REGULATING COMPETITION IN THE NEW ECONOMY - DOES COMPETITION STIFLE INNOVATION IN THE NEW ECONOMY

Chaired by: Wendy Luhabe, Chairperson Vodacom

Panel Members:
· Lawrence Reyburn, Patent Attorney
· Yasmin Carrim, Councillor of the Independent Communication Authority of South Africa
· Andrew Smith, Partner, Arthur Anderson Worldwide
· Myron Zlotnick, Director for Regulatory Affairs, Mweb Connect
· Dr Alan Hirsch, Deputy Chief Economist, Department of Trade and Industry

MS LUHABE: Good morning ladies and gentlemen. Our panel is not complete. We will be joined by the last panellists during the course of our deliberations. I’m told that people who have an ‘e’ in any part of their name automatically become members of the new economy. So in that respect I’m chairing this third and final panel discussion of the conference as a member of this growing community and not as an authority on the theme that we are about to explore. 
We’ve invited a very distinguished panel, which comprises of people who are more knowledgeable about these issues and they will eliminate us regarding whether competition in the new economy does, in fact, stifle innovation. We will explore this question from a number of perspectives and hopefully at the end of these various inputs we will be able to reach some conclusions. 
Dan Rubinfeld has already pre-empted this conclusion by confirming that he believes that competition is good for innovation. But that view might be changed by the end of this panel discussion. I propose that we allow all the panel members to make their inputs, which will be about fifteen (15) to twenty (20) minutes and that if you have any comments or questions that arise at any stage, you simply hold on to them. We will allow some time at the end of the presentations to hear your responses, your views, as I believe … at least I have been told that learning really happens when we interact with each other’s knowledge and when we add to it or when we question it. 
And finally, before I introduce the first panel member, I can assure you that the world will still be intact at the end of these next two hours. So you can switch off your cell phones. Our first panellist is Lawrence Reyburn, who is a Patent Attorney. Lawrence is of longstanding. He has practiced both in South Africa and in Europe. He has always taken a keen interest in Competition Law and he is the General Editor of a book called ‘Competition Law of South Africa’. Lawrence will speak about a competition policy approach to the licensing of Intellectual Property and the relevance of international guidelines for South Africa. He will also look at the problems, that develop in countries, which are not major generators of Intellectual Property, face, in establishing fairness in the way in which Intellectual Property is used. I hand you over to Lawrence and you can speak from where you are Lawrence. 
MR REYBURN: Good morning ladies and gentlemen. The subject that has been allocated to me is both vast and complex and you’ll forgive me if I give you a view of it only from the hilltops and leave a lot of the terrain unobserved and un-noted. If we have time during the discussion and you’d like to raise some of your favourite topics that I’ve ignored, please feel free to do this. 
Let’s start with the common observation that one finds in the media, almost as a commonplace now. But the total value of global Intellectual Property in corporate hands by far exceeds the value of tangible assets – that’s bricks and mortar, land, buildings, machinery, stocks in warehouses and so on. If this assertion is correct it’s difficult to verify its accuracy. But even if it is not correct it is clear that the value of total global Intellectual Property today is colossal. Not only that, but its relative value in relation to traditional tangible assets is growing steadily and the uses that are made of it in business are increasingly sophisticated. This has implications for the competition system, as I think we will see. 
In countries with mature sophisticated competition systems, Intellectual Property is recognised and there is a great deal said about it in the legislation, rules and regulations, guidelines and in copious cases, decided cases. In South Africa this is not yet the case. Surprisingly or unsurprisingly it seems that the authors of the current legislation, when they had covered the field which we now know is present in the Act, felt that they had done enough and that these issues such as Intellectual Property should be left for a more specialised look at a later time. And I’m suggesting that the later time has now arrived. 
It’s important to know what we understand exactly by Intellectual Property. The main pillars are, of course, patents, trademarks and copyright, all of which have associated statutes. There are also industrial designs, which have perhaps lesser economic importance in the economy, but still to the industries, which use them, are of great importance. The same applies to plant breeders’ rights and the rights stemming from the Performers Protection Act, which apply to actors, dancers and musicians, in particular. Those are by and large the forms of Intellectual Property recognised by statute. There is also common law Intellectual Property in the form of confidential, commercial and technical information generally parading under the name ‘trade secrets’. That, by implication, is recognised in the current Act and certainly there is a great deal of value associated with it. 
In South Africa we have a long tradition of oral history, which is not yet properly documented. There are interesting studies being undertaken, particularly by WIPO in Geneva of the role of traditional knowledge in the Intellectual Property system. And although the outcome is not yet clear and it’s even controversial whether one can consider traditional knowledge to be a form of Intellectual Property, this is an area, which should be of great importance for South Africa to explore. One thinks simply of the knowledge of traditional herbalists and the knowledge, which Sangomas have and the power that they wield in their communities, to realise that there is something there, which requires understanding a definition. It may well have Intellectual Property content, even if one has to go the step, currently not possible in traditional Intellectual Property, of having a concept of communal ownership. 
South Africa is also a member of the major treaties, which are the Paris Treaty, the Bern Treaty, the Rome Treaty, more recently the Patent Co-operation Treaty and of course the TRIPS Agreements, which we were induced to join - I think Alan Asher would have a stronger word for that – of which we are paid up members. On the face of it this then establishes a regime of Intellectual Property protection, which is quite impressive. Does the reality match the appearance? Regrettably I’m afraid the answer to that is no. We have numerous structural weaknesses in the legislation and there are severe administrative problems. 
As far as the legislation is concerned, I take, as an example, the Patents Act. In South Africa we have a registration system, not an examination system. The patent applications files in this country are granted automatically. The Patent office would not be entitled to refuse me a patent application if I filed it on this cup or this glass standing here. The result is that a vast number of South African patents granted are invalid and the task of dealing with their validity and the implications of this morass of invalid patents is left to a later stage and it has to be fought out in the private arena. Where is it fought out? It is fought out in the Patents Court. What is the Patents Court? It is a fiction. It is simply the duty judge available in that week the in the TPD in Pretoria. So we are in the High Court system, boots and all. There are procedural tangles of a complexity, which are quite unfathomable from outside, arising from the fact that one is governed partly by the Patents Act, partly by the rules of court and partly by the normal judicial process. The result is that the simplest procedural matters usually have to go to the AD. We have no specialist judges and the quality of the judgements is regrettably very patchy. It is, in fact, surprising that so many good judgements have been rendered rather than the opposite. 
If we take the Designs Act, we have what to me is the silliest piece of legislation I have ever come across. It attempts to differentiate between the aesthetic and the functional features of designs. Now anybody who has ever looked at or heard the word ‘bauhaus’ or looked at any conceptual literature on the modernist movement will know that form is function and that anything done since the twenties (20’s) or the thirties (30’s) tries to blend appearance and function to a point where they are inseparable. And yet this Act, as recently as nineteen ninety-three (1993), created separate categories of registration. One of the consequences of this is that nobody knows where design should properly be filed. And the result is that most people file them in both classes. This is very good for the patent attorneys who drafted the legislation and managed to whisk it through the then standing Committee, but I believe it is not good for industry, which has to deal with the consequences, which are necessarily, disputes and litigation. 
Furthermore the design community has rather boycotted this Act and understandably so, so far from stimulating design activity I believe it has actually retarded it. 
In the Trademarks picture we have perhaps a better Act, but I am somewhat alarmed at a few of its provisions, particularly those that give protection to unregistered trademarks and I think our interpretation, as a developing country, of the Paris Convention provisions relating to unregistered trademarks have been somewhat generous. And if MacDonalds is somewhere around in the audience I hope they are hearing that. 
We don’t have time to dwell on these difficulties other than the fact that I would like to stress that some of them in the administrators sphere have reasonably quick cures. At present it’s taking something up to three (3) years to examine a trademark application that’s filed, but one hopes that the emergency measures, which have been put into place, will bring that and some of the associated problems like searching particularly of patents where it’s almost impossible to carry out a name search or a subject matter search with accuracy back onto some kind of acceptable target. 
Now the uses to which Intellectual Property are being put, as I mentioned, are increasingly sophisticated, but we still have, in South Africa, a base load of conventional usage. We are a primary producer as a country in terms of economy. A lot of our patents are directed to minerals, to mining, to refining and those are major areas of patenting activity. Equally manufactured products and machines are still important. The patent system and the Intellectual Property system generally serves the entire range of communities - big companies, small, hi-tech companies, the low-tech companies. And I think it has proven its worth to all of them. It is a very valuable aspect of our economic development. 
