MultiChoice under siege as R4 billion penalty looms

The Competition Commission said it is willing to pursue full-blown prosecution of MultiChoice over an agreement it alleges contravened the Competition Act.

This could see the pay-TV giant become liable for a penalty of as much as R4 billion. However, the competition watchdog said it is open to further engagement.

On 4 May, the Competition Commission announced that it had referred MultiChoice and Altech to the Competition Tribunal for prosecution.

This is due to an agreement between the two parties, formalised in 2014, that the commission believes contravenes the Competition Act.

Competition Commission head of cartels Makgale Mohlala told BusinessDayTV that this agreement effectively prevented Altech from entering the pay-TV market.

Both MultiChoice and Altech have denied this allegation, saying their agreement, which has since ended, does not violate competition legislation.

MultiChoice dominates the pay-TV market in South Africa and the broader continent, primarily through its DStv brand.

The company was recently acquired by French media giant Canal+, which sought to expand its presence in the African market.

Altech manufactures set-top boxes for subscription-based or pay-TV services, with this dispute stemming from a decoder the company developed, named Node.

Altech’s Node was a smart home product that offered a subscription-based satellite push video-on-demand (VOD) service.

At the time, MultiChoice was one of Altech’s biggest customers, using the manufacturer for many of its decoders.

Mohlala explained that Altech intended to launch the Node, which would have seen the company offer similar services to MultiChoice in the pay-TV market.

“When Multi-Choice discovered that – and this was at the tail end of Altech’s launching program – they objected to Altech launching that decoder,” Mohlala claimed.

“Because of their bigger size as a customer, they managed to get Altech to agree, as their supplier, that they are not going to enter the pay-TV market and compete with them.”

According to Mohlala, an agreement of this nature – preventing a potential competitor from entering a market – divides the market and contravenes the Competition Act.

Specifically, MultiChoice and Altech are accused of violating section 4(1)(b)(ii) of the Competition Act.

This subsection states that an agreement between firms is prohibited if it involves parties in a horizontal relationship and divides markets by allocating customers, suppliers, territories, or specific types of goods or services.

Prepared to prosecute

Mohlala said that while the Competition Commission does not know whether money changed hands when this deal was signed, it believes MultiChoice used its position as Altech’s biggest customer to force some form of arrangement.

This, he claimed, secured MultiChoice’s position as the dominant player in South Africa’s pay-TV market while the firm was buying bulk decoders from Altech.

In 2015, ITWeb reported that Altron decided to close the Altech Node business after exploring various alternatives, including partnerships.

“Unfavourable conditions, such as the current economic environment, which is putting pressure on the consumer and increased competition in the VOD environment, have necessitated us to make the difficult decision to close the Altech Node business,” then Altron CEO Robert Venter told the publication at the time.

“For Altech, perhaps it made sense that they were going to generate more money in selling more decoders to MultiChoice, and MultiChoice will generate money by not having any competitors,” Mohlala said.

“But unfortunately, the nature of that arrangement is such that it contravenes the Competition Act.”

Mohlala said it is now up to Altech and MultiChoice to either resolve this matter or face full-blown prosecution, “which we are very much prepared for”.

“Our doors are open for anyone who wants to negotiate the settlement of the contravention of this nature,” he said.

“They can approach us and tell us what it is that they think they can offer us in order to resolve this matter, and we are prepared to listen to their proposals. At the moment, it is really in their hands.”

The Competition Commission previously said Altech and MultiChoice could be liable for an administrative penalty of up to 10% of their respective annual turnover, which could amount to as much as R4 billion.

Daily Investor reached out to MultiChoice for comment. Once a response is received, it will be added to this article.