Skip to content

Africa: Highlights from Bowmans’ 12th Annual Africa Competition Law Conference 2024 (2 of 3)

15 April 2024
– 11 Minute Read

DOWNLOAD ARTICLE

Overview

  • Bowmans hosted its 12th Annual Competition Law Conference in Nairobi, Kenya, in February this year. The conference theme ‘Towards Convergence’ was contextualised within the development of a competition protocol under the African Continental Free Trade Area (AfCFTA) agreement. The topic invited discussion from delegates on the interactions among various African competition regulators and the anticipated evolution of competition laws towards harmonisation among differing competition regimes.
  • This article, the second in a series of three highlighting the key points of the discussions, addresses on developments in the enforcement of competition law in digital markets.

This is the second in a series of three articles summarising the key points of discussion during Bowmans’ 12th Annual Africa Competition Law Conference, held in Nairobi, Kenya, in February 2024. 

The second panel focused on the enforcement of competition law in digital markets. The panel members included:

  • Heather Irvine, moderator / partner, Bowmans South Africa
  • Jacob Muller, associate principal, RBB Economics
  • Judd Lurie, partner, Bowmans South Africa
  • Mutugi Mutegi, senior associate, Bowmans Kenya
  • Thomas Janssens, partner, Freshfields
  • Wangechi Gichuki, head of Legal and Secretarial Services, Safaricom, Kenya

The scrutiny of digital markets, and in particular, large global players and ‘gatekeepers’ is a key trend in competition regulation across the globe.  In Europe, legislation is in place to regulate digital gatekeepers under the Digital Markets Act, and in the United States, regulators are examining how corporate power is amassed and its consequences for workers, consumers and the environment. In African markets, established regulators are debating whether existing laws can be applied to the specific – often unique and still-evolving – dynamics observed in digital markets and what interventions are needed to safeguard competitive and public interest outcomes.

Regulators and policymakers have recognised that advancements in digitisation provide opportunities for social upliftment, employment creation and poverty alleviation while at the same time are cautious to guard against the potential for the marginalisation of vulnerable people within the economy.

For all regulations and interventions contemplated in digital markets, a key issue is the appropriate standard of assessment given the possibility of unintended consequences of interventions on innovation, accessibility and efficiency of digital services. 

The discourse with respect to digital markets also includes questions of concurrent jurisdiction among sector regulators and competition authorities, as well as between continental, regional and national competition regulators. 

What is a digital gatekeeper?

‘Digital gatekeepers can be defined as digital intermediaries that are difficult to bypass. They are platforms in the sense that their business models are based on network effects, data-analysis and scope-economies.’

– e-conomics.eu

A competition regulators’ toolkit: merger review, market inquiries and behavioural investigations

Competition regulators in Africa have also directed their attention to digital markets – in the main through market inquiries, but also via an expanded scrutiny of mergers in the sector.  In Kenya and South Africa, a clear trend has been for the competition regulators to seek to understand market dynamics holistically by way of market inquiries. These jurisdictions have also expanded their scrutiny of mergers within the digital sector. 

It is anticipated that mergers within the digital space will likely continue to attract closer merger review scrutiny from competition authorities, including those transactions that would ordinarily not trigger merger review thresholds. To this point, it was discussed that the Competition Authority (CAK) asserted its jurisdiction in a transaction involving the acquisition of a microfinance bank by a player in the digital finance space. The transaction met the thresholds for an exclusion application under the Kenyan merger control regime, however the CAK conducted a full merger review. 

In South Africa, the South African Competition Commission’s (SACC) approach has been formalised through non-binding small merger guidelines which advise that the SACC should be informed, and potentially notified, of small (ordinarily non-notifiable) mergers within the digital sector. 

Merger reviews allow for an ad hoc assessment of market effects on a transaction-by-transaction basis, and panellists noted the strong uptick in the use of market inquiries to assess market structure and competitive dynamics of markets as a whole. A market inquiry can provide a powerful tool, allowing competition authorities to assess a wide range of issues, including market structure, firm behaviour, participation and access, consumer choice and pricing.

Market inquiries may involve a current and forward-looking assessment whereas investigations into conduct focus on the alleged conduct and its effects at a point in time. The panel discussed that the standard of proof appears to be less rigorous than for a conduct investigation, and that markets may be more loosely defined in the context of market inquiries than required for mergers or conduct investigations. Further, as elements of the assessment involve an ex-ante analysis, there is a less stringent requirement for a competition authority to prove specific harm.

For both merger reviews and market inquiries, regulators are able to require remedies to address perceived competition (and in some jurisdictions, public interest) harms.  Following its market inquiry into online intermediation platforms, the SACC formulated fairly novel and arguably far-reaching remedies. The remedies that were focused on addressing competition issues related to self-preferencing, access (to information and/ or platforms), parity clauses and anti-steering in the case of app stores.  Interestingly such public interest focused remedies are intended to preference South Africa and include requirements to committed spending to facilitate the participation of small medium and micro enterprises and historically disadvantaged persons in markets, as well as preferences afforded to South African app developers for free advertisement credits. In South Africa a number of firms have sought to challenge the SACC’s remedies before the Competition Tribunal or before traditional courts. These cases are, however, still in their infancy.

It was also noted that market inquiry provisions exist independently from other behavioural provisions and that there is no reason why competition authorities cannot also launch investigations into specific conduct such as abuse of dominance in addition to a market inquiry. In addition, aggrieved third parties can, and have, sought interdictory relief before the competition authorities and other courts for abusive conduct within the digital space.