If one steps back a little bit, there is however an almost philosophical question that you have to ask in relation to the competition system. Intellectual property, by its nature, may be seen to be pro-monopoly. The competition system inherently is anti-monopoly. Although, as Dan Rubinfeld and others have stressed, monopolies that arise through superior performance are fine. The apparent tension between these ideas has led to a great deal of retardation in the acceptance of Intellectual Property in the competition systems of the world and it took very nearly a century, I believe, in the US system for the role of Intellectual Property to be fully appreciated and for its status to be recognised. Now what is that status, if we can fast forward to the point where the American system adopted the guidelines of nineteen ninety-five (1995). It is a recognition that Intellectual Property and its proper usage stimulates innovation. It creates new products. It allocates recourses efficiently, particularly through the mechanism of licensing and it lowers barriers of entry into industries. It is therefore a complimentary aspect of bringing about competition along with competition regulation. 
When the South African authorities get round to examining Intellectual Property and formulating a policy about that, and that is happening right now, I hope they will start with that American document as the starting point, rather than attempting to go through the procedures, which Europe and America experienced of an initial hostility between the competition system and the Intellectual Property system, which was only worn away by a long period of experience. 
This doesn’t mean that Intellectual Property can’t be abused and one of the pillars of its treatment, even under the US system and the US guidelines, is that Intellectual Property must be approached on the same basis as any other kind of asset and the general rules of competition apply. In other words if there is dominance, if there is an abuse, one is not rescued by the fact that one happens to hold a patent or a trademark. 
The only explicit reference in the Competition Act of nineteen ninety-eight (1998) is in Section ten four [10(4)], as amended, which states that a firm may apply to the Commission to exempt from the application of Chapter two (2) an agreement or practice or category of agreements or practices that relates to the exercise of Intellectual Property rights. The Commission is empowered under Section four A [4(1)] to grant such an exemption for a specified term. The conditions for those grants of exemption are not clearly expressed. They are not expressed at all and it is something of an open question whether they are any different from the conditions, which would apply under a normal restrictive practice or agreement for which application for exemption would be made. And I think the answer has to be that there is some kind of special deal in relation to Intellectual Property. What it is can perhaps be worked out, but it would greatly help the Intellectual Property community, i.e. the owners and users of Intellectual Property and their advisors, if there could be some fleshing out of those provisions. 
There are very few cases, in South Africa, on Intellectual Property in relation to competition and the Tribunal, I think, has made only one in which the reference was almost unintended, I think. It is the case of DW Integrators versus SAS Institute, where the question arose of a licence having been terminated under what was essentially the copyright in a major software program. The applicant for the relief wanted the restoration of a licence, which had been terminated. The Tribunal refused the application but not on the grounds that it had no power to do so, but merely on the basis that the circumstances for restoration had not been shown. In the background, had it been considered, is the consideration that here at stake was, in fact, a compulsory licence under the copyright. The owner of the copyright did not want to grant the licence. If the Tribunal had acceded to the request for restoration of the status of the licensee, there would have been a compulsory licence granted. 
Now this is not a new phenomenon. There is a major case under European law, McGill’s case, where a television broadcaster withheld information about its program scheduling - in other words its list of the programs that it was intending to broadcast and the particular times and dates on which it would do so – until it had been able to get this out in its own literature and thereby monopolise this area. A publisher named McGill said this was an abusive dominance and applied to the court for an order … I think it went to the Commission first and eventually to the court – for an order compelling the BBC, which was one of the broadcasters involved and one the of the Irish television authorities – to make the scheduling available. Now that is a compilation in copyright law. It’s a written document. And again the Tribunal had no difficulty in granting that application. So, in effect, a compulsory licence under copyright was given then and there. 
If one turns to the IP legislation for guidance as to how these two systems might fit together, one finds that the fit is uneven. And I’ll take only one section, by way of example, although it is perhaps the best example. It is Section ninety (90) of the South Africa Patents Act of nineteen seventy-eight (1978). This renders null and void a number of provisions sometimes found in licence agreements and agreements for the sale of patented products. Among the provisions that are rendered null and void are those prohibiting a licensee or purchaser of a patents product from buying or using articles not supplied by the licence or the seller; Prohibitions on restricting the licensee or purchaser of a patented product from using any article not protected by the patent; Prohibitions or restrictions requiring the licensee or purchaser of the patented product to obtain from the patentee or the seller any articles not protected by the patent; The requirement that the purchaser of a patented article observe a specified resale price; And the restriction on the use of the patented dimension in any country in which it is not patented. 
So wrapped up in Section ninety (90) of the Patents Act we have a mini competition regime. There are also other areas of overlap between the legislation and the competition system. In my opinion it’s pointless and counter productive to have a set of fainthearted anti-trust provisions in an isolated statute such as Section ninety (90) of the Patents Act. When the activities constrained by it would already, in appropriate circumstances, amount to restrictive practices or prohibited agreements under the Competition Act. So Section ninety (90) of the Patents Act cries out to be repealed, with or without some minor amendments to make it clear in the Competition Act that the Competition Act now captures the subject matter of those constraints. There are similar provisions in the Designs Act, and I won’t go into them. And if one scours the IP statute one will find even a couple of these in the Copyright Act and the Trademarks Act. 
There is provision in the Patents Act for compulsory licensing and this is becoming an issue of enormous importance in the debate currently raging over cheap drugs for suffers of AIDS and HIV. The compulsory licensing provisions are not at stake in the case now being fought before the court in Pretoria. At stake is the constitutional validity of Section fifteen C [15(c)] and a few other sections of the amended Medicines and Related Substances Control Act. But it is interesting to observe that the compulsory licensing provisions have existed in the Patents Act since year dot. They were extensively amended as recently as nineteen ninety-seven (1997) and the State is not relying on those provisions in its approach to the drugs question. 
Generics manufacturers in South Africa, if there are any still, are not bringing compulsory licence applications and one can only assume that the compulsory licence provisions are something of a dead letter. Why is that so? My belief, having advised on many matters where they do come into question, is that when one is concerned with compulsory licensing one usually, particularly in relation to drugs, one is usually concerned with the Generics operator trying to get into the business where there is super profits being made by a company, which is a patentee. The issue of costs is vitally important and although legal costs in the longer term may not be important because of the complexities of the procedures, the cost that is associated with these applications, the uncertainty and the delay, they’re simply not brought. They have a certain value enforcing parties to negotiate, but the compulsory licensing provisions have been something of a neglected area. 
I don’t think that could continue and I have a suggestion to make that the compulsory licensing regime be taken out of the Intellectual Property statute and put into the competition system. One of the most important issues to investigate, in fact, it’s the core of the compulsory licence process, is has there been some sort of abuse, normally an abuse of dominance, at least in a market which might be confined to a single drug. The courts are very poorly placed to investigate that. Judges are judges and not economists and if you could bring these complex matters of economic theory before South African High Court judges, I don’t think you’ll get a particularly good hearing. And I would suggest that the country would be enormously advantaged if this issue could be taken out of the Intellectual Property system and transferred where I believe it belongs and where I believe there is already concurrent jurisdiction a la McGill. 
We might think that we have got a crisis on our hands and almost an emergency to deal with the issue of licensing of drugs in relations to AIDS, but believe that’s only the tip of the iceberg. If one looks at the development in certain biological areas and particularly the completion of the g-nome sequencing project and the mass of patenting to which that has given rise, I believe we’re shortly going to be overwhelmed with a vast number of patents related to most fundamental matters of biological sciences, even going to the root of life itself. And there are major, major issues here, which need the widest possible form of investigation. 
I can’t possibly see that those will be adequately dealt with in the normal compulsory licensing procedure, whereas if they come before bodies which have wide investigative powers, are able to blend economists with lawyers in the way that many speakers have emphasised, is essential, if one is to get to a proper understanding of these technical issues, then, I think, this has to be done in our interests. Particularly as a developing country we do not generate much of this technology and we could easily find ourselves in the position of being almost at ransom to the big trans-national corporations in this area. 
Returning to the more immediate issues, I know that the Competition Commission has launched a policy investigation, Intellectual Property generally, with the ultimate view of issuing a guideline on the subject comparable to the comprehensive and admiral documents, which have been issued in countries such as the USA and Canada. The USA guidelines are contained in this document. It’s not particularly big and I would recommend it to anybody who is making any kind of study of this question. As I said I think it is the most sophisticated and advanced statement of the issue and it reinforces the complimentarity of Intellectual Property in the Competition system. The Canadian guidelines, also of recent origin, are very useful as well. 
