal prevents a firm from entering agreed to adjust behaviour in a pro-active manner operating systems such as Ubuntu Linux and into or expanding within a market. and referrals for prosecution. Such tracking would the complainant could have utilised such resellers. take place in the normal course of the Commission’s • Firms in a dominant position and those with market investigations where Commission staff consult the power should avoid refusing competitors access Complaint against The complainant alleged that Google’s The allegation was dismissed because the Google South Africa action amounts to requiring and inducing complainant was a small player and the latest decisions of international counterparts as part to an essential resource; engaging in an act that (2008) another market player not to deal with the conduct of Google was unlikely to result of environmental scanning. As part of its advocacy prevents or impedes another firm from entering or complainant, but to deal directly with them in substantial lessening or prevention of function, the Commission also monitors policy in this expanding in a market; requiring a supplier not to in contravention of Act. competition in the relevant market. space. deal with a competitor; bundling unrelated products Metered Taxi Industry The metered taxi industry alleged that Uber The Commission investigated the complaint or services together for sale; and discriminating on • Proactive initiation and global cooperation where vs Uber (2015) was (i) conducting unfair business practice under the abuse of dominance provisions trading conditions between buyers, particularly as it secures partnerships with multinational through predatory pricing. The Commission conduct is likely to be similar locally. The tracking SME’s. companies that have exposure to its client decided not to pursue the case. It found would provide a basis for proactive initiations base and ultimately giving it unparalleled that Uber driver-partners were not charging against the global giants where there is a reasonable Concerning vertical restraints, market access (ii) charging below-cost rates. prices that were below cost in any of the suspicion that similar conduct is occurring cities in which it operated at the time. domestically. The Commission will then cooperate • the Commission intends to develop appropriate Complaint against The complainant alleged that through its The investigation looked at the use of with other jurisdictions that have undertaken conduct tools for detecting digital resale price maintenance Bluespec (2017) Dreamtech App, Bluespec can influence algorithms to facilitate exclusionary conduct referrals to fast track the investigation in terms of and develop digital tools for assessing the effects of the decision on who tows the motor vehicle by a vertically integrated industry player. from the accident scene. The case was, however, closed due to lack of theories of harm and evidence. Where the conduct is vertical agreements and practices in digital markets. evidence. largely similar, the Commission will adopt a strategy • suppliers to online retailers should avoid setting of first determining if the remedy identified in the minimum prices for resellers unless they clarify that proceedings elsewhere could be readily applied such pricing is recommended. CARTEL CASES in South Africa to ensure consistency and ease of Complaint against It was alleged that the use of Audatex SA The case was non-referred on the basis that implementation. Further, The Commission intends • parties in a supplier/customer relationship Audatex SA & others database by the insurance companies which no evidence of collusion between insurance to make use of existing tools for market definition should avoid entering into agreements that could (2008) include the costing of specific vehicle parts, companies to fix prices on the Audatex with due recognition to the pro-competitive effects unjustifiably and substantially lessen competition. costing of paint and even labour times system was found. of data, information and innovation. amounts to directly and/or indirectly fixes the prices and/or trading conditions of motor vehicle repairs to the detriment of 3.4 Commission’s Previous Interventions In Digital Markets panel beaters. MERGERS AND ACQUISITIONS Mobile Telephone The Commission’s assessment focussed on The Tribunal approved the merger The Commission has had previous interventions in would buy newly formed companies that did not yet Networks & Verizon five markets in which there are horizontal unconditionally as it found that the the digital space through investigations of abuse of have notable revenue and did not have any substantial South Africa (2009) overlaps and three markets in which there transaction was unlikely to lead to a dominance, cartel cases and the assessment of mergers share in the market. As such, these mergers were not are potential vertical or conglomerate substantial lessening of competition in any effects. of the relevant markets. The merged entity and acquisitions. The Commission has decided not to notifiable to the competition authorities which removed faced competition from much stronger pursue some of the abuse of dominance and cartel cases the opportunity to investigate potential competition players in all the relevant markets. against global tech firms due either to the view that the concerns that could result from these mergers. The Takealot & Kalahari The merger involved two of the largest The Commission approved the merger with conduct was unlikely to lead to substantial lessening or Facebook/WhatsApp merger in 2015 was a typical (2014) online retailers in South Africa. There was conditions related to the public interest prevention of competition in the relevant market or there example of this problem faced by the authorities. Table a horizontal overlap in relation to online (employment). There were no competition was lack of evidence to prove a contravention of the Act. 5 below, provides a summary of some of the past cases retailing of consumer goods and products. concerns in this regard. investigated by the Commission and Tribunal in digital In merger cases, the trend in digital markets in South markets. Africa has been that international and incumbent firms

44 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 45 Parties involved Case summary Findings, Remedies / Recommendations

Facebook & WhatsApp The merger involved an overlap in the The transaction was not notifiable in South (2015) provision of consumer communications Africa because WhatsApp did not generate services. The transaction raised some issues any revenue in the country. CHAPTER 4 relating to big data globally.

Microsoft Corporation The Commission found overlaps arising The merger was approved without & LinkedIn (2016) in respect of social network services and conditions because the merging parties cloud-based services in South Africa. generated relatively low revenues in South Africa. It was also unlikely to anti-competitive effects in any markets in South Africa.

MIH eCommerce The merger presented a horizontal overlap The Commission found that the merger is Holdings and Car in the provision of online automotive unlikely to substantially lessen or prevent REGULATORY ISSUES IN THE DIGITAL ECONOMY Trader & AutoTrader classified advertising services. competition in any markets in South (2017) Africa. The merger was approved without conditions. “…[D]igitalisation has [ ] given rise to fundamental challenges for policymakers in countries at all levels of development. Harnessing its potential for the many, and not Google & Fitbit (2020 As a result of the merger, Google entered The merger was approved with conditions just the few, requires creative thinking and policy experimentation. And it calls for the market for the supply of wrist-worn committing Google (for 10 years) to inter alia: wearable devices in South Africa. It acquired i. allow access to Android Operating greater global cooperation to avoid widening the income gap.” the database maintained by Fitbit (about its Systems, without charge, to all users’ health and fitness) and the technology manufacturers of wrist-worn wearable Digital economy report 2019, UNCTAD to develop a database similar to that of devices; Fitbit. ii. Maintain data separation between Fitbit data and Google’s existing data; and Besides the competition issues raised in the paper thus far, there are regulatory issues that have linkages with iii. Allow third parties that currently access competition policy. Matters of the digital economy require a holistic and systemic approach by all relevant players. Fitbit’s data to continue to have access We highlight the following aspects of digital economy regulation below. to users’ health and fitness data through the Fitbit Web API, without charge.

MIH eCommerce The merger did not present any horizontal The Commission recommended that the 4.1 Promoting Access & Connectivity: Infrastructure & Digital Penetration Holdings (Pty) Ltd & overlap. However, during the investigation, the Tribunal prohibit the proposed merger. After WeBuyCars Commission learned that the Naspers Group a lengthy hearing, the Tribunal subsequently A strong digital sector, including adequate internet with 10.4% of South African households having access had already acquired a stake in Frontier Car ordered that the merger be prohibited. 68 Group Inc (FCG) and through this acquisition, infrastructure and digital firms providing online content to fixed internet services at home , pointing to a supply- the Naspers Group intended to enter the and services, is the foundation of the digital economy. gap where infrastructure roll-out is lacking, particularly in South African market for wholesale and online South Africa must invest in digital technology and its low-income and rural areas. buying of cars from the public and selling to infrastructure with a sense of urgency. dealers in direct competition with WeBuyCars. Mobile networks have grown to become the main vehicle In South Africa, as in many developing countries, there for internet access in South Africa. From the period The Commission determined that FCG, is still no universal access to broadband. Whilst mobile 2015 - 2018, almost 100% of the mobile internet user together with Naspers, was a likely entrant 69 used car marketplace. The evidence further broadband coverage may be pervasive in a country population fell within Vodacom’s second-generation indicated that the tie-up between FCG and like South Africa with close to 100% of the population (2G) and third-generation (3G) networks systems. Naspers represented a formidable entrant covered by mobile operators, there is a demand gap as Coverage of the fourth-generation networks (4G), also relative to existing start-ups due to the low-income individuals are unable to afford access to known as the Long-Term Evolution (LTE) was estimated synergies arising from the combination of OLX, Autotrader and FCG. The Commission digital services due to the cost of devices and the price at 85% of the mobile internet user population. MTN SA further found that WBC is the market leader in of data services offered by the operators. Therefore 70also covered almost 100% of the population with its 2G the car-buying space. currently only 65% of South African households had at and 3G networks while in October 2019, 4G coverage least one member that had access to or used, the internet reached 95% of the country’s population.71 Source: Commission’s various internal cases in digital markets either at home, work, place of study or internet cafés, but For many end-users, access to data services requires usage levels are low even for a large portion of those ‘smartphones’ which are capable of gaining access to that do have access66. Rural access is even lower. While data services and the internet. It is reported that 20.4 figures show that 60.1% of households in the country use million people used smartphones in South Africa in 2018, mobile devices to access the internet, this figure drops representing roughly 36% of the population. According to 45.0% in rural areas67. Fixed-line access is even lower,

