Airtel Malawi loses court case

By Gregory Gondwe, Blantyre, Malawi

One of the country’s phone mobile service companies, Airtel Malawi Limited, has lost its appeal case against the decision of the Competition and Fair Trading Commission regarding its application for authorization of an Exclusive Distribution Arrangement.

In May 2013 Airtel applied to the Commission for authorization of its Exclusive Distribution Arrangement for its recharge vouchers and other products in line with Section 44 of the Competition and Fair Trading Act Cap 48:09 of the Laws of Malawi.

But in its determination of 31st July 2013, the Commission approved the Exclusive Distribution Arrangement subject to amendments of some clauses in the Standard Distribution Agreement which were found to likely aggravate the lessening of competition in the distribution of Airtel recharge vouchers and other products.

In other words, the court heard that Airtel, a company incorporated under the Companies Act, is engaged in the provision of mobile phone and telecommunication services in Malawi including the sale of Airtel scratch cards while the Commission is a statutory corporation established under the Competition and Fair Trading Act which is empowers the commission to regulate, monitor, control and prevent acts or behaviour likely to adversely affect competition.

The court further heard that in the execution of its business objectives, Airtel enters into exclusive dealership agreements with distributors of its products and such agreements are under section 44 of the act required to be approved by the Commission.

By letter dated May 28, 2013, the court heard that Airtel sought the Commission's approval of an exclusive dealership agreement with its distributors in respect of sales of its products.

Since Airtel used a clause in the issue dealing with DSAs that directs distributors to exclusively undertake their sales activities, the Commission is said to have denied approval.

The Commission exhibited a letter in court that it wrote to Airtel dated August 1, 2013, where it said it turned them down based on this clause saying it "would negatively affect competition in the distribution of mobile products particularly in rural areas”.

The Commission argued against the clause saying what it means is that distributors are required to employ DSAs to exclusively undertake sales activities for Airtel products which entails that if a distributor is also involved in the distribution of other phones and telecommunications services providers like MTL or TNM products, assuming the distributor is authorised to do so, the DSAs for Airtel products cannot be used to distribute products of other companies although they may be dealing with the same retailers.

“The clause denies distributors to benefit from efficiencies that may be created by being a distributor of more than one network provider,” observed the Commission in the letter.

It also dismissed the argument by Airtel that this provision is meant to ensure that the DSAs do not have divided attention saying this does not hold as Airtel gives the distributors performance targets which provide safeguards enough to check performance.

Specifically, Airtel appealed against the Commission’s order that required the company to remove or amend a clause which imposed restrictions on the use of employees engaged by designated distributors not to be used to distribute products of Airtel competitors.

In his ruling delivered in the High Court Commercial Division in Blantyre on 10th February, 2015 Justice Dr. Michael Mtambo upheld the decision of the Commission that the clause in question was competition restrictive.

The Court ruled that Airtel was, through the clause in question, attempting to regulate the business affairs and conduct of its distributors which are independent businesspersons by leveraging its dominant market power.

“There was a question whether distributors are agents of the Airtel or not. I did not receive any evidence as to whether the distributors buy the cards at a lower price and sell them at a higher price so that the mark up is their gain or whether they are just paid commissions after remitting all the sales receipts to Airtel,” explained Mtambo during his ruling.

He observed that the evidence that the Distribution Sales Accountants (DSAs), who are employed exclusively to undertake the Airtel's sales activities, are not paid by Airtel but by the distributors, negates the existence of agency and the right of the Commission to control the use of the DSAs.

“I must add that the use of the word agent, if any, to describe the relationship is not conclusive as to the existence of agency because parties may use words in a commercial rather than legal sense,” he said.

The judge said the case of sole selling agents is a point in mind.

"I therefore find no fault with the Commission’s determination and dismiss the appeal," ruled judge Mtambo.

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