That brings me virtually to the end of my talk and I am now in the position to give you the short answer, after this long discourse, to the question relevant to my topic, whether regulation stifles innovation. The answer is, I think poor regulation can certainly impede and delay innovation. Over the longer term regulation cannot stifle innovation. In fact, if recent developments in technology proceed along their headlong course now, the probability is that innovation will be stifling regulation. Thank you. 
MS LUHABE: Thank you Lawrence. That was most interesting. Our next panellist is Yasmin Tayob Carrim, who is a Councillor of the Independent Communications Authority of South Africa. Yasmin is an attorney with extensive legal experience and has acted in many public interest litigation matters. She will speak to us about the regulation regime in the telecommunications sector where rapid innovation presents rather very unique challenges for South Africa. Yasmin. 
MS CARRIM: Thank you Chair. I’d like to speak from where I’m sitting, if that’s all right with the audience. Thank you Chairperson. Just as, I think, the theme of the conference is ‘does competition promote economic growth and innovation’ and I think that sometimes it’s quite important to remind ourselves of the instances where we actually experienced that. 
And before I speak about the experiences of ICASA in regulating fast-moving technologies, I recall an incident in nineteen ninety-five (1995) where a colleague of mine was described very much as an esoteric lawyer, disappeared into India and nobody could found out where she was. And this was a time when India was liberalising its markets as an emerging economy. Telecommunications was one of those sectors. Eventually one of us received an e-mail from some Internet Café somewhere in Goa, which read as follows: “Hello everybody, I’m living on the beach, camping out. If you want to contact me, please send a fax to such and such a fax number”. And we all sort of thought if you’re living on the beach, camping out, how is it that you’re going to have a fax machine? Eventually, of course, it transpired that very close to the beach was a little franchised phone shop, which had fax services, Internet services, etc. And not only were my friend and her current husband, who was the reason for the disappearance in India … not only did they utilise that to send messages to their friends, but they also used it as a post box, which every time we sent a fax the fax was delivered by a little six-year old boy, which was, of course, a delivery service and who charged for anna’s delivery. 
So does competition create jobs? Yes, it seems like it, because the little boy who earned four Anna’s at a time really enjoyed his work. So I think, just to remind us of those instances, because when we get into the debates about competition we forget that there’s an impact out there on the economy and we often forget that that’s the impact that we’re trying to strive to get. 
Having used that example, I thought that what I would do is just speak to you in two parts. One is to give you an indication of what ICASA is about, the kinds of things we’ve been doing, the kinds of difficulties and challenges we face and in the process of that pick up on some of the regulatory issues and regulatory aspects in terms of the theme of the panel. If I’m unable to explore everything in the time that I’m allocated, hopefully I’ll pick up those things during discussions. 
Just to give a background to the Independent Communications Authority of South Africa, most of you will remember that before July two thousand (2000) we had the Independent Broadcasting Authority, which regulated broadcasting in the public interest and the South African Telecommunications Regulatory Authority (SATRA), whose responsibility was to regulate telecommunications. In July the two bodies were merged by the ICASA Act, which created the Independent Communications Authority of South Africa. 
The rationale for the merger was essentially that the technologies in broadcasting and telecommunications are converging to such an extent that that poses a challenge between distinguishing between traditional telecoms sector and broadcasting and information processes. While that is very true and it’s something that we’re seeing on a daily basis, convergence of the regulatory bodies in such a manner actually brought about quite a few difficulties for the new Council that was appointed as a result of the merger. What was previously two separate Councils consisting of thirteen (13) Councillors, was reduced to seven (7) and they basically walked into two different organisations with very different capacities, very different organisational cultures and very different pieces of legislation. Till today the regulatory authority, ICASA, is actually governed by four (4) pieces of legislation. That’s the ICASA Act, the Telecommunications Act, the IBA Act and the Broadcasting Act. Not to mention the Competition Act now with concurrent jurisdiction, which we’re in the process of sorting out and the Administrative Justice Act and the Access to Information Act or the Open Democracy Act. So as a regulatory body we find ourselves feeling pretty schizophrenic, but that’s something that we hope to, in time, sort out. 
Having given you that background, what we encountered as a result of the merger was a large backlog of matters that had to be dealt with and the backlog ranged from decisions that needed to be made on applications, both in broadcasting and telecoms and to the issuing of regulations. So that is sort of the context we worked in and we also found there was a fair amount of organisational inefficiencies, which ranged from bad systems and lack of systems and policies and a lack of key personnel. Since then the Authority has appointed a CEO, has appointed auditors, has decided that it’s going to proceed on the basis of having two (2) divisions, the broadcasting division and the telecommunications division and we tried to cut through some of the backlog. Some of the decisions that we’ve taken in the last eight (8) months attracted a fair amount of national and international attention. Not to mention it also resulted in some rolling mass action against the Authority. We’re always hated by somebody. We had the community radio licence interest groups, the National Community Radio Licence Forum, marching on the premises of the Authority and presenting us with petitions, understandably, because there have been such long delays in the licensing of four-year community radio licences. 
Similarly Vodacom, unhappy with our decision around the 1800 Megahertz, also created this … maybe it didn’t create it directly, but we had rolling mass action against us from supporters of Vodacom. We had electronic petitions being sent to us on a daily basis after that. So it’s been pretty harrowing, but we’ve tried to catch up on that backlog. 
Now just looking at the difficulties that, as a regulator, we’ve experienced in regulating, firstly one of the key problems that we experienced is the ambiguities and the contradictions in the legislation. The Regulator has, for example … one of the examples we have is under the IBA Act the Regulator has its own powers to make regulations. On the Telecoms Act the regulating making powers are split. The Regulator makes the regulations and Ministers has to approve. And one of the difficulties that that results in, is the kind of second-guessing of the regulatory making process. One of the examples we can look to is the recent issue around the interconnection and the status of the interconnection guidelines, the Interconnection and Facilities Leasing Guidelines, where the previous SATRA Council had promulgated these, which had been approved by the Minister and the Minister had withdrawn them and then that created some kind of legal spat, which now has been resolved in favour of the validity of those guidelines. But those are the problems that emanate from situations where the legislation is not clear and is not efficient. Efficient meaning that it promotes efficiency in the regulatory making process. 
The second sort of problem that we’ve identified as part of the regulatory making process or regulating the industry, has been, until now of course, the constraint that has been imposed by the framework of exclusivity. Every time somebody has come to the Authority saying we want to do ‘X’ and it’s a new service or a new innovative kind of service, there has been this sort of spectre of exclusivity being raised. The exclusivity of Telkom or State monopoly or State-owned monopoly has created a lot of boundary disputes between other aspects of the sector and the monopolists. So we had a series of disputes between the Internet Service Providers, the VANS and at times interconnection disputes between even the other operators and the monopoly. And those have often gone into the courts and the litigation has been used as a delaying factor and that has also resulted in a very low impact for the regulator on promoting competition in the industry or in allowing innovation. 
One of the other, I think, quite serious problems that the Regulator has faced in having an impact on the sector, is lack of resources. The telecoms regulator and the broadcasting regulator are not just regulators like the Competition Commission. They raise revenues. They raise licence fees. They collect those licence fees and pass them on to the National Treasury. And the impact of their work has a very direct economic impact, but how well resourced the regulator, is something that we, as a Council, are quite concerned about. It’s been very badly resourced. There hasn’t been an understanding of the kind of resources it needs in the fast-moving sector that it is regulating it. The lack of resources has led to a lack of proper information, a lack of correct personnel, adequately trained personnel and has resulted in the Regulator being very, very slow, unresponsive, inefficient. 
Another aspect that we’ve identified as contributing to creating difficulties in regulating the sector has been non-clarity between the role of the Regulator and the policy maker. And that sort of comes up in different aspects. A question that often gets raised as a policy issue is that how can a shareholder of the major dominant player of the market make policy for the sector and often that has created problems by creating uncertainty in the market. And one of the... sort of other aspects is the limited powers the Regulators have inherited from the previous regime. The previous regime meaning the regime before we moved from the DoC regulating in licensing the sector to the establishment of an independent regulator. 