46 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 47 to the Independent Communications Authority of Data access for consumers will stimulate the use over the traditional operators. This is because they have The introduction of such a framework would have a South Africa (ICASA)’s latest State of ICT Sector report, of digital technologies. Current plans to increase little or no costs of compliance with regulations. positive effect on competition by reducing market smartphone penetration in the country increased from broadband connectivity in under-served communities, entry barriers for small to medium-size enterprises and From a competition point of view, the Commission 43.5% in 2016 to 91.2.7% in 2019.72 Internet usage the rollout of 5G networks, the creation of an open minimising the risk of first-mover advantages. Though a supports the stance where rules are applied equally figures nationally show that 56.9% (39.6% in rural areas) access network (WOAN) that provides access to essential considered approach will have to be taken to not stunt across the board amongst competitors. In this regard, of households in the country use mobile phones to facilities, infrastructure sharing and rapid infrastructure further innovation by firms for fear that they will be the Commission advocates for regulatory responses that access the internet.73 deployment, and digital terrestrial television are forced to share data when they have made investments are geared at levelling the playing field and reducing opportunities for growth in the ICT sector which should to collect it and would also not lead to concerns about Irrespective of the trends observed above, access to data regulatory barriers to entry and expansion. stimulate local manufacturing.74 anti-competitive effects. services and indeed the digital economy remains highly A key area for regulation that has been identified by problematic as there is a real threat of not just economic On the question of infrastructure, stakeholders have The Commission continues to engage with all policy stakeholders is that of accessibility of data. Over and exclusion, but also exclusion from full participation in pointed out the need to ensure that supporting makers and regulators as other regulation and legislation above aspects of data privacy and sovereignty which are society. For these reasons, the Commission has worked to infrastructure that will ensure the efficient running of are being put into place to address the developments discussed below, the government needs to introduce reduce data costs for consumers through its inquiry into the digital economy will have to be considered as in the digital economy. In this regard the Commission frameworks that aim to promote data openness, data pricing in South Africa. As a direct outcome of this well. For instance, the e-commerce sector requires a is mandated in terms of section 21 of the Competition portability and interoperability. Such frameworks could inquiry, the Commission recently concluded settlement fully functional delivery infrastructure. The challenges Act to a) participate in the proceedings of any regulatory be introduced in the manner of legislation requiring agreements with Vodacom, Cell C and MTN to reduce faced by the South African Post Office (SAPO) have authority; b) advise, and receive advice from, any parties to share information or through some form data pricing with a specific focus on lower-income led to the development of other courier and postal regulatory authority and over time, review legislation and of cooperative arrangement. The Commission is of segments of the market. The Commission also noted services. However, this presents an opportunity for the public regulations and report to the Minister concerning the view that some legislated principles would be efforts by MTN, also a major mobile network operator, government to revive and use the infrastructure of the any provisions that permit uncompetitive behaviour. more beneficial and would ensure certainty. However, to reduce data costs following the Commission’s data SAPO to support the growth, access and connectivity of where possible voluntary sharing should be promoted, inquiry. the digital economy. especially between government and sector participants.

4.2 Regulatory Responses To Tech Disruptions In Markets 4.3 Consumer Protection: Data Privacy And Sovereignty

Many jurisdictions have had to respond to the disruption operators of AirBnB’s may not necessarily comply with 4.3.1 Data privacy not well understood by most consumers. caused by digital platforms with regulation as these municipal bylaws which traditional accommodation platforms were not regulated before. Regulatory establishments have to. Section 14 of the South African Constitution affords Data protection law has a common objective with responses have included restrictions of the operations the right to privacy including the right to not have the competition law in that it seeks to protect individuals Another instance where there has been digital disruption of platforms, application of the traditional regulations to privacy of communications infringed. This section forms from having their data exploited. The interface between is in broadcasting, where new technologies and the the platforms or introduction of specific regulations that the foundation of the Protection of Personal Information data protection and competition law arises as a result of dynamic effects of convergence are changing the way apply only to these platforms. Common examples of (PoPI) Act, 2013. The purpose of this Act is to give effect the ownership of such data. The ownership and use of consumers access audio-visual content. Arguably, regulatory responses to increased use of digital platforms to the constitutional right to privacy by safeguarding data are regulated by data protection law while it also the dissemination of information to the public and are found in the tourism, transport and broadcasting personal information when processed by a responsible affects competition in markets, especially in the digital other services offered by multiple platforms, including sectors. party. However, as with any right under the Constitution, economy. Access to consumer data can give a firm the analogue or digital terrestrial television, radio, satellite, this right is subject to justifiable limitations aimed at, ability to operate in this sector, thus the ability of any The Commission notes that the use of technology internet protocol and over-the-top (OTT) television inter alia, balancing the right to privacy against other firm to access and control such data makes it important presents opportunities to expand consumer options could constitute ‘broadcasting’. Regulating in this rights and protecting important interests. These interests to competition. Competitive dynamics in data markets in various sectors but also raises several questions instance would require a consideration of how current include the free flow of information within the Republic that include personal data are influenced by the laws regarding the regulation of these services.75 In the technologies converge with digital platforms. How and across international borders, regulating how designed to protect personal data.76 It is also notable tourism sector, for instance, many jurisdictions reacted should broadcasting regulators approach matters related personal information may be processed by establishing that as competition authorities develop their thinking with policies that were targeted at the share-economy as to must-carry, advertising rules or content censoring in conditions, in harmony with international standards, regarding consumers welfare in digital markets aspects there was uncertainty on the application of the normal the digital age? that prescribe minimum threshold requirements for the including consumer privacy, personal data protection, rules and regulations on people using these platforms. It is clear from these examples that ex-ante regulation lawful processing of personal information and providing consumer choice, switching costs and lock-in effects For example, concerns have been raised about the fact is necessary for relevant sectors. We propose that persons with rights and remedies to protect their become relevant. that Uber drivers in South Africa have not been required regulation in these and other sectors should adopt a personal information from processing that is not per the to apply for operating licences from the relevant The accumulation and use of data, especially without the technology-neutral approach, without differentiating Act. Stakeholder also point out that data protection laws authorities, an issue which emerged prominently in consent and the privacy of consumers, has the potential whether firms traditionally operate their business or are necessary for digital markets as provisions such as the Commission’s market inquiry into Public Passenger to increase the market power of large digital firms. whether they make use of digital platforms. The unequal consumer consent are not necessarily effective tools for Transport. Similarly, some amendments were made Concerns can be further exacerbated as firms that active application of regulation means that the firms making ensuring the protection of consumers, as the implications by Government to the Tourism Bill, with concerns that across several different markets in the digital economy, use of these platforms have a competitive advantage and legal aspects of data privacy (and security) are often

