The Competition Commission has always had too broad a mandate, and has become an instrument to bludgeon the private sector and take sides in competitive battles. Lesson: if a law can be abused, it will be.
WhatsApp has a paid programme that allows businesses to establish accounts which allow them to communicate with customers at a large scale. The programme permits automated chatbots, and ensures that potential customers can verify that the account is legitimate, and belongs to the business they think they’re chatting with.
GovChat is a private entity that, via an intermediary, established such a business account, and is using it to sell the ability to talk to citizens using WhatsApp to a range of government departments, including the Department of Cooperative Governance and Traditional Affairs, and the Department of Social Development.
One problem: this arrangement violates WhatsApp’s terms and conditions. You can’t just buy a business account, and then resell access to that account to multiple other entities.
That’s like buying a subscription to an online newspaper, and then selling the login details to all your friends. It might benefit your friends, or it might profit you, but it isn’t right. It violates the terms and conditions of your subscription, and the newspaper would be perfectly within its rights to summarily cancel your subscription.
So WhatsApp, after giving GovChat several warnings, closed its business account. If government departments want to use WhatsApp to talk to citizens, the company said, they can each open their own government account, under their own names.
GovChat then established another private entity, and registered for a new business account under a new name, #LetsTalk.
When WhatsApp got wind of this subterfuge, the new account was also closed, for similar reasons, as well as for the additional violation that it misrepresented the name of the business entity operating the account.
Perhaps GovChat could have come to an arrangement that did not prejudice WhatsApp, but it appears GovChat wasn’t interested in such an arrangement. Instead, it ran to the Competition Commission for help.
For WhatsApp not to let GovChat use its infrastructure, it claimed, is anti-competitive.
Its specific complaints were scattershot, appealing to multiple sections of the Competition Act of 1998: either WhatsApp denied it the use of an ‘essential facility’, or it engaged in an ‘exclusionary act’, or it ‘[refused] to supply scarce goods or services to a competitor or customer when supplying those goods or services is economically feasible’.
(This is a simplified account. For a more detailed description of what went down, see Facebook is trying to muscle us out of the market, GovChat alleges, and Facebook interdicted in fight with South Africa’s GovChat.)
Unfair competition
Of course, this case should have been laughed right out of the door.
WhatsApp is not an ‘essential facility’ that, according to the Act, ‘cannot reasonably be duplicated’, and ‘without access to which competitors cannot reasonably provide goods or services to their customers’.
Indeed, there are multiple competitors to WhatsApp, such as Signal (which I highly recommend as the most secure and usable messenger of all), Telegram, WeChat, Viber, Line, Skype, and many more.
It is also not rocket science to develop an entirely separate chat infrastructure, operating via a dedicated GovChat app, which can have any terms and conditions GovChat’s little heart desires. After all, it’s just software. It doesn’t require anything that is complicated and cannot easily be obtained, such as rights-of-way, expropriated land, or environmental permissions.
Acting on a violation of terms and conditions cannot be held to be an ‘exclusionary act’, that ‘impedes or prevents a firm from entering into, participating in or expanding within a market’. On the contrary, the violation of those terms and conditions by a self-described competitor should be deemed unfair competition.
Speaking of unfair competition, it is entirely unreasonable to expect a private company to permit access to its infrastructure for the very purpose of undermining its own revenue streams, which is what GovChat is demanding.
This has nothing at all to do with competition.
GovChat claims that it is a competitor to WhatsApp, but it surely cannot expect to build a competing business on WhatsApp’s own infrastructure. That’s like starting a newspaper, and running to the Competition Commission to force a competitor to deliver your newspapers for you.
If GovChat wants to compete, it can build its own infrastructure, or partner with a messaging service that is prepared to do business on GovChat’s terms.
Maximum fine
Yet the Competition Commission had other ideas. It referred WhatsApp, its parent company Meta, and its sister division, Facebook, all to the Competition Tribunal, and asked it to impose the maximum penalty of 10% of the three companies’ combined domestic turnover for ‘abuse of dominance’.
The quantum of such a fine would run into many billions.
Opting in the first instance for such an extreme, punitive action, instead of, say, ordering WhatsApp not to kick GovChat off its platform (unjustified though that would be), does nothing to improve the economy, as the Competition Act expects of the Commission. Instead, it causes the economy the maximum possible harm, with all the implications that has for investment, growth and employment.
(Of course, the proceeds of any such fine will go directly to the Treasury coffers, where they can be used to pay for the collapsing infrastructure and ballooning debt the ruling party has overseen, so the deployees at the Competition Commission have a motive to extort money from the private sector.)
Zakhele Mthembu, writing for the Free Market Foundation, did an excellent job of explaining why this case does not further the goal of fostering fair competition.
Burger King débâcle
This is not the first time that the Competition Commission has interpreted its mandate extremely broadly, to the detriment of the South African economy.
Last year, it scuppered a proposed acquisition of Burger King South Africa and its supplier, Grand Foods, by a private equity fund for R600 million, even though it found that it was ‘unlikely to result in a substantial prevention or lessening of competition in any relevant markets’.
On the grounds of clause 2.1(f) of the Competition Act, which says that its purpose is ‘to promote and maintain competition’ in order to ‘promote a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons,’ the Commission ruled that the acquisition could not go ahead.
Ironically, the decision to block the buyout immediately cost those historically disadvantaged persons a great deal of money. Although the conditions of the deal were later amended so as to pass muster with the Commission, the value of the deal shrank by R100 million.
That’s R100 million in investment lost, impacting not only on the previously disadvantaged sellers of the business, but also on the thousands of staff of Burger King and its primary supplier, on the chain’s ability to employ new people, and on the investability of South Africa in general.
Again, the Commission did the opposite of its mandate to ‘promote employment and advance the social and economic welfare’.
Vague and overbroad
Vague and overbroad wording permeates the Competition Act, which leaves the Competition Commission, and its enforcing arm, the Competition Tribunal, with almost unlimited power to regulate and micro-manage economic activity. And all of this intervention dampens economic activity.
It prevents collaboration between companies, because doing so would constitute ‘concerted action for a commercial purpose’. It violates private property rights in that it removes pricing power from companies in certain circumstances. It expects government bureaucrats to determine what constitutes an ‘excessive price’, based on information no single person or entity has, because it is distributed among every market participant.
Much of the Act prohibits actions which are not anti-competitive, but competitive, in the sense that by engaging in that action one firm attempts to out-compete another. Any action that is too competitive, by the Act’s arbitrary standards, is perversely denounced as anti-competitive.
The Act was written with an underlying assumption that in a competitive market, there should be no winners, and every participant is entitled to an equitable share of the market. This is a gross misunderstanding of what competition is and how it serves the interests of consumers.
Instead of promoting competition and economic dynamism, the Competition Commission actively dampens investment and competitive behaviour.
It is a law that is overbroad, and because it can be misused, it inevitably will be abused, whether it is by competitors trying to extort services out of their rivals, or to impose ideological objectives such as black empowerment upon the market.
The Competition Commission ought to be reined in, and the entire Competition Act could use a rewrite.
[Image: https://pixabay.com/illustrations/whatsapp-figure-silhouette-push-1818551/]
The views of the writer are not necessarily the views of the Daily Friend or the IRR
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