So moving on from that I thought that what I would do is try to answer the question around has lack of competition stifled innovation. And certainly in the telecommunication sector we have felt that that is the case. We can answer that by looking at some of the attempts that have been made by competitors to Telkom or not necessarily direct competitors, but even other operators and how that has been stifled through the industry disputes that have taken place. I think, that if you look at the market as including the six line telephony and the mobile operators, for us there’s a clear indication that competition has certainly promoted innovation and you can see the innovation in the form of quite a number of different services that have been provided by the mobile operators with the six-line following closely on their heals. Things like pre-paid, call answer, there’s a new voicemail service now where you can dial directly if you press three (3), depending on whether you’re Vodacom or MTN, and in your voicemail you can phone directly. Those are all innovative services and a lot of that has started happening with the prospect of a third cell coming in and with mobile competing with fixed in rolling out in the broad market of telephone. 
I think that one of the issues that we are concerned about is, from a competition aspect, is to what extent public interest arguments will be used to counter competition or the promotion of competition. And it’s something that we need to explore in us, as a Regulator and the Competition Commission, because, I think, that the Telecommunications Act has a number of public interest objectives, which are good national goals to be achieved. Some of those will be empowerment of the historically disadvantaged like women, black people and the disabled, the Human Resources development, innovation. All those are public interest goals and we would have to do a fair amount of balancing between those goals and objectives and the promotion of competition. 
However, from the Regulator’s point of view we see competition as a regulatory tool in that we see the promotion of competition achieving, of being able to achieve some of those public interest goals. If you look at … if you examine the trends in most emerging democracies, where you see that a number of players in the market has increased and a number of participants has increased. The size of the market grows and the growth in the size of the market can achieve those public interest objectives like job creation, your licensing conditions can help to create … sorry, achieve the objectives of universal access and community service obligations. Now, I think, that that is, in the South African context of competition in the telecommunication sector, is what we have to explore is the promotion of competition as a regulatory tool to achieve the public interest objectives of the Telecommunications Act and I suppose a number of other similar legislations. 
Moving on from that I thought I’d just identify, very quickly, some specific aspects of the telecommunications sector that anticipate we will have to regulate and we’re going to need to regulate this in a lot more of a responsive manner, which post exclusivity is going to require us to do. Now we’ve continued to, of course, issue license and impose licence conditions. From a regulatory perspective that is the way you limit or increase entry into the market, how you allocate scarce resources, how you impose universal service obligations and where you attempt to get protection for consumers and regulatory clarity. 
A very important aspect is going to be interconnection and as most of you know, that in the situation where the incumbent is a very dominant market player, your interconnection or most incoming operators would have to interconnect with that PSTN. And that’s where you’re going to get a lot of disputes as to where you interconnect, how much, what is the price of that interconnection and when. Most dominant players in the telecom sector use interconnection as a barrier to entry where they will drag that out as much as possible, because they want to stifle competition. So that’s one of the areas we anticipate we will see a fair amount of abusive dominant position. 
The third area that we anticipate we will have to regulate is pricing or tariffs where we would probably see a similar kind of price war coming in between fixed and maybe even with the mobile operators. One thing that I forgot to mention though is a very interesting development is that even though we have competition in the mobile sector in South Africa, we’ve seen no downward pressure on prices. And, of course, a lot of people have said that that’s because duopoly never brings a downward pressure in prices, but let’s see what happens if hopefully we get the third operator. 
Pricing or tariffs is a very complex regulatory function and a lot of competing objectives, but at the moment we have a regulatory regime for the fixed operator and we’re in the process of issuing or having issued a discussion document on a new regulatory regime for the fixed. We’re limited at the moment by licence conditions, because our powers have been captured in the licence conditions of the operators rather than in regulation. But that’s an area that we’re going to have to certainly overhaul in terms of our powers. Attached or flowing from that is regulatory accounts … ja, I’ll pick up on the others, but regulatory accounts are very important. That’s when you require your operators to actually have clear regulatory account as to how they’re allocating the cost, to which services. Telkom doesn’t have that at the moment and they’re scheduled to have that in place on the seventh (7th) of May two thousand and two (2002). But that’s the only way a regulator can regulate, if they can assess where the cost of services are placed. 
There are a number of other aspects, but I can pick that up in discussion Chair. Thank you very much. 
MS LUHABE: Unfortunately the conveners had the wisdom to compact very kind of intense and complex issues, all in one panel and give us two (2) hours. So you must forgive me for limiting the time that each panellist has access to. The next panellist is Andrew Smith who is a partner in the business consulting division of Arthur Anderson. He has vast experience in advance technologies, in business consulting and the e-business. He is a partner of Arthur Anderson Worldwide. Andrew will speak to us on the implications of the new economy at the level of the firm and examine how networks function within the e-marketplace. Andrew. 
MR SMITH: Hi, good morning everyone. Fifteen minutes is not a lot of time to cover a vast amount of material. What I’ve done, like the previous panellists have, really has been to put together a smorgasbord of ideas. Think of it as an artist with paint in his pallet as he scrapes his oil and mixes his colours. So what I’m going to try and do is raise some issues that, I think, are pertinent to the topic that I’ve been asked to address this morning, which is when is a cartel a … excuse me, when is a network a cartel. Yes that was Freudian slip. 
There are four things that I would like to try and cover in my presentation today. I would like to start off by going back to first principles. We’ve all heard about the distinction between the old economy and the new economy. Well should we be having a discussion about old economy competition policy versus new economy competition policy? And we’ve got some thoughts there back from the good old days of Alfred Marshall. We’ll then move on and ask a really, really dumb-sounding question, is co-operation always bad? Because we always assume that it is, at least from a competition policy point of view we seem to. And then, of course, to talk about the advent of these e-marketplaces. How long is a piece of string? How big is e-commerce? Well I’ve decided to focus on just one slice, one subset of this e-commerce pie that is evolving and to focus on that. And then, of course, to try and bring that together, not by answering the question, because that would be too easy, but rather asking more questions that are pertinent to having a body of legislation that will take our economy over the digital divide into this new digital order. 
So roll over Alfred Marshall. Our competition policy, our understanding of what is good and what is bad is really driven, I would submit, by neoclassical economics. Alfred Marshall gave birth to that and his hypothesis essentially reflects a world of the industrial revolution, mass production. It was a world of smoke stack industry with coal and chemicals and great fossil fuels and the likes. But it also reflected the times. Alfred Marshall wrote in the time back in the Victorian era where science, the whole methodology that was driving economic thinking at that time, was trying to bring a mechanistic model of general equilibrium to place vast machinery where a disturbance in one market would work its way through the economy and bring around this general equilibrium. 
I would argue that the economics of the industrial age, what I would call, congealed resources and that’s really what it’s about, needs to be differentiated from the economics that typify congealed knowledge. We’ve made the leap from the old industrial smoke stake world to this entity of the information economy. The paradigm that Marshall gave us was one of decreasing returns, sitting in the middle of a demand and supply curve with perfect competition at one extreme where perfect competition was good, but the assumptions and manifestations are so absurd, they’re completely unrealistic. All firms have perfect knowledge. All firms are identical. All firms are minutely small. Refer back to Adam Smith’s pin factory, with incredible amounts of specialisation. At the other end of the continuum we have oligopolies, whether collusive or non-collusive and, of course, big bad monopolies. 
And just to raise a point to a previous speaker, of course, duopolies are going to give you one common price, so do monopolies, but don’t confuse that with a competitive price. In this new world that, I think, we have to start thinking about, in this new world we need to be talking about and acknowledging the impact of increasing returns. Increasing returns was often viewed as a theoretical anomaly within modern micro economic thinking. But more and more around us we’re seeing a world that is no longer being constrained, as much, by friction, i.e. decreasing returns, as opposed to a world where folk can get ahead, get further ahead, where positive feedback effects kick in. And really what I wanted to do here was just to identify those three key drivers that do drive increasing returns. The upfront costs, the costs of investing in putting people on the moon are vast and expensive relative to the cost. I read in the paper the other day that an American businessman has paid twenty (20) million dollars to be the first passenger into space. Knowledge rich products, i.e. the R&D content embedded in them, are often incredibly expensive relative to their actual production or relative to their unit production costs. It’s very expensive. Once you’ve incurred that expense, however, high fixed cost, we’re talking about a low or close to zero marginal cost. How much did the first diskette, the first CD Rom of Microsoft Windows cost? Well the first unit cost five hundred (500) million Dollars. What did the second diskette or the second box or the second CD Rom cost? It would have cost about a dollar fifty ($1,50) – the costs of replicating. Beyond a certain volume queue every single additional sale moves straight on to your bottom line. So certain network or positive effects kick in. 