48 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 49 can leverage consumer information collected in one stringent and administratively burdensome which may There is also an intersection between competition, control over information. Secondly, individuals cease to part of their business to gain market presence in another stifle innovation and cross-border e-commerce to the and privacy and consumer protection. In the design of be data sovereigns if they are unable to enforce claims to market. The concerns around market power as discussed detriment of consumers. However, the protection of a regulatory framework, competition authorities and power and they are not aware where their personal data become relevant. Thus, data protection law needs to be privacy, particularly the exploitation of private information regulatory institutions for consumer protection and is stored and how it is processed and used.79 adequate to lead to such unintended consequences. in developing countries is of greater concern, especially data protection should share common goals, such as We note that globally countries have been grappling with Privacy regulators in developing countries, where they where some countries do not have privacy laws and/ the promotion of consumer choice and welfare. The issues concerning data sovereignty. Countries within the exist, need to balance the right to privacy against global or the enforcement know-how to provide consumers intersections between competition, data protection and BRICS grouping have adopted divergent approaches to connectivity, trade and competition. Should privacy with meaningful recourse whilst deterring firms from consumer policy seem to be particularly significant in tackle these matters.80 For instance, Russia imposed data regulators in developing countries get the balance breaching privacy laws. the digital economy, where transactions involving the localisation rules applicable to international cloud service wrong, a business may perceive compliance as too transference of personal data play an important role. providers. The collection and processing of data also Stakeholders have suggested that these are the key require formal registration by the data service providers areas of prioritisation for data governance. This may with the Roskomnadzor, Russia’s media oversight agency. include sectors such as healthcare, telecommunications, Beginning in September 2015, data service providers Box 7: The Bundeskartellamt and Facebook online search and location data. To better achieve the are obliged to store personal data of Russian citizens common goals and avoid inconsistent approaches, it on servers based in Russia. India appears to be most is recommended that there be strong cooperation and The decision of the Bundeskartellamt in relation to change its business model in regard to data collection interested in the data protection of its international close dialogue between the Commission and the relevant Facebook provides a vivid example of a single country and processing. Regarding data, it ruled that a kind investors, rather than proclaiming sovereignty over its institutions. Stakeholders agree that there should be seeking to enforce different and more stringent privacy of “internal unbundling” should take place. The own nationally generated data.81 For example, India and coordination and identify some key stakeholders such standards in order to protect the personal data of decision was however later successfully appealed by the UK entered into a “cyber pact” in 2012 intending to as the Information Regulator and the National Consumer individuals. It had ruled that Facebook had abused its Facebook, where Düsseldorf High Court suspended protect British data stored in Indian data centres.82 Commission. Other sector-specific regulators are also position as a market leader in Germany and had violated the Bundeskartellamt’s decision. The High Court did identified as relevant including ICASA and FSCA. In South Africa, section 72 of PoPI regulates the transfer of antitrust law. not find any anti-competitive results from Facebook’s personal information outside the Republic and therefore data collection and processing. They further ruled that Given the inherent developmental agenda of South Africa, Antitrust proceedings against Facebook were initiated in broadly determines the issue of “data sovereignty”. It the collection of third-party data did not lead to the the privacy policy is not immune to concerns arising from March 2016 and centred on the company’s terms of use also restricts the transfer of personal information to a exploitation of its users. digitalisation. This warrants a more collaborative effort for the collection and processing of data from “third-party third party who is in a foreign country unless a set of across regulators in developing countries, especially sources”. Under these terms, users can only use the social The case was far from over as the Bundeskartellamt conditions/considerations are met. In this regard, the where there are separate enforcement mandates, like in network if Facebook is allowed to collect data about the has lodged an appeal with the Federal Supreme Court. PoPI does not broadly restrict the transfer of data outside South Africa on competition, consumer protection and user from outside of Facebook (i.e. on the Internet or On 23 June 2020, the Supreme Court provisionally of South Africa. However, it is more concerned with privacy. on smartphone apps), and assign the data to the user’s confirmed the alleged abuse of dominant market personal information and regulates how it may lawfully Facebook account. Outside the social network, Facebook position by Facebook. It also indicated that “There are no The intersections between competition, data protection be transferred outside the domestic borders provided collects data from the group’s other services (e.g. serious doubts as to Facebook’s dominant position in the and consumer policy seem to be particularly significant that a set of five conditions are met by the responsible WhatsApp and Instagram) and from third-party websites German market for social networks nor can it be doubted in the digital economy, where transactions involving the party. and apps via “Facebook Business Tools” (e.g. Facebook that Facebook abuses this dominant position by using transfer of personal data play an important role. Hence, to The government must not only concern itself with “Like-Buttons”, “Facebook Login” or “Facebook Analytics”). the terms of service…..”. “The lack of options available better achieve the common goals and avoid inconsistent consumer data privacy but also the control of the By combining its own and third-party data, Facebook can to Facebook users does not only affect their personal approaches, it is recommended strong cooperation individual, national and sensitive data generated by the create an exact profile for each user. autonomy and the exercise of their right to informational and close dialogue between these institutions. The public sector, wherever it may be stored. It is a user of self-determination also protected by the General Data Commission also notes that there is a close relationship To address these concerns, the Bundeskartellamt software and hardware that is at the back-end of digital Protection Regulation”. between these aspects as well as data security. This ordered that Facebook adapts its terms of use and to technologies designed by foreign e-commerce entities. aspect is not explored further in this report, however, the This raises the question of a possible competition same principle of coordination can be applied with the impact of foreign digital champions gaining control relevant stakeholders. over large data sets of government through surveillance In spite of stakeholder submissions urging the limited bargaining power, as the only choice that grants 4.3.2 Data sovereignty technologies and the potential implications for Commission to distinguish between consumer-related access to the service is to consent to default terms and consumers and markets. For instance, the cross-border 77 Data sovereignty, while it does not have a standard concerns and competition-related concerns, we believe conditions and privacy changes. It may also be found, flow of information about defence, medical records and definition, concerns the right to ownership and use data, that the sole reliance on data protection law to address upon closer examination, that data-driven firms are fully tax records without appropriate authorisation and the including the ability to access and process such data.78 the data-related concerns raised above would be a compliant with data protection laws while processing location of computing facilities outside of the country The literature reviewed indicates that there are two levels mistake, as they cannot deal with these issues when they personal information for targeted advertising because raise the risk of a national security data breach. arise in mergers or exploitative abuses. Indeed, personal the consent had been given by the user to make use of on which data sovereignty can be weakened. Firstly, it information is the currency with which consumers the firm’s services. is argued that governments that use cloud computing Data governance practises that enhance data purchase services from digital markets where the could store data outside their jurisdiction and run the sovereignty are emerging in other jurisdictions. For product is “free”. But consumers in this exchange have risk of compromising national sovereignty by conceding example, the governments of the United States and the

50 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 51 United Kingdom have in recent times raised concerns should consider imposing minimum controls on the Given the level and adequacy of their technical services to all South Africans. With respect to consumer that Huawei’s growth in the market for 5G mobile information being stored and hold firms accountable expertise, the government needs to adopt a ‘whole-of- protection for cloud-related services, the Protection of network technologies could provide the Chinese for what they do with the data and assign responsibility government approach’ and engage a broad and diverse Personal Information Act 4 of 2018 (POPI) introduces government with undue access to and control over and accountability for specific databases. These should range of stakeholders for regulatory effectiveness in the a new regulator, the Information Regulator, whose their communication networks. In July 2020 the UK ideally be included in the service level agreements that era of digitalisation. The Independent Communications functions include monitoring and enforcing compliance government banned the use of Huawei equipment in its State organs and firms enter into with service providers. Authority of South Africa (ICASA) has an important role with POPI by public and private bodies. In view of 5G network infrastructure, denying it access to sensitive Companies that store such data should be subject to play in the management of spectrum licensing and their cross-sectoral nature and adequacy of technical data sharing.83 to periodic audit. A national digital strategy should ICT infrastructure. Competition regulation is needed to expertise, in regulating digital technologies, it calls empower the government to review, investigate and take regulate the potential for consumer lock-in and cases for increased dialogue and coherence among these The South African government, firms and consumers action against any e-commerce activity that threatens of abuse of dominance by big tech. The Department regulators.86 should take heed in their commercial interactions with data governance. A clear balance should be achieved as of Communications and Digital Technologies will be IT service providers and platforms about their effects of the flow of information across borders is the cornerstone instrumental in the roll-out of the National e-Government not maintaining and preserving their data sovereignty. of the digital economy and thus any governance rules Strategy and the provision of inclusive communication Data that freely leaves the country may be used to gain should not stifle the ability of the markets to continue a competitive advantage in the country if there are no with their business. clearly set rules for the use of such data. Policy makers 4.5 Promoting Inclusion In Financial Services