Challenges for effective analysis and intervention

The rapid rate of growth of firms and systems within digital markets has signalled a level of urgency amongst competition and sector regulators, but economists caution that there are complexities attaching to the assessment of, and intervention in, digital markets.  The economic experts underscored the importance of in-depth analyses before steps are taken to intervene in digital markets. 

Considering that the standard of proof for impediments to competition and levels of analysis are lower, that the subject markets are highly innovative and dynamic, and that forward looking analyses are likely to be applied, assessments can run the risk of being speculative with the further risk of over-intervention. Furthermore, economists warn that there is limited information on the full implications of interventions or remedies. The issues are further complicated as competition regulators may seek to intervene to achieve both competition policy objectives as well as consumer and public welfare ones in the context of developing economies. 

Tipping or swinging?

Concerns with respect to the ‘tipping of markets’ relate to the observed tendency of certain digital markets to tip in favour of one or a small number of firms, endowing these players with the ability to limit access to customers, monopolise information, or otherwise act as ‘gatekeepers’.

While these market features can foster abusive conduct by monopolistic or oligopolistic firms, economists stress that such markets may remain highly contestable notwithstanding that they are concentrated. For example, an analysis of the market can reveal that they are contestable, with consumers exercising sufficient bargaining power through practices such as multi-homing.

What is multi-homing?

Multihoming describes behaviour where a user consumes similar services from multiple service providers. For example, a single user may purchase multiple content streaming services.

Further, as regards platforms, the scale achieved by the platform is itself what generates benefits for consumers – allowing them a single point of access to a large range of sellers. Where markets are contestable, pursuing interventions aimed at de-concentration could risk losing these benefits for the small businesses and consumers.

Crystal ball gazing

A further challenge is the difficulty of predicting the future in digital markets, and particularly in developing economies. While this difficulty is often what drives urgency in the pursuit of interventionist approaches, it has also been cautioned that the lack of information under an ex-ante assessment risks false positives and risks preventing conduct which may ultimately benefit business, consumers, and competition.

Transitory effects vs long-term outcomes

When observing platforms it may be the case that, at face value, their conduct appears to harm small businesses’ or historically disadvantaged persons’ ability to access consumers or compete against their larger rivals.

However, these observed outcomes may reflect only short-term effects. Dynamics in the market producing large scale players may be driven by a desire for a platform to be able to attract more consumers and in so doing, to be able to compete more effectively with other platform rivals, which in the long run may create greater participation opportunities to the businesses using these platfo

As such, there is a need to consider and balance the observed short-term effects against the potential long-term outcomes.

Given these challenges and various other complexities associated with digital markets, it is critical that regulators have a clear understanding of the business and operating models of firms within the digital sector, as well as the nature of the competitive dynamics that take place. 

Conversely, economic and legal experts underlined the importance for businesses to communicate a clear narrative around their competitive process and business models and to be able to demonstrate how their conduct is driven by a pro-competitive motivation, even if at face value, it may appear to have negative effects.

The concern that arises from market inquiries is the hazard of ex-ante interventions applied to behaviour that is transitory and/ or that have unintended consequences such as the dampening of innovation and investment. 

It was suggested that instead of the current approach, which involves tweaking existing business models directly, it that it may be more appropriate in digital markets to consider whether any measures affect contestability and for authorities to seek to address these specific market failures.

Jurisdiction and convergence – overlap between sector regulation, national and supra-national competition laws

Market participants welcome a more harmonised approach between regulators as it provides greater clarity and certainty when operating in and across jurisdictions. 

The goal of continental free trade across Africa requires convergence in approaches to the regulation of key sectors to create consistent, efficient, and cost-conscious regulatory frameworks. The advantage of convergence is that it will allow businesses to tap into larger and more diverse markets and stimulate competition. Multiple standards and laws across jurisdictions create impediments to geographic market entry and can limit competition within the region.  

Firms operating within the digital, data, technology, media and telecommunications space may be subject to sector-specific regulation which may include provisions relating to competition.  These sector regulators have particular insights with respect to the market and the operations of the firms competing in the space.  At the same time, specialist competition regulators have a broader remit, with oversight of market-wide dynamics.

The panel commentary suggested, however, that there need not be tension between these regulators, and that there are likely benefits from appropriately defined coordination and cooperation among agencies. In Kenya, such an arrangement is in place between the Communications Authority and the CAK, allowing these bodies to collaborate in the assessment of conduct. 

As regards jurisdiction, it was discussed that founding jurisdiction on the basis of the effects of particular conduct could raise challenges as to the effectiveness of enforcement of any determinations made by a competition authority.  

A competition authority may well establish jurisdiction to investigate and impose remedies on the basis of the anti-competitive effect of the conduct notwithstanding that the conduct took place outside its jurisdiction. However, enforcing any such remedies may be challenging where the respondent firm has no presence in the jurisdiction in question. It was discussed that it should be possible for courts to develop the law appropriately, and particularly in markets such as digital markets where conduct and effects can occur separately, such that the competition authority has the required jurisdiction. 

It was noted that the development of an African Free Trade Area and other regional blocs are also significant in dealing with challenges associated with jurisdiction and enforcement, particularly against large global entities. When dealing only with national regulators, such entities may be able to minimise or shut down operations within the country in response to attempted regulation or intervention, but such a response would not likely be feasible when dealing with regional or continental regulators.