If more people start writing applications to run a top of the Windows platform there will be more sales of Windows. As folk buy more copies of the Windows operating system, so more applications will be written and you effectively move into a situation of lockout where it’s very, very hard for competing standards to take their place. 
And then the final attribute that I would argue that drives increasing returns in this digital economy, would be grooving or lock-in effects. Take a silly example like support of an airbus passenger jet. The systems, the jets are all very, very different. The costs of retraining people, whether it’s the pilots, whether it’s the mechanics, become too high. So you’d rather stick with the technology that’s in. Airbus’ first sale will be very expensive, but it’s repeated sales, on and on and on to the same airline, will come down drastically because of this lock-in effect. 
What I’ve tried to do is just to represent this with a really dumb example and this is with apologies to Michael Porter. Everything you need to know about Michael Porter, on competition, is summarised in that diagram. What do you mean? Well let me take you through it very, very quickly. There you are, the firm, at the centre of the universe and you’re job is to stretch up to suppliers, backup the value chain, harness your inputs … remember, queue is a function of capital and labour, whether it’s a Colt Douglas, it doesn’t really matter, whatever form or shape it takes. You will then bring those inputs, those raw materials, into your productive capability. You will transform it and then ship it to your customers through a logistics chain, through a retail experience to clients. 
Now that’s what business economics in many ways is all about – optimising your value chain. However, in a market economy we have some compounding impacts. We have the effect of substitutes. We have the effect of competitors or, of course, potential entrants that screw it up. This is a framework that we use in terms of our neoclassical economic paradigm and it’s the metaphor we use, I would argue, when we look at our body of Competition Law. 
Now it might be worth just embracing some of the factors that we’ve spoken about already this morning, the so-called new forces, which are impacting marketplaces. We’ve spoken about globalisation and there’s no real need to talk about that and, of course, the impact of deregulation. And there I’d like to stress deregulation doesn’t mean no regulation. It simply means changing the rules to free up demand and supply. But perhaps here’s a factor you haven’t thought much about and that is the impact of digitisation. I’ve prepared two slides just to illustrate the point. Metcas law tells us that processing power doubles every eighteen (18) months at constant Dollar cost. 
What I have done is to take a unit cost or processing cycle per second and I then plotted that against the cost per cycle against time. And there we see a very definitive downward trend from that routine costing about a hundred (100) Dollars in nineteen seventy-five (1975). That same activity would … well, it’s basically free. It’s about one American cent. So we’re finding the world where your inputs, the engine, the smallest motor that’s driving this digital world, the input costs are moving down drastically. But it’s not just with processing power. What about telecoms? The cost of placing a call from New York to London nineteen thirty (1930) versus nineteen ninety-five (1995), a three-minute call would have cost you about two hundred and fifty (250) Dollars. Today it’s basically free. 
Now on this point I would like to wave my big red flag. It is fantastic to see how our Government has moved aggressively to turn on the old economy. We have liberalised. We have taken a number of policy initiatives to drive our manufacturing sector from old dinosaur to emerging world-class player, but why did we turn off the new economy? Why did we turn the oxygen off by enforcing the Telkom monopoly with the inability … and I’m going to put my head on a block here … the inability of our previous telecoms regulator to deal with Telkom in a vigorous manner has meant that in the Internet space we have moved from being one of the ten (10) most connected countries on the planet to below the top forty (40). Every month, every quarter when we look at the tables coming out, South Africa’s connectedness in this digital economy slides further and further back. It’s stillborn. The new economy is not happening in South Africa. Let’s not kid ourselves. A silly example – my father-in-law lives in Vancouver and he has a broadband pipe into his house and that costs him fifty (50) Dollars a month. That’s a two (2) Meg pipe. That same two (2) Meg pipe would cost you eighty thousand Rand (R80 000) per month in South Africa. That’s the cost. Why are our tech firms not keeping up and catching up? Because the oxygen supply has been switched off. 
Is co-operation always a bad thing? Well, I went to the web. I went to dictionary.com and pulled off a definition. Co-operation sometimes works. Why do we drive on the left hand side of the roads? Why do we have standards that we all adhere to? The Internet would never have happened without agreeing to a common standard. I would confess that price rigging, market sharing, of course, is wrong, but sometimes we have to co-operate in a networked space for the network to hold together. There’s a vast downstream industry from Microsoft in word-processing and spreadsheets, in Internet technology, because there are these common standards in place. 
In South Africa, just to take breath for a moment, our legislation seems to take a two-tack approach. On the one hand it applies a rule of reason – every horizontal relationship is bad unless you can prove that it’s pro-competitive, whether it’s for efficiency reasons or whatever, but there is an onus on you – Section four one A [4(1)(a)] of the Act. And some things are just prohibited outright. It’s like getting one of those ‘go directly to jail – do not pass two hundred (200)’ cards in Monopoly. 
Now all that is good and fine. Our economic theory may not make sense. It may not be as up to date in terms of new concepts, concepts like increasing returns, but what we’re also seeing is a global phenomenon of e-marketplaces emerging. There are all sorts of reasons why business all around the world are moving quickly to digitise their buying and selling relationships. I’ve given three (3). We could add many, many more. It’s to take out fragmentation, it is to introduce real-time pricing and it is to smooth out industry volatility. As a rule of thumb, if you want to remove any efficiency in a value chain, start with this paper, that’s where you can digitise first. 

With these marketplaces emerging we have these low-cost platforms where it is relatively quick, relatively cheap for business to start changing the way they trade. And businesses are trading electronically now anyway. It’s called a telephone and a fax machine. This just brings real-time elements and allows us to move away from static price setting to dynamic pricing. And just to give you a sense of how big these numbers are going to be through these digital marketplaces, I pulled these stats from Forrester and these are numbers from America that by two thousand and four (2004) the total value of business-to-business, e-commerce or e-trade will be the better part of two point seven (2.7) trillion Dollars, of which sixty percent (60%) – that’s about one point four (1.4) trillion – will move through these marketplaces. Are you hearing company names like Commerce 1, Areba, Oracle, MYSAP.com? Whether it’s at the platform layer of the technology that’s in place or whether in sitting on top of that are these market makers – Plastics Net, Enron Online. In South Africa we have one that’s called Miraculum by Dimension Data. Are we seeing to what extent they’re acting in a pro-competitive way or are they breaking the rules? 
Which then brings me to my final slide, some thoughts to sprinkle out, to ponder for discussion. The Act tells us in four one A [4(1)(a)] in terms of our rule of reason that if parties enter into a horizontal relationship that effectively … or has the effect of substantially preventing or lessening competition. Now that’s where I need some help. I’m not a lawyer. I’m an economist by training. What does substantially prevent or lessening competition actually mean? Where are the precedents? Where are the rules? Where is it defined and what makes it more difficult in this space, is that everything is changing in real times. It’s fluid and dynamic. I need clarity here. When should I be taking a client? When should I, as a business, have to go to the Commission to seek permission? It’s not clear. Unless … well I can always argue, unless I thought it was going to be pro-competitive. But it’s not clear. I would argue that we don’t need less competition policy. I would argue we actually need more, but we need to apply it vigorously and timeously. 

The second issue, of course, is that some things are against the law and I would concur with that, that price fixing is a bad thing if it’s done at selling prices at a supra competitive level. I would argue that a Telkom duopoly will achieve the same thing. That’s a view. Market sharing or bid rigging all fall contrary to bringing us competitive outcomes. Now pulling that together I’d like to leave you with three (3) key thoughts. First of all these e-marketplaces, and we’re just looking at a slice of the e-commerce world, will, by their very nature, drive higher levels of co-operation across industries and across firms. And I would argue that they are moving very, very close to what we may traditionally consider to be anti-competitive or pro-monopoly. What do I mean? Well let’s take collaboration for example. When is collaboration collusion and when is collaboration efficiency enhancing? For example, when suppliers place their trade catalogues into these e-marketplaces, is that collusion? Is that anti-competitive or is that allowing real-time price arbitrage to occur in a digital space? 