4.4 Digitalising Government Services The disruption brought about by digitalisation in banking linked to mobile phones. Indians have opened 337 million and financial services are monumental; each segment of Jan-Dhan accounts, a threefold jump in four years. One the value chain - from currency to banking and insurance of the effects of the government’s move to demonetise The shift to an internet-based economy necessitates transforming South Africa into an inclusive digital society - has been affected. This calls for a rethink in the manner high-denomination currency notes in November 2016 a digitalisation and synchronisation of e-government where all citizens can benefit from the opportunities in which the financial system is defined and regulated. was to remove any legal and regulatory barriers to services such as e-health, online education revenue offered by digital and mobile technologies to improve Whereas licenses were the traditional barriers for new digital payments. Financial technology innovation has collection and finance. The government can leverage on their quality of life. The strategy aims to optimise service entrants in financial services, “big learning” from big grown rapidly. One survey ranked India second in the advances brought upon by technological innovations delivery that provides universal access to government data is now the regulatory frontier. Whilst the historical strength of the fintech movement, with 77 percent of (such as cloud computing, internet of things (IoT), big information and services. The framework aims to ensure markers for financial stability focused on incumbent consumers saying they use at least one non-traditional data, and mobile innovations) to drive the success of that all South Africans can access quality public service players, digitalisation requires a regulatory shift that firm for financial services. Some are reaching huge scale: digitalising government and delivering public services and government information, reduce the cost of public encompasses financial networks (which include firms in Alibaba-backed Paytm, India’s largest mobile payments to its citizens.84 administration in South Africa, and harmonise the telecoms, e-commerce) more broadly. Over and above and commerce platform, has more than 300 million policy environment and legislative framework to enable In order to advance the quality of education in public the regulatory concerns that arise with the advent of registered mobile wallet users and six million merchants. digital transformation and provide socio-economic schools, education departments must move beyond the financial technology, there is an important role that it Other players are also growing rapidly. Freecharge, with development opportunities by empowering rural plays in ensuring the inclusion of a greater population over 54 million wallet customers, handled 500 million textbook, which is being superseded by the internet. 85 communities. This is fundamental for a developing 87 The effects of the Covid-19 pandemic in the country into the economic activity of a country. transactions in June 2017. economy such as South Africa because e-government exposed the persistent inequalities in public education. services can enhance cross border trade, income India and China both report the most potential for Despite India’s explosive digital growth amongst With schools shut, the plan was for learning to take place opportunities for small business, and increased access growth in the digital economy in financial technology. individuals, potential still exists to digitalise the large remotely through online learning but many children in of public services by underserved communities and the Of all the newly digitising sectors anticipated to deliver number of cash transactions still prevalent amongst small this country learn at school and do not have access to previously disadvantaged. economic value in India, financial services are cited as and micro-sized businesses. More than 80 percent of all the internet. With greater internet access and roll-out the most promising. India’s internet user base has grown retail outlets in India—most of them sole proprietorships of e-education services, educational resources can be The regulation of digital markets requires greater rapidly in recent years, propelled by the decreasing cost or mom-and-pop shops—operate in the cash-driven accessed anywhere, whether at school or home. Digital coordination, collaboration and connection in the and increasing availability of smartphones and high- informal economy. That compares with 55 percent of transformation in the healthcare sector requires the use agendas of national regulatory agencies. Regulators speed connectivity, and is now one of the largest in retailers in China and 35 percent in Brazil. Because a of data analytics for management of dreaded diseases participating in the digital economy will include general the world. The share of Indian adults with at least one large part of their trade happens in cash, owners of these and chronic diseases, such as tuberculosis and HIV- regulators, such as competition regulators, consumer digital financial account has more than doubled since businesses do not generate the financial records needed AIDS. The sharing of quality, accurate health data to the protection regulators and personal data information 2011, to 80 percent, thanks in large part to the more than to apply for a bank loan. Digital payments automatically public during the Covid-19 pandemic is an example of regulators, whose functions are not sector-specific, 332 million people who opened mobile phone-based create financial records to establish the creditworthiness leveraging e-services for effective service delivery. and sector-specific regulators, such as the electronic accounts under the government’s Jan-Dhan Yojana mass of both the store and its customers, making access to communications sector regulators, banking and financial The National e-Government Strategy provides a broad financial-inclusion programme. The government also formal finance easier. regulators, health professions regulators, and transport triggered a growth spike in digital payments through the guideline on how this internet-based innovation in China’s success in the digital economy is attributed, in regulators. Some matters will be attributable to the launch, in 2014, of the Pradhan Mantri Jan-Dhan Yojana, government services can be achieved. The vision for large part, to the potential presented by the financial mandate of a particular regulator, while other matters the national financial inclusion drive, which led millions this strategy is to digitalise government services while sector. It is reported that China’s climb to the top of the will fall in the overlapping mandates across regulators. of people to open Aadhaar-authenticated bank accounts

52 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 53 digital revolution started with a relatively large financially- The situation in South Africa still presents a lot of Again, the limitations of the financial system were • The consultation paper on open banking activities in underserved population. In the early days of digital challenges. The country has yet to unlock the great brought to the fore when it came to the disbursement the NPS (November 2020) - which aims to formulate development, financial inclusion was still limited in China benefits as realised in India and China. Though some of these funds. In terms of the scheme, the Spaza Shops regulatory framework on how banks and firms that compared to advanced economies. In 2011, account measures suggest that approximately 80% of the South were required to open up a bank account with the use fintech interface with each other by sharing ownership among adults was 64 percent in China, African population in the country is banked, it is clear participating banks in order to access the grant portion customer-permissioned data to offer payment compared to more than 90 percent in Japan, Korea and from other indicators that financial inclusion remains of the offering as well to access the revolving credit services more safely and improve customer Germany. Small and medium enterprises also had limited constrained for people and businesses as many people facility at a later stage. Again, spaza shop owners were experience. access to credit via the formal banking channel. This do not have regular access to financial services or are required to make applications in person at the branch of • The consultation paper on faster payments in South resulted in sizable demand for services from non-bank unable to access the services due to criteria put in the relevant partner bank- a challenge during a health Africa (June 2020) – which aims to implement faster financial service providers. The application of information place and thus often rely on informal channels and pandemic. Although an online application process payments service called real-time clearing (RTC) technology to the provision of financial services – has predominantly use cash as a means of transacting. South was an option, this too was designed in a way that did where payment should be effected by the paying surged in recent years, with China emerging as a global Africa has seen great developments in its financial sector not consider the clientele (spaz shop owners), as it bank for the credit of the payee account within 60 leader. The massive scale of China’s markets and a “light and has embraced financial technology. However, this assumed that applicants have the relevant resources and seconds. touch” from regulators and supervisors in the early years has only been to the level of a few, more affluent South infrastructure to complete forms and upload documents supported China’s fintech development. Leveraging African, rather than the broader South African population. electronically. • The National Payment Systems Act Review Policy existing social-media platforms, China’s fintech services Notably, people in more rural areas still have travel great paper (December 2018) which outlines proposed Besides the challenges currently exacerbated by include several key areas: third-party payments by non- distances to access financial services and SMEs to a large changes to the NPS Act. In particular recommendation COVID-19 it is clear that the current operational and bank digital providers, peer-to-peer lending, internet extent still have trouble accessing financial services. This 13, supports transformation and financial inclusion, regulatory framework has not enabled innovation credit, including microlending, internet-based banking is problematic given the country’s concerns about its to enhance access and competition, and to reduce that can address some of the country’s very pressing and insurance, digital wealth management, and credit- high unemployment rate, low savings rates, and poverty. payment services costs in the NPS by enabling non- social needs, including the many South Africans who ratings. Notably, large, dominant fintech players in banks to provide payment services such as e-money, A stark example of the concerns that are arising from South are excluded from the mainstream economy; and has China – Tencent and Alibaba – have branched beyond clear and settle payments without the need to Africa’s failure to fully embrace fintech for the broader created a lacuna that even the incumbents have failed their traditional niche to other areas of the finance partner with a bank. population was seen concerning the Special COVID-19 to fill. As the National Payment System Framework and supply chain, building an integrated ecosystem of Social Relief of Distress grant. Though the government Strategy - Vision 2025 points out, the NPS “is a crucial financial services that link customers with businesses. • The consultation paper on the processing of intended to make use of electronic mechanisms to enabling factor for economic activity among consumers Within fintech, the following advancements stand out as payments in South Africa (November 2018) – the receive applications for the grant (applicants could and businesses”.90 It goes on further to state “The NPS significant contributors to digital growth: paper’s purpose was to develop a policy position apply through WhatsApp, USSD, e-mail or the website), should be viewed as a collective infrastructure that and regulatory framework on transaction processing • third-party mobile payment on non-bank platforms payments still required some physical infrastructure acts in the long-term interests of South African society, in South Africa and in particular the authorisation which affected access. Payments of these grants were whose contributions can assist in boosting economic and clearing of transactions. • peer-to-peer lending (“P2P”) – loan transactions on conducted through ATMs, retail outlets and the SAPO. development and financial inclusion, thereby increasing an internet platform There was some option for those with bank accounts the quality of life across all segments of society”. Also, the Commission notes other initiatives such as the phasing out of cheques and understands that further • microlending from internet banks to receive money through their account and what was The goals of Vision 2025 are stated as 1) a clear and referred to as a ‘cash send’ option for users with a cell transparent regulatory and governance framework, projects are being conducted by the SARB currently that • the emergence of Yuerbao—an online money market phone registered in their name. With such requirements, 2) transparency and public accountability, 3) financial will also affect fintech. fund developed by Ant Financial in 201388 it is not unthinkable that many of those in need of this stability and security 4) promoting competition and In a digitalised world that can be exclusionary for many grant of R350 would not have an open and positive bank innovation, 5) cost-effectiveness, 6) interoperability 7) China’s fintech development has a uniquely high level citizens, particularly the poor, deliberate consideration of account, nor may they have a cell phone registered in flexibility and adaptability, 8) regional integration, 9) of integration across different parts of the finance inclusion by policy makers is more pertinent. Promoting their name. In fact, during the period many people have financial inclusion. These are the very objectives that the supply chain. Companies that had early successes in the greater inclusion of citizens in financial services is had to resort to collecting their grant in-person, at their Commission is aiming to achieve in this sector and have fintech space have built an ecosystem along the entire ultimately both a function of innovation and regulation. nearest SAPO or retail branch, also putting their health thus supported all the initiatives by the SARB to achieve finance supply chain, broadening and linking their core The Commission is of the view that there is a need for at risk. these goals. businesses to consumers. Examples include tech giants a radical review of the regulation and policies in the Alibaba, Ant Financial, Tencent, JD.com, Baidu, and the Another Covid-19 relief measure that the government The Commission recognises the efforts of regulators and sector. Noting that some work is already being done, financial conglomerate Ping An. For example, beyond provided was grant financing to spaza shops (small policy makers to ensure that South Africa’s policies are the Commission encourages policy makers to consider Alipay, Ant Financial also provides consumer loans SME township-based traders, mostly informal). The Spaza appropriate for fintech. These efforts include: policies that do not perpetuate incumbency or promote lending through Ant Credit Pay, microloans to SMEs, shop and General Dealers programme, administered by their further dominance. Rather, South Africa requires • Legislative amendments to legislation (current) - the asset management services through Ant Fortune, and the Department of Small Business, was first implemented a policy framework that re-considers the design and NPS Act, the Financial Sector Regulation Act (FSRA) private and independent credit scoring service. By due to a lack of goods and services which had led modalities entire financial system to ensure that it caters and the Conduct of Financial Institutions (COFI) Bill, contrast, firms in the U.S. such as Visa and MasterCard, or to a potential shortage of food in rural and township for the majority of South Africans. which amongst other things will make it possible digital payment companies such as PayPal, have focused settlements. Government, in recognizing the concern, for non-banks to provide payment, clearing and Banks, mobile network operators and the private almost exclusively on one or a few core businesses with devised a programme to ensure a continued supply of 89 settlement services without partnering with banks. financial sector role-players should begin the relevant no offline integration across business lines. goods and services in these vulnerable communities.

