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Long arm of the law will stretch into boardrooms
Planned new competition legislation will probably be delayed until 1998, writes CIARAN RYAN
THE outlawing of cross-directorships and cross-shareholdings between competing firms is likely to make it into law only by 1998, says Competition Board chairman Dr Pierre Brooks. A competition discussion document will be presented to the National Economic Development and Labour Council only early in the new year. Nedlac executive director Jayendra Naidoo says the draft law is likely to be "sensible and practical" which should enable consensus to be reached quickly. A government source says it is also likely to de-emphasise the anti-trust bogeyman which many South African corporations feared. Companies like Anglo American and Malbak have moved some way towards deconglomeration, mollifying the more strident anti-trust voices within the government. But South Africa's mega-corporations are likely to find themselves under fresh scrutiny once the law is enacted. Central to the new legislation is the concept of market dominance. "The question is not what percentage of the market a company controls, but how it exercises that control," says Brooks. "There are many other factors which influence dominance, such as barriers to entry and the availability of imports. "In the beer, steel and cement industries, for example, the barriers to entry are high in the form of capital requirements. Therefore we would need to take a close look at what competition exists in these markets, and how companies behave in terms of pricing and other competitive factors. "In some countries a company is deemed to have a dominant position with 35% of the market," he says. "In Russia a dominant company found to be breaching competition rules more than twice could be forced to break up." The Competition Board's workload has picked up noticeably since the 1994 elections as companies increasingly turn to it as an alternative to the courts. Brooks says there is a greater awareness among consumers and companies of their rights under the Maintenance and Promotion of Competition Act. The board receives an average of 100 complaints of restrictive practices by companies each year, a further 30 to 40 relating to takeovers and acquisitions and a further four or five alleging monopoly malpractice. Many of the cases are resolved at the preliminary stages of investigation. There is a noticeable increase in complaints from black-owned firms alleging unfair tendering procedures and discrimination, while MPs are being roped into lobbying the board on behalf of the aggrieved. "We place a very high premium on independence, and unfortunately that means we often please no one," says Brooks. Another trend is the surge in complaints against state-owned corporations using their taxpayer-funded balance sheets to launch in new markets or extend market share. Sawmillers have complained of unfair competition by state-owned forestry group Safcol, while Internet service providers have complained about Telkom's entry into their market. Brooks says: "The competitive interface between parastatals and the private sector is clearly an area that warrants attention." Trade and Industry Minister Alec Erwin is expected to rule soon on Durban-based Avalon Cinemas' complaint against Ster-Kinekor. This case has attracted international interest because of its racial undertones, with Avalon complaining that apartheid laws forced it to close cinemas in white areas while Ster-Kinekor opened in the Indian township of Chatsworth.
Another case relates to the liquor industry, licensing requirements, vertical integration (KWV has substantial stakes in JSE-listed SFW and Distillers) and distribution of liquor. The case is complicated by the fact that KWV is empowered by an Act of Parliament. New technology is proving to be a tricky area for competition law. Service providers in the cellphone market have complained of unfair competition by Vodacom and MTN, which are vertically integrated through their ownership of Vodac, Teljoy and M-Cell. Vodacom refutes the charges, saying all service providers are treated equally.
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