What about share production, shared logistics or shared R&D, shared costs of making these large e-commerce investments to offset the risk? What about collective leveraged procurement? Isn’t it just called getting bigger volume discounts? The Act is very quiet. The policy guidelines don’t seem to be there to guide us. And then, of course, there are a number of structural issues that follow. What is the relevant market? That seems to be the key premise on which competition policy is based. What is Microsoft? Is Microsoft a software company? Is Microsoft a technology development? Microsoft, with respect, doesn’t seem to have invented anything. Their strategy is to be second to market and reverse engineer. Is Microsoft a car dealership? Is Microsoft a media company? Is Microsoft a financial services company? Where do you plug it in, in terms of the relevant market? And I would contain that in this e-space there is a lot of fundamental thinking, a lot of fundamental head scratching that we are going to have to do. Some thoughts to share, very quickly, on the canvas. Thank you. 
MS LUHABE: Well Andrew has raised some rather interesting questions and I think has broadened the scope of the debate since this morning. Our next panellist is Myron Zlotnick. I hope I am pronouncing you correctly, is that right? Who is the Director for Regulatory Affairs at M-Web Connect, which is an online service provider based in Cape Town. He’s also the Chairman of the Internet Service Provider’s Association of South Africa. He will be speaking to us about the impact of regulation on investments in technology. 
MR ZLOTNICK: Thank you Madam Chair. While they are setting up some slides, which really serve only as an aide memoir for myself rather than anything which you should pay too much attention to, I should mention that I was struck by one statistic amongst many that Andrew presented and that is that it only took sixty-five (65) years for the price of a three-minute call to come down in London. I’m not certain whether it bodes too well for us. 
I was asked today to talk about the impact of regulation on investing in new technologies and I took the liberty perhaps of brutalising that topic a little bit and amending it to read the impact of regulation on getting on with our business. And I’m going to start off today, perhaps by sitting on the fence, but you’ll see quite soon that I’ll fall off the fence and fall very much squarely on one side of the fence. 
Having said that I don’t think anything I say today, and I, perhaps, should preface what I’m about to say today. I don’t think anything I should say today should be read as being incentive to, and this is perhaps an inappropriate euphemism, but the unique needs of the South African political economy and the fact that regulators in South Africa perhaps play a different role to those that we often refer to played by foreign regulators. We’re conscious of that. 
We’re struck with, I suppose, in this environment pretty much – and this is just a broad observation – a broad difficulty about the role of regulation in business. And it stretches much more beyond deciding what the role of a telecoms regulator should be or a broadcasting authority or any sector specific authority or a regulator that intervenes in the market. It’s much more than those questions – questions about fundamental value choices and individuals in society make about the role of governments and about the role of the private sector and the role of civil society. And you end up – and if one examines the development of the Internet, the history of the Internet, you see this – and again I’m oversimplifying, but you see those fundamental values between two profound schools of thought, one which says, very simplistically, everything should be free and open, because that was the kind of ethic that built this into the efficient network that it is. On the other hand and running parallel with it, least any of you believe to the contrary, was a very strong lobby, which said well we’re investing a lot in this process and we anticipate justifiably some return on that. And you see that a lot manifesting itself, in specific examples in the clash between the open source movement, for example, and those who want to make proprietary Intellectual Property that comprises the technologies of the Internet. 
You see it also, and just mention that as an aside, in the vitriol between those who see the Internet as being an uncensored space, a space incapable of being censored and those who perceive the important need to protect the interest, for example, of women and children in the Internet space. So it’s more, much, much more than about what we do with the Internet. It’s how we order society. 
In the context, specifically now, of market intervention, if you like, regulatory intervention, there are a number of these schools of thought that come through and the same divide is there. And we’ve heard it today already and probably in previous sections and in previous session that regulation encourages innovation. That’s a statement made by Ann K Binghamen. She was an anti-trust attorney in the Department of Justice in nineteen ninety-six (1996). She said this in a speech and she is predictably a democratic appointment. If one then swings in from the right you get regulation stifles innovation. So you can see the clash of the value systems. And this came from, more recently, Michael Powell, the new Head of the FCC and he predictably, again swinging in from the right, is a republican appointment. 
So what you end up with is something about political choice in choosing the values that inform how you are going to regulate. So what is the result? Interestingly enough if one reads the Binghamen speech particularly within it you see equally compelling arguments from both sides and we’ve heard a bit of that today already. You know, we need regulation for innovation. No, no, no we don’t need regulation for innovation. And in the United States at least what struck me particularly in light of the recent result is, your value choices that dominate society, are almost predicted by a fluke of an election where the margin of that victory was immaterial. And where does that leave a lawyer? Well it leaves you thinking well perhaps this is a pretty much arbitrary result in deciding what the policy is. And as a businessperson that makes me even more concerned. 

Having said all that I suppose we do have to understand, and I made this point earlier, that there is a need to regulate. There is a need, particularly in certain markets, the need for some form of intervention. The degree of that intervention, of course, often remains contentious. And you know there’s no real merit in me taking you through this. The economists understand this. Our regulators understand this, why we need them, but as one rolls down this list you see a trend that … certainly I perceive, is that the need for intervention in the market comes around with these big immature industries, what I’ll describe as the smoke-stack behemoths, where the inefficiency start creeping in, where the protection of the consumer is perhaps lost as this behemoth rolls forward. And it may be appropriate that there is regulation. That is the generic case. 
Why peculiarly South Africa? And this is something, you know, which I’m at pains to say that we are conscious of. We understand even more so the case for a regulatory intervention, broadly and market-specific in South Africa, because of the national objectives that we’re trying to achieve in this new country, of the sector objectives, the economic leapfrogging objectives, of the need to protect and advance our consumers. All in all, and one can cut and paste and cut and dice them in any number of ways, but all in all we understand this need for social and economic development and the role that the telecoms sector particularly and the Internet might play in this. 
Having said that though I think I want to convey that the Internet – and I use that as a very loosely defined label to explain a whole lot of potential business opportunities that one runs in an network environment – is a different beast from those smoke-stack behemoths where it is elsewhere in the world but perhaps particularly so in South Africa, largely, I think, dictated by the size of the market. 
So before I deal with that though, it’s important to understand that service providers such as ourselves, such as the members of the ISPA, stand in line in the market for network facilities from suppliers, hopefully in the not too distant future, who also play in that very same market in which the service providers play. And that immediately creates – well at least to my mind – a potential distortion, which may justify treating the service providers in the Internet space slightly differently from a market regulatory point of view. 
Within that market the service providers find themselves in fierce, fierce competition in a very fast moving environment. Today’s bank is tomorrow’s service provider. Today’s service provider is tomorrow’s bank, for example. You see dramatic mind shifts or that is perceived dramatic mind shifts in what online business is all about. 
Having said that and just to revert to the important point about the market in which we play, where we think today some important regulatory intervention may be required, is in respect of the new telecoms policy, which at least on the fact of it is an encouraging step in the right direction, but very careful consideration is going to have to be given to – and the economists, I think, made the point much better than I could – what are the effects likely to be of the duopoly, at least in terms of the public switch network operator. How do we deal with the fact that bandwidth rich spectrum has apparently been earmarked for incumbent operators? What access will the service providers have to that? And, of course, we see an important role of regulatory intervention and it’s in the new policy document, which suggests that network operators certainly should be involved in one way or another in rolling out so-called access points for universal service. 
A little bit more about our industry more specifically where we find ourselves. I think it’s important to say that it is, in fact, a relatively immature industry, notwithstanding the pace at which it moves and that you hear claims that one real-world year is three (3) or four (4) or nine (9) Internet years. Notwithstanding that pace it’s an immature industry and perhaps that pace itself means that market conditions are far, far from settled and I mentioned the example already of the bank, for instance. And what’s emerging more and more to us and our perception of how one might succeed in this business, is that there is a need to build critical mass. It’s driven by some economic theories, if you accept them, about network effects and it’s also driven by common business sense. 
Why? We’re discovering that more and more investment is required to acquire and build this critical mass, to keep up with the technologies that consumers want and one finds oneself riding a very, very long J-curve with deep investment. And given that one needs a lot of flexibility in the way you carry on your business, a lot of efficiency in the way you carry on your business, so you can respond to the demands of building this critical mass. We need quick responses to adopt technology and when say adopt technology I mean acquire or innovate. But you need time and you don’t want to be necessarily lagged by onerous - and I’ll touch on this in a moment – onerous regulatory interventions to adopt that technology to enter into transactions and to amend and recreate and create your business strategies. And I should also make a point, something that’s emerging from our experience is that one shouldn’t underestimate the savvy of the consumer in the South African market, at least in terms of the protection that a regulatory body might think they need. They’re cleverer than they think, they act with vitriol, they are, so some arguments go, acquiring more and more power through the choice that the Internet offers them and so one shouldn’t be over-paternalistic in making policy choices about where you step in to protect consumers. 