54 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 55 innovations and product offerings that will deliver a ownership, portability and system operability- all of which Regional or even continental coordination in the case continent and through the ACF could be geared towards cashless future for South African consumers. Solutions remain key elements that will ensure fair competition in of Africa is imperative as it will provide more leverage finding a common regulatory approach to assist local by firms that enable the participation of marginalised banking services. in dealing with issues that may have a regional or start-ups to gain scale across African markets, particularly groups should, in principle, be supported through continental dimension. These may include merger as the AfCFTA progresses. Developing markets are From a consumer protection perspective, the regulation. However, South Africa’s regulatory framework transactions amongst digital firms with a stronger typically small and so cannot build the scale in home Commission notes that the FSRA has established the has not always achieved this balance, as has been the regional presence than their position globally, or where markets that the United States and European Union Financial Sector Conduct Authority (FSCA) to regulate case concerning mobile money operators and their there is a shared developmental objective. Much like firms can. So, for ease of rollout, a common regulatory the conduct of payment services providers in the NPS attempts to access the payment system. Mobile money the European Union, stronger regional or continental approach would enable local African start-ups to meet to protect consumers. The Commission understand that operators in South Africa constitute non-banks. They, coordination would also permit greater consistency in the global challenges. the SARB is working closely and supporting the FSCA in therefore, cannot settle and clear payments and must approach across Africa which might also provide benefits developing the COFI Bill which will introduce consumer Beyond coordination on the African continent, developing therefore be sponsored by a registered bank to operate. to such global companies and African ones demanding protection regulation in the NPS. countries need to explore ways in which enforcement This dependency increases costs for the operator and scale from cross-border expansion. and remedial action in the larger jurisdictions are rolled constrains its ability to be an effective competitor with Given the overlaps, in the activities and mandates of the Coordination might also resolve some of the resource out to smaller jurisdictions. Sometimes this happens registered banks. Stakeholders interviewed during the financial sector regulators, the Commission will continue constraints that would face individual authorities in naturally, for instance where there is a common global Commission’s banking inquiry noted that there were to engage them as necessary. The Commission has in 2020 dealing with these matters. We, however, note that the digital service interface such that any remedial changes conflicts of interest between banks and mobile money been accepted as a member of the Intergovernmental current regional or continental bodies (for example are applied globally. However, in many instances, this is operators which made such joint ventures difficult. The Fintech Working Group (IFWG) which was established COMESA or SADC) operating in Africa may not not the case. One solution is for smaller jurisdictions to Commission supports a framework that moves away from in 2016 to create a forum for regulators to gain deeper readily have the required legal instruments to allow monitor and keep abreast of investigations and referrals a focus on the players (bank vs. non-bank) but focuses insights into the fintech landscape in South Africa and for regional enforcement such as there may be with a in other jurisdictions. Again here, the role of the ACF on the desired activities and outcomes. As pointed out identify an appropriate regulatory response. Other supranational competition regulator on the continent. as a platform for coordination could be instrumental in by the SARB activity-based regulation will ensure that members of the IFWG are the Financial Intelligence Whilst there is some progress observed in establishing collating and disseminating such information. The aim entities involved in the provision of payment services are Centre, the Financial Sector Conduct Authority, the the African Continental Free Trade Area (AfCFTA), this would be to determine relevance for each jurisdiction regulated accordingly irrespective of whether the entity National Treasury, the South African Reserve Bank, the does not preclude initiatives by domestic competition before seeking a similar order against the firm leveraging is a bank or non-bank. National Credit Regulator and South African Revenue regulators to use the platform provided by the AfCFTA off the foreign finding. Longer-term, we might seek Service. The Commission continues to engage with the Ultimately the Commission favours a technology-neutral to consider mechanisms that would deepen cooperation a legal instrument for facilitating automatic changes IFWG and its members on competition issues arising on regulatory approach that promotes the inclusion of on the continent with particular focus on the impact of domestically where adverse findings are made against a wide range of issues including the use of regulatory fintech and enables their access to the national payments digitalisation. a global firm operating the same business model locally. sandboxes and open banking. system, banking platforms and provides for their Currently, developing countries which are signatories to Given the substantive harmonisation of most competition licensing in a fair regulatory landscape. The Commission Finally, despite the promising reforms of the financial the UNCTAD-DGIC (Discussion Group on International laws on the continent, there is scope to springboard acknowledges the intention of current legislation to system that are underway, the Commission remains Cooperation) have, in principle, agreed to a cooperation closer enforcement cooperation in anticipation of protect and maintain the integrity of the payments concerned about the pace at which regulatory framework which allows for information exchanges and African economic integration through the AfCFTA. system, however, it should not result in eliminating developments take place in the sector; given the rapid debate on enforcement action with a cross-country The first step towards this is ensuring that all member potential benefits for consumers. In this regard, the pace of digitisation and developments in the sector, there impact. However, the extent to which this legal instrument states across the continent pass relevant competition financial regulators should explore regulation that can is a risk that regulators may lag. The need to resolve the would be sufficient in addressing enforcement action for laws and regulations, which should be supported by allow non-banks such as mobile network operators (and socio-economic and inclusion issues, as depicted above, digital markets remains uncertain. strong enforcement institutions that will anchor the now big tech) to enter the national payments system, is also very urgent. The Commission thus welcomes the implementation of competition policy and regulation on Over and above regional and global coordination of settlement and clearance system. In particular, financial prioritisation approach taken by the SARB in finalising the continent. competition, it is clear to the Commission that similar system regulators should review the ecosystem of the financial regulatory processes underway. coordinated efforts should be advocated in the spheres regulation that enables entry and participation in the Further, the African Competition Forum (ACF), an of consumer, data protection and data governance laws. system, including licencing and trading condition, data organisation consisting of 32 African competition Lessons can also be gleaned from the European Union’s regulators and 6 regional bodies could be leveraged to General Data Protection Regulation, which took effect in develop formal committees dedicated to systematically 4.6 A Role For Regional Coordination May 2018. Such coordination should also be supported ensuring and recording the consistent enforcement of concerning sector-specific issues, for instance, in the competition laws across the continent, capacity building financial sector, it is notable that the SARB is represented and technical assistance, exchange of information and There is a greater need for coordinated enforcement which they operate. Indeed, the EU itself has adopted a at the Southern African Development Community best practices as well as research and advocacy. These action and regulation regionally and globally. It is evident “Single Digital Market Strategy” to realise these benefits (SADC) Committee of Central Bank Governors (CCBG) new areas that could be undertaken by the ACF need to that even for larger jurisdictions like the European Union, for its citizens and firms within the European Union. and participates in the CCBG sub-committees. CCBG be supported by existing authorities both domestically a cooperative approach provides greater leverage and Fortunately for the European Union there exist political committees have assigned several initiatives to the SARB and within Regional Economic Communities (RECs) enforcement resources, but also enables common and legislative means of doing so, but this is not the case on fintech and digital solutions related matters. recognised by the African Union. Given the common solutions to be found that might result in more consistent for developing countries like South Africa. We need to developmental agenda, further cooperation within the regulation of these global firms across jurisdictions in find one.

56 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 57 sector. The Government itself should remain a key role to the European Union’s recovery from the coronavirus player to ensure investment in strategic sectors of the crisis and help build a ‘green and digital Europe’. 95 local digital economy, by providing financial assistance The Commission supports a position of prioritisation but also considering other measures such as providing of strategic sectors. In this regard, the South African access to data that ensure that players in these sectors government should be able to identify those domestic are incentivised to innovate and to keep innovating. CHAPTER 5 sectors that are prime for digitisation such a healthcare, There is evidence to support the idea that targeting education, agriculture and manufacturing and make and prioritising specific industries for large scale and efforts to support such sectors. The support should also accelerated digital penetration can spur on faster, deeper ensure that the participation of SMEs and firms owned by and more meaningful growth in digital markets than if HDIs are encouraged and protected. The Commission’s digital development were to occur without prioritisation. response in its regulation of sectors would also have In India, for example, newly digitising sectors – such to consider the prioritisation of such sectors as part of as financial services, agriculture, education, retail and the country’s digital industrial policy. The digitisation of INDUSTRIAL POLICY IN THE DIGITAL ECONOMY logistics - are expected to deliver significant economic the industry in the country will ensure that the country value by 2025. These industries are thus touted as not only achieves its developmental goals but ensure The development of internet-based digital technologies Competition law enforcement plays a supporting role worthy of investment for the returns they are likely to greater participation for more South Africans. calls for a new type of national industrial strategy. in the overall policy direction taken by the country and generate in the digital economy. The benefits of digital Over and above financial support the government could Competition and industrial policy require updating for the should work to build on the interventions that have been applications to productivity and efficiency in each of take initiatives to create an environment conducive for digital age to ensure equitable access and participation earmarked by the government. In this way, competition these newly digitising sectors are already visible. For innovation. The earlier example of making data widely for all in a country’s economy. Most countries have policy and industrial policy can align in making digital example, in logistics, tracking vehicles in real-time has available is one such example. The government can adopted various industrial policy instruments to enable markets competitive. and open for greater participation. enabled shippers to reduce fleet turnaround time by 50 also invest in building innovation and tech hubs that their growth and development in the digital economy to 70 percent. Similarly, digitising supply chains allows Understanding the opportunities and limitations of would support entrants. Such an approach would also and many have worked over the years to modify them. companies to reduce their inventory by up to 20 percent. digitalisation in the South African context will provide position South Africa as a regional hub for innovation These instruments include data policies, fiscal incentives Farmers can cut the cost of growing rice by 15 to 20 important insights into the policy direction that needs to and infrastructure by building domestic capabilities. including tax breaks, investment and incentive schemes, percent using data on soil conditions that enables them be taken. South Africa continues to be plagued by high The potential that will arise from the AfCFTA cannot be supporting strategic sectors, public procurement, trade to minimise the use of fertilisers and other inputs.93 levels of unemployment, poverty and concentration, overlooked. Similarly, as the EU has taken an EU-wide instruments (tariffs and duties), education and skills and thus policy should strive to address these and China, on the other hand, has seen varying degrees of approach, there is a potential here for an African-wide, development as well as research and development achieve the developmental goals of the country. And digitalisation across sectors with the least digitalised industrial growth and development. (R&D). These strategic industrial policy levers should the historical exclusion of many South Africans means being agriculture. Overall, the service sector is the most feature in a national digital framework that will act as The DTIC is developing several master plans to help that the entry and participation of more South Africans digitalised, with ICT contributing to 33 percent of the a roadmap for the wider industrial effort in the digital create conducive conditions for local industries to grow. in the economy should remain a priority. The focus on sector’s value-added in 2017. The industrial sector is economy. These are industry-led partnerships with the State, to investments and innovation seems to be most in line lagging, with ICT contributing 17 percent of its value. identify high growth areas for targeted investment and Many countries have chosen varying approaches in with the direction South Africa should take. In this The agriculture sector is the least digitalised, with only other support such as enterprise supplier development their response to the digital economy. However, lessons regard, the government can employ tools to ensure 7 percent of digitalisation. There is also substantial initiatives in key sectors of the economy, including the learnt from those that have been able to harness the more inclusion for SMEs who can participate in the variation among subsectors. In services, the most ICT digital, automotive, steel, textiles, sugar and furniture potential brought about by the digital economy show sector. These tools can be direct (e.g. special funds) or intensive subsectors are mostly in financial services and industries. The master plans should also promote an increased focus on supporting innovation and even indirect (e.g. tax rebates). Investment including entertainment; In the industrial sector, the advanced investment and innovation and create an environment technological development to support the growth of the those that are non-financial (such as skills development) manufacturing sector is also more digitalised.94 conducive to participation by SMEs and HDIs. digital economy. This is done through a mix of traditional will go a long way to ensure that domestic SMEs can Lessons that can be learned from such countries include policy instruments and new regulatory approaches to participate in the digital markets. In summary, South Africa needs a cross-cutting national the fact that there is direct action from the government promote innovation and address digital policy issues.91 digital strategy that: Though there is a recognised role for the private sector to identify these sectors and invest in them. Though it is Interventions employed in countries also focus on to play in the investments in the sector, in a country like difficult to quantify the nature of the investments made, strategies that are cross-sectoral and address different • includes an investment strategy to guide the South African access to private financing or venture it is clear that these are substantial and are not incidental. policy objectives related to their society. Common sectoral approach in each sector. In this regard, capital remains a challenge. It is for this reason that For instance, in 2020 the European Commission objectives include the development of broadband the industrial policy must facilitate investment in (i) the public sector will have to take a proactive step to announced a revised Digital Education Action Plan infrastructure, the promotion of the digital sector, digital infrastructure, (ii) skills development, (iii) key ensure that investment in this sector occurs. As part with an emphasis on Europe-wide enhancement strengthening of e-government, encouraging adoption sectors in the digital economy and (iv) participation of its industrial strategy, policy makers in South Africa of connectivity, infrastructure and cooperation and of digital technologies by businesses and SMEs, and the by SMEs in these sectors; should create an environment that promotes the support providing access to digital skills for all. The plan is part promotion of general ICT skills and competencies.92 of innovation by local firms, ensures their ability to of a package that includes two initiatives designed to • includes stimulating investment in enterprise compete globally, and further investment by the private strengthen the contribution of education and training development by creating a conducive regulatory