What are the key inhibitors then that we see in getting on with our business in this market, taking account of the unique structure of the South African political history and the unique demands for regulation? We see, and I’m not sure this is the right label, but anyway it seems to us that current competition intervention in the market is very much to some extent about prior restraint, which imposes on us – and I state this generically – to some extent onerous reporting mechanisms, lengthy sometimes decision making processes, particularly if they’re disputes, some fairly broad definitions of affected transactions and to some extent premature definitions of dominance in a market where really if there are any monopolies today that such beasts exist, are probably tomorrow’s also-rans. 
Having said that, what are the options that we should look for? Very, very broadly given the time constraint, perhaps some kind of private complaint-based regime put in place to deal with, if you like, ad hoc concerns from anyone who might be a interested stakeholder. That’s perhaps an oversimplification of a more complex concept, but the broad idea is to remove the prior restraint and rather impose an ad hoc, if you like, efficient, streamlined complaint-based system. 
Why do we say that? Well I’ve emphasised already the need for critical mass and if you accept the need for critical mass you will then derive the benefit. And again I by no means can claim expertise, but if one accepts the theories we see the value of network economies, if you allow the critical mass to build up and it goes beyond the economies of scale that perhaps we might enjoy. And again this is contentious, from reduced prices on the network itself, but into a flow of information and the learning effects that one gets with efficient uses and growth of people on a network. That has the spin-off of people taking up the technology. Once more and more people take up the technology there’s a roll-on effect that those who produce the technology are encouraged to innovate. 

And key, and most important in the South African context, the consequent multiply effects up and down the value chain that this will have for all of these range of service providers who in one way or another, be it the people who build the infrastructure, be it the people who create content for that infrastructure, be it the service providers who facilitate access to that infrastructure and everyone else who is their contractual partners, all of those people in the value chain, ultimately benefit from this. Thank you very much. I’ll be happy to take questions afterwards. 

MS LUHABE: Thank you Myron. Last but not least is a voice from Government, the Department of Trade and Industry and this will be represented by Alan Hirsch who is currently the Deputy Chief Economist and he will speak to us on the implications of the new economy in competition regulation and innovation in the South African context. Alan. 

DR HIRSCH: Thanks very much Wendy and thanks for the invitation to participate on this very simulating panel. Although, I think, being last on the panel, I knew that I shouldn’t prepare an electronic presentation, because I’ll have to cut most of it out. I do have, for those of you who haven’t found it, I do have a written version of a paper in the conference papers that you have. It was for some reason, I think, in my version anyway, stapled to the back of Prof Whish’s paper and they do kind of complement each other, but I think some people might not have found it. 
So I’m going to skip a few sections that have been dealt with quite competently by other people on this panel and I may repeat some points from other parts of the conference, because unfortunately I haven’t been able to attend it all. But essentially the perspective that I want to offer is a perspective … a kind of an industrial policy perspective. Why is the new economy important to us and what are the imperatives for Government, at least some of the most important imperatives for Governments in order to get the most out the new economy that we can for South Africa? 
And I found a … well essentially the reason why it’s important for us is because, I think, it’s increasingly true although economists will still dispute this for another few decades, but the evidence does seem to suggest quite strongly, as the new ILO Employment Report argues that countries that have had the greatest growth in total factor productivity in the nineteen nineties (1990’s) are those where ICT has been widely used in the economy. These are also the countries in which employment has grown the most. There’s evidence that employment ratios are highest in those countries in which the use of ICT is most widespread. Evidence also showed that unemployment has declined most in countries where the Internet use is most widespread. 
Now this evidence may not have the status, sufficient status for some economists, but for policy makers it’s already convincing enough to be able to have to take these issues on board very seriously. So essentially there’s a strong relationship between the diffusion of ICT technologies, increases in total factor, productivity growth and increases in employment and it’s something that we can’t ignore. And that’s why we, in the DTI, are putting more and more resources into this sector. 

Firm level studies though have shown that it’s not enough just to spend money on technologies and here, I think, the evidence is also very interesting and perhaps becoming accepted in the literature. A firm that simply buys a computer, their productivity won’t change. A firm that engages in training but doesn’t change its internal organisation won’t benefit greatly. And also a firm, which reorganises internal relationships but doesn’t reorganise external relationships in line with the Internet and E-commerce opportunities, also won’t exploit those opportunities effectively. But if a firm in any many sectors, and this is … I know manufacturing the best … if a firm invests in ICT technologies, if it trains its workers, if it reengineers its internal processes and if it reengineers its external processes there are very high returns in terms of increases in productivity. So it gives us a sense that you can’t just talk about blind investment. You have to have a broad approach to investment in the ICT sector. 
So that means there are a range of ingredients for a successful ICT strategy, including good education and training systems, a good environment for innovation, strong managerial capabilities for reorganising firms and relationships between firms and also a defective regulatory environment. South Africa has the potential to gain from the new economy. We are earlier doctors of technologies by nature for some reason, but for various reasons that has slowed down quite considerably. It may be a lack of oxygen. It may also be a limitation on … well the unequalness of our society in terms of skills and economic resources. And those are issues obviously that we have to address. 
Myron talked a bit about the types of factors that influence the regulatory framework that has been developed in Competition Law and in the other laws. The point that I make in this paper is that essentially there are three (3) transformations that we’re going through as South Africans, at the moment. The first and most obvious for South Africans, being the attempt to redress economic inequality, which relates to a history of political inequality. That doesn’t only involve the removal of restrictions that did operate in the past, but it does, by it’s nature, have to involve various forms of corrective action such as forms of restitution, empowerment, small business development and so on. And there’s still a lot more that we need to do and we still don’t really understand how to do many of these things properly. 
The second transformation that we embarked on at about the same time, which was to reintegrate South Africa into the world economy, we had become somewhat separated from the world economy by a combination of an inward looking industrial policy, protectionism, inward industrialisation and so on and sanctions, which were imposed on South Africa through the nineteen eighties (1980). And there was a kind of a … they reinforced each other, obviously, in various ways. So we had to break out of that relationship with the world economy. 
And then thirdly we have to address the technological revolution, the information revolution, which is happening at precisely the same time. So this does make the environment in which we develop regulations quite complicated, but we do have to deal with all three of these transformations simultaneously. 
Implications for competition policy – well people have talked … clearly, I think, several people have referred to how these considerations are reflected in the Act. I think they are reflected in the Act in various ways and I won’t go into detail about that, but there’s … you know, in the purpose of the Act these combinations of concerns is strongly represented. And then in mitigation of both abusive dominance issues or/and merger issues, but in different way, these factors can come into play. Issues of the distribution of wealth, small business development, the competitiveness of South African firms and so on. 
Now, you know, Andrew argues that we haven’t … that the law isn’t modern enough. I’m not sure about that. I think that is one of the issues that we should possibly pick up in a subsequent discussion. Then this relationship between competition policy and innovation, now I’m not going to repeat the points that other people have made about network effects, about the economies, returns, increase in return of scale and about lock-in factors. Clearly those are factors, which do characterise the new economy. 
One question though that you could ask is, are they unique to the new economy? I don’t think so. I think, these are characteristics of products that emerge in other eras as well. Products like the telegraph, the telephone, radio, you know, in some of those effects more or less. And I think and I referred to it in my paper – I won’t go into detail to a business story and I’ve written it as Deborah Parr, but it’s Deborah Sparr. So please correct it in case you want to follow up that reference. A book that’s about to be published called “Ruling the Waves”, in which she looks at a series of successive revolutions of the same kind as the current information revolution. And it’s happened before. 
What’s interesting about it is the phases that she describes the revolution going through. The first phase being innovation, the second phase being commercialisation and the third phase, which is clearly the phase that we’re currently in, which she calls creative anarchy, although it’s not quite anarchic as it might appear. And I was thinking of this definition when … I think, it was Myron who was talking about how do you define Microsoft. I just want to quote what she says here, “during the third period innovators seek rules, for example, Intellectual Property rights, to reinforce their ability to continue to commercially exploit their new technology. It’s also at this stage that the risk of monopoly emerges. If one company is able to impose its proprietary standards on the rest of society, compounding increasing returns to scale the network effect to lock in factor”. 
So it’s a very exiting era that we’re in. An era in which the regulatory system is being reworked and there is a danger that it can be reworked in favour of particular interests. Another business historian referred to it recently in an interview in the New York Times and I do want to quote from her, because, I think, it’s a very pertinent quote to our discussion. It’s Nancy F Cohen, an author, funny enough, from Harvard. “What we’re now seeing is an inflection point in the history of capitalism as the information age takes hold. Business is leading that transformation. We’re seeing business experiment with trying to exploit, trying to take advantage of and over the next few years make profits from the possibilities of the information age. Those are chapters one (1) and two (2). Coming chapters will be about other actors responding to business initiatives. It will be about workers, politicians and voters making the information age their own and trying to exert more control”. 
So what we see is that we are in a process of regulatory change, which does resemble events that have happened in previous times and the responses will be similar in some ways and different in others. One point, which is under debate, which, I think, that I have a view on, is whether or not Competition Law itself really needs to be changed significantly to cope with this new economy era. And it doesn’t seem to me to be obvious that it should be. I think, that was the main point in Prof Whish’s presentation, which unfortunately I missed. But obviously there are other very major developments that do have to take place. 
I think, most importantly, the problem is in the regulatory environment, in the capacity of the regulatory environment. Regulators today need to be resourced and empowered to deal with unanticipated events and issues. And I want to take a couple of examples drawn from a topic, which has already come up a couple of times this morning. The new proposed telecommunications policy. In terms of the proposed new telecommunications policy, the second network operator will be allowed to use the Telkom infrastructure for three (3) years, after which it’s required to use its own infrastructure. What powers will regulators have to oversee the interconnection fees - something that’s been raised already several times, and how will they be able to enforce their policy? And at the moment, I think, both, from the regulator and from the private sector, there’s a feeling that it may not be strong enough to do that at this stage. 
A second example – when the second network operator establishes its own network, what elements of the infrastructure that, in the past, Telkom considered to be its own property, would be still accessible to the second network operator? And I used the apparently trivial example of telephone poles. If the second network operator wants to use the same telephone poles … I mean who is going to put up two sets of telephone poles in the street, as Telkom uses. Do they have a right to do that? What right does Telkom have to charge for it in various ways? And there are countless instances of regulatory decisions that are going to have to be made over the next few years, which require a really empowered regulator. And I think the point has already been made as well that effective empowerment of the regulators with resources, skills and authority is something we cannot yet claim to have achieved uniformly, successfully in South Africa. 
Now from the DTI I may be a bit biased, but, I think, that we have resourced the competition authorities quite strongly and you know, I can only hope that that will set a standard for the other regulators to follow. And I don’t mean this as a criticism of the other regulators. I think it’s just perhaps that the recognition of the immense responsibility of the regulators hasn’t been as widely recognised yet as it could be. 
There are other legal framework issues that do need to be attended to and I think people have referred to that. There are issues of Internet security, contract law, consumer protection, privacy. I think, those are issues that we do want to find a way to incorporate appropriately into our commercial and consumer protection legislative framework. But I’m not sure … I may well be wrong, but I’m not sure that there’s a huge rethink of the Competition Law that’s needed. 

In South Africa the limitations on innovation don’t really come from huge private companies. There aren’t very huge private companies. I think, somebody alluded indirectly to this example earlier already. At one point there was a fear that one or two companies would completely dominate and monopolise the Internet service provider market. Now that’s suddenly changed with the entry of a bank into that market. So clearly within South Africa in the private sector, I think, also you can say that … maybe the competition regulators will correct me, but the convergence mergers that have taken place between the different parts – communications, IT, media – those mergers that have taken place in South Africa couldn’t have really troubled the domestic regulators a great deal and certainly not, for example, compared with the AOL/Time Warner type of merger. And I think that’s true generally in the sector, in the private sector in South Africa. And perhaps that’s not true. I think, there may be one or two exceptions and one exception may well be in digital satellite television, which in my understanding doesn’t have a proper regulatory regime. But I may be wrong. 
Okay, I’ll conclude with my concluding points. I was going to talk a little bit more about the constraints that the State has operated under in privatisation and re-regulation and I just want to mention the four points briefly. Firstly there was the issue of access. We had to provide access to people who didn’t previously have access. Secondly there was the factor of the value of the State’s assets having to be preserved, especially a State of South Africa having been quite severely indebted when the democratic state took over. Thirdly the issue of the effect of the re-regulation or deregulation on unemployment and then finally there was the issue of the effect on the overall cost structure of the economy. 
Now the simple point that I want to make is that up till now the emphasis has been on the first three considerations, access, value of the State assets and the effects on employment. But, I think, with the rewriting of the Competition Law at the beginning of last year, Section three one D [3(1)(d)] coming out and with the President’s speech to Parliament on February the ninth (9th) this year, there’s a shift towards a focus on costs and economy competitiveness, which we see as a healthy shift in South Africa. 
The three fundamental issues that we have to address in this Government – one is setting a clear policy direction in the sector. The second is developing a suitable framework for e-commerce in South Africa and the key issues are issues like contracts, security, privacy, consumer protection and so on. And then the final one, which, again, I want to emphasise, because I don’t think it’s sufficiently emphasised, is the empowerment of the regulators who need resources, skills and authority to implement the new policies effectively. Thanks. 
MS LUHABE: Thanks Allen. I just wanted to briefly share the key ideas that have emerged from the various presentations, at least for me. Lawrence argued in his presentation that Intellectual Property must be treated as an asset. And Yasmin followed and proposed that the regulatory regime can be used as a tool to achieve public interest objectives. Andrew followed and invited us to consider the impact of digitisation and what can be achieved by defining areas of co-operation. And Myron suggested that perhaps a value system plays a very strong role in how we define the regulatory framework. And Alan has just concluded that South Africa is addressing three areas of transformation in its response to the new economy, the competition regulation and innovation in South Africa. And these are redressing the economic imbalances that we inherited, reintegration into the global economy and the information revolution that is taking place. 
You have been sitting rather patiently and quietly and if there are any issues that … is Richard and Dan still here? We thought it might be interesting to invite you perhaps to make some initial responses to what the panellists have presented. And I see Dan is here. Do you have some thoughts that you might want to perhaps share with the audience? And please feel free to raise questions. Shall we just start with Dan? I just wanted to… 

PROF RUBINFIELD: Well I’ll help to answer any specific questions. 
MS LUHABE: Oh okay, all right, so Dan will be available as a resource. He presented the case study on Microsoft. Shall we circulate the microphone for questions? Yes, we’ll start there. 
MR FOURIE: Hi, I’m Frederick Fourie from Free State University. I want to make a plea and make a statement and maybe get some reaction from the panel. The question of this session says: Is competition policy stifling innovation? I just think we should be careful not to fall back into the old kind of debate about policy – is it for or against something. It’s never that simple. It depends how you do it, how you design it, how you implement it. It’s not an either/or kind of question. I think, a discussion along those lines is not very fruitful in a policy discussion. 
But secondly Dan made a point about Microsoft, in a sense pleading. They’re so unique in such a new industry they must get special treatment. Now I get the impression from some of the speakers this morning that we get so caught up in the newness of a new industry that we … you know all the jargon and all the gospel, all the likes and stuff, that we tend to be unable to see through the new shapes and sizes and forms of market interaction, to see that underneath, basically, markets, the intrinsic nature of what a market is and how people interact, does not change that much. You have buyers and sellers. You have competitors and so on. That basic framework isn’t really so new. And I think Alan made the point in every industrial change people think everything is new now suddenly. 
I think if we feel that way it just reflects the absence of perspective. That means having some distance and seeing what is really happening in what we’re doing here. And I think one must be careful in this discussion to confuse the changing shape and form of markets with the underlying reality of what is really going on there. And, I think, the job of a competition authority is to have that sort of coolness and distance and not to be too much impressed by the new so-called newness of different technologies and forms. Things may change much less underneath than what we think. 

MS LUHABE: Did you want someone to respond to that specific… 
MR FOURIE: Well I think they… 
MS LUHABE: Dan would like to say something. 
PROF RUBINFELD: I actually agree very much with the comment. In all the work that I did on the Microsoft case I actually found that the basic micro-economic principles were all there in basic textbooks, including one I happen to have written, which is reassuring. And also, you know, all of our work on innovation, which was very significant, really goes way back