58 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 59 framework for digital firms and by undertaking active support measures, which may include establishing technology or innovation hubs and incubators, building or improving e-government services, supporting innovative financing approaches and instituting skill-building programmes; CHAPTER 6 • identifies new and niche markets for digital firms, such as digital applications adapted to specific conditions in sectors such as agriculture, education and health;

• uses emerging technologies to boost the governance of public procurement, such as algorithmic trading software.96 IMPACT OF COVID-19 ON THE DIGITAL ECONOMY

The onset of COVID19 has had a major impact on prices due to their home-based digital offering. For both the industrial economy and the digital economy. instance, shares in technology companies such as Zoom According to the International Monetary Fund (IMF), the shot up, as more people relied on video conference calls pandemic is anticipated to cause a recession in several and email to hold meetings or get tasks done. Amazon’s developed countries.97 The IMF described the decline as share price hit new highs, while streaming platform the worst since the Great Depression of the 1930s. Netflix was at one point a more valuable company than oil giant ExxonMobil.103 The impact of the pandemic on individual businesses, though largely negative – as can be seen from global Here at home, the government’s response to COVID19 economic figures – has varied depending on the nature exposed the economic divide in the country. Since of the business. Firms operating in travel, tourism and the start of the national lockdown, news media were hospitality were hard hit as governments around the reporting on scores of families who went from earning world ordered national lockdowns, social distancing little to earning nothing on very short notice – leading protocols and issued stay-at-home orders. At the same them to feed on food parcels being handed out by the time, however, other companies experienced a rise in State and humanitarian groups. fortunes like they had never anticipated before. The digital divide was also exposed as those with low While Comair – an airline that has run a profitable or no connectivity struggled to maintain productivity operation for 74 years – began business rescue at work or to keep the school going children educated proceedings in May 202098, Amazon advertised 100 000 at the same pace as their connected peers. When the full-time and part-time positions in its fulfilment centres government ordered a national lockdown, many schools and delivery network as e-commerce demand spiked.99 asked parents to ensure that learning continued at As 90 staff members of the Hilton Hotel in Cape Town home. Online learning was touted as an obvious way reported that they were struggling financially, after they to keep lessons going, however, only a few schools had were not paid their April salaries by the ailing global hotel well-established online learning systems. Additional group100, Google offered its full-time global workforce, challenges for parents included limited data access numbering more than 100 000, 14 weeks of family leave and power blackouts.104 Companies like Telkom, Khan due to the global pandemic. According to the tech giant, Academy, Mindset, Siyavula, MTN and Vodacom helped employees could choose to take consecutive weeks off by zero-rating educational content on their platforms. or adjust their working hours over several days.101 Another consequence of low connectivity during the Uber and Lyft, both popular e-hailing companies COVID19 restrictions is the limited access to work dependent on the movement of people, reported that opportunities that the unemployed face. Under level 4 their businesses had “all but collapsed in March” though restrictions, for instance, food deliveries were permitted they were confident of a turn-around in future.102 Some which meant that e-delivery companies like Uber Eats technology companies experienced an increase in share and Mr D Food were able to operate. These firms rely

60 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 61 Africa’s slow progress in harnessing the benefits of the digital economy. Undoubtedly, those with better connectivity have been faring better under COVID19 Figure 6: Shares in Zoom, Netflix and Amazon on the rise restrictions than those with no connectivity. COVID19 has thus highlighted the need for South Africa to speedily take up the reforms offered by the digital economy.

COVID19 locally, as with internationally, has provided the impetus to the online economy as the response to the crisis has promoted online commerce at the expense of brick ‘n mortar retailers, and online work solutions using a range of online tools. This is partly the result of lockdown rules which favour online commerce, but also due to consumers seeking to limit their exposure. The sudden step-change rise in the digital economy creates opportunities for new entrants and business models due to market demand growth. However, it also provides scope for dominant online firms to entrench and abuse their position.

For instance, the dependency of restaurants on online delivery platforms when they remain closed to walk- in customers results in a shift in market power to these platforms. Reports are that numerous chains are not opening due to the uneconomic commissions charged by the delivery firms. Practices such as MFN pricing for on networks of drivers to service their customers, but basket. These are food items which are purchased first restaurants may limit the emergence of competitors, potential drivers would need reliable connectivity to by most families in South Africa, which take priority over or the spike in demand may facilitate the rapid rise of become part of the network. more ‘luxury’ items.105 These outcomes raise questions a competitor. Similarly, online commerce may start to about the conduct of market participants throughout consolidate around the market leader, or the rapid The competition and consumer authorities have also the food value chain, from farmers to retailers, and their growth may provide the impetus for retailers to invest in been confronted with a large pool of complaints impact on food inflation. their delivery systems. on excessive pricing of essential products since the declaration of the national disaster. Retailers and The Commission has successfully prosecuted two firms Either way, the accelerated shift to the online economy pharmaceutical companies experienced a surge in before the Tribunal, namely, Babelegi Workwear and Dis- will reduce the timelines for enforcement action. A sales of certain products due to ‘panic buying’. The Chem Pharmacies for excessive pricing of face masks decisive and proactive stance needs to be taken in order consumer protection regulations were, as a result, issued during the pandemic to the detriment of consumers.106 to ensure the balance of economic forces favour a shift to in March 2020, which together with existing competition It has also concluded settlement agreements with facilitating entry and a more competitive digital market. regulations, deal with pricing and supply matters during several firms that admitted guilt on price gouging and This requires removing the entry barriers, including the national disaster. The objective of these regulations agreed to pay penalties. The Commission is currently those erected by dominant platforms, and preventing is to prevent unjustified price hikes. pursuing complaints on excessive pricing, price consolidation at this critical moment in the development discrimination and exclusionary conduct against an of the online economy in South Africa. Food inflation is reported to have spiked in 2020. Research online retailer, a global internet group and food delivery shows that food prices rose by 17% over the course of companies. Investigations have also arisen regarding 2020, spiking much higher than inflation for the year. In the procurement processes that several government December 2020, the total price of a basket of food to departments and agencies have undertaken in this feed a family in a month was R4,002.42, marginally lower period. than the same basket in November (R4,018.22). However, when comparing a like-for-like basket of goods between Even though several companies operating in digital December 2020 and December 2019, a family would be markets have been able to come on board to contribute paying almost R520 more. Worryingly, the price hikes solutions to the education concerns brought about by are being driven by some staple and ‘core’ foods in the the national lockdown, the pandemic exposed South

62 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 63 For this reason, the Commission strategy incorporates entrants to enabling assets such as the private South advocacy around a broader set of competition policy African consumer data accumulated and held by and regulatory tools aimed at ensuring these markets dominant companies, many foreign, whilst at the same remain contestable. That chapter sets out the areas time protecting consumer privacy and security. which the Commission believes are necessary to retain The Commission also calls upon platform-based firms a contestable and inclusive digital market space, and CONCLUSION and other companies operating in the digital space to some of the specific principles of regulation that the heed the principles of inclusivity and competition. Commission believes are necessary. These include level playing fields and facilitating access by potential

Regulation in the digital economy

Competition law in the digital era According to Arbache, the Vice President of the with the WTO to develop international standards to Development Bank of Latin America, it is widely agreed regulate digital protectionism. that governments of emerging economies need to The Commission recognizes that markets in the digital to be effective. Market conduct needs to address conduct Consumers find themselves in a paradox whereby they work on several fronts in order to enable the digital economy present novel challenges in detecting, which may exclude rivals and entrench dominance, are empowered by technological changes, but equally, transition and reap the associated benefits. These areas assessing and remedying anticompetitive conduct and whilst merger control needs to be vigilant against face greater vulnerability because of digitization. The of intervention include reducing capacity constraints transactions. Further, although the digital economy acquisitions which strengthen conglomerate and data Commission raises data protection as a central element and improving skills; investments in ICT ecosystems, operates globally with little regard for physical borders advantages of leading digital firms that may be used in consumer protection that regulators must consider. connectivity, and digital infrastructure; agreements to and local considerations, it remains in the interests to exclude rivals in future. Merger control also needs to Data privacy and consumer protection must be balanced promote ICT adoption and diffusion as well as market of all South Africans to promote a competitive digital ensure that potential competitors in adjacent product with intellectual property rights that are suitable for the access; regulatory frameworks that foster competition landscape that enables inclusivity rather than exclusivity, markets or other geographic markets enter and contest digital world. and market conditions; and policies to boost investment supports opportunities for work and that encourages the the digital market space in South Africa rather than and innovation. These interventions are similar to those establishment and growth of local digital players. This buy up leading existing competitors in those spaces. When regulating for specific sectors such as tourism put forward in this publication. It is the Commission’s is not only the responsibility of regulators but also firms Cartel enforcement supports through ensuring that new and transport, in response to the disruption posed by view that pursuing pro-competitive policies and operating in the digital economy and their local branches methods of collective abuse are not exploited by firms share-economy platforms such as AirBnB and Uber implementing pro-competitive reforms, where required, where these exist. In this regard, firms are encouraged to that should be competing to deliver better consumer respectively, the Commission supports the stance where will contribute positively to South Africa’s desire to be aware of the type of conduct that could amount to products and prices. rules are applied equally across the board amongst all achieve more equitable levels of equality, employment anti-competitive conduct in the Competition Act and to competitors. In this regard, The Commission supports Such a programme also requires that the Commission and shared prosperity. operate in a manner that honours the letter and the spirit the stance where rules are applied equally across the commit to dedicating resources to improve its knowledge board amongst competitors, with regulation that is aimed of the provisions set out in the Act. In this document, we suggest ways for Government and of markets operating in the digital economy and develop at levelling the playing field and reducing regulatory policy to consider in regulating respective sectors. We The over-riding strategy in the enforcement of tools for appropriate detection and assessment of anti- barriers to entry and expansion. proposed regulatory principles for lawmakers to take competition law is to proactively prevent what are mostly competitive conduct and transactions in the digital into account when designing policy interventions. These contestable digital markets currently from becoming economy. It also requires that the Commission commit to As such, we advocate for a technology-neutral approach are principles aimed at ensuring fairness in markets and concentrated. This strategy is premised on the fact that specific interventions designed to preserve competition that minimizes distortions in markets. The Commission promoting greater inclusion and participation of new or digital markets have tendencies to tip towards a ‘winner where it exists and prevent abuse where it is absent. The supports the stance where rules are applied equally smaller players. takes all’ environment, or one where a few firms dominate, Competition law strategy outlined in this chapter seeks across the board amongst competitors, with regulation that is aimed at levelling the playing field and reducing and the accepted difficulties in reversing that position to achieve that. In this strategy document, we have made the call for regulatory barriers to entry and expansion. once the markets have tipped, as well as regulating urgent investment in technological infrastructure: Globally competition authorities appreciate that this the behaviour of dominant firms. A strategy aimed Investment decisions should be linked to policy objectives tendency to concentration in part reflects the underlying This principle is equally applicable to financial sector at retaining contestability also supports the broader in a National Digital Strategy that guides the sectoral economic characteristics of many of these markets, and regulation, which has the potential to promote greater objective of more inclusive digital markets and a reversal approach in each priority sector is needed. Measures facilitating a level playing field may require a range inclusion among the poor and unbanked, whilst also of some of the high levels of concentration in industrial must be created that facilitate investment to (i) digital of other policy tools, such as data access and privacy harnessing opportunities provided by FinTech. The markets. As such, it is consistent with the overall mandate infrastructure, (ii) skills development and (iii) digital firms regimes, to best address these market features and South African Reserve Bank and its family of regulators of the Commission in respect of reducing concentration (SMEs). Further, the Government can influence market retain contestability of markets. The Commission shares can begin to prepare the relevant regulatory environment and increasing participation in the economy. structure by supporting selected suppliers that will boost the view that competition law alone cannot address the that will enable connectivity, in anticipation of a move industrial competitiveness. Support can be in the form A proactive competition law strategy requires strong tendency to concentration in digital markets. towards a cashless economy. Given the potential entry of subsidies or indirect support (access to global value coherence across the different elements of enforcement of big tech into the financial industry, the rules which chains) to domestic SMEs. The government must work govern how banks interface with commercial activity

64 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 65 should be reviewed or clarified in a way that prevents APPENDIX risks, whilst enabling competition. The regulatory emphasis should remain on financial stability but also on financial networks more broadly. Fintech must be regulated to ultimately promote the stated benefits, Table 6: List of stakeholder submissions received namely financial inclusion, technological innovation, employment creation, economic growth and market efficiency - which requires a more collaborative approach 1. AirBnB to regulation going forward. 2. Alliance for Affordable Internet Overall, the Covid-19 pandemic offers an opportunity for stakeholders to fast-track the implementation of solutions 3. American Chamber of Commerce in South Africa to South Africa’s intractable problems; the pandemic 4. Association of Competition Law Practitioners also offers an opportunity to reset the socio-economic contract among South Africans. Business, Government 5. Banking Association South Africa and the competition authorities can respectively and together, reset their agendas in a manner that enables 6. Centre for Competition Regulation and Economic Development us to realize the digital future imagined, as articulated at the beginning of this document. 7. Computer & Communications Industry Association

Once again the Commission is grateful for the valuable 8. DG Murray Trust submissions of all stakeholders who contributed to this 9. Ecommerce Forum of South Africa the second version of the Commission’s strategy on competition regulation in the digital economy. 10. Facebook

11. Google South Africa Authors: Khanyisa Qobo, Nandisile Mokoena, Sipho 12. Information Technology Association Mtombeni, Daniela Bove and Tankiso Thibane. 13. IT for Change With contributions by James Hodge, Thembalethu Buthelezi and Seabelo Molefe. 14. MTN

15. Naspers

16. National Association of Broadcasters

17. National Payment System Department (SARB)

18. RBB Economics

19. Research ICT Africa

20. Richard Hill

21. Takealot

22. Uber

23. US Chamber of Commerce

66 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 67 39 Törgren, O. (2017). “Mergers in big data-driven markets - Is 55 Organisation for Economic Co-operation and Development. END NOTES the dimension of privacy and protection of personal data 2016. “BIG DATA: BRINGING COMPETITION POLICY TO something to consider in the merger review?”. Stockholm THE DIGITAL ERA”. Accessed at: https://one.oecd.org/doc- University, Faculty of Law. Available at: https://su.diva-por- ument/DAF/COMP(2016)14/en/pdf last accessed 15 March tal.org/smash/get/diva2:1186978/FULLTEXT01.pdf [Last 2020. 1 Hall (September 2017) Purpose of Economics 21 Kiran Bhagesphur (2019) for Forbes – Data is the new oil – And accessed on 26 February 2020] that’s a good thing 56 Conglomerate effects is the theory that a company will be 2 Figures 1, 2 and 3 are developed by We Are Social and Hoot- 40 ACCC (2019) able to leverage a strong market position in one product suite. Available from https://wearesocial.com/blog/2020/01/ 22 Sourced from https://www.thestreet.com/technology/what-is- market across to a complementary or similar product mar- digital-2020-global-internet-use-accelerates and last ac- fintech-14885154 and last accessed on 02 April 2020 41 We note however that it does introduce a new theory of ket in which it is also active with the result that the markets cessed on 28 April 2020 harm that effectively involves major digital platforms buying 23 Adapted from https://www.fintastico.com/ accessed on 2 could become incontestable. https://ec.europa.eu/compe- up small digital start-ups as a defensive strategy to create 3 Statista Digital Market Outlook 2019, an online portal for sta- April 2020 tition/information/digitalisation_2018/contributions/ert.pdf and protect their ecosystems (p124) tistics. 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68 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 69 74 For more information on the necessary regulatory environ- 88 China’s Digital Economy: Opportunities and Risks, IMF work- ment in this sector refer to the Data Market Inquiry Report at ing report prepared by Longmei Zhang and Sally Chen, Jan- NOTES page 42 accessible at http://www.compcom.co.za/wp-con- uary 2019 tent/uploads/2019/12/DSMI-Non-Confidential-Report-002. 89 China’s Digital Economy: Opportunities and Risks, IMF work- pdf last accessed on 19 March 2020 ing report prepared by Longmei Zhang and Sally Chen, Jan- 75 OECD Tourism Trends and Policies – Chapter 3, Policies for uary 2019 the tourism sharing economy 90 http://www.resbank.co.za/RegulationAndSupervision/ 76 Hoffmann, J. and Johannsen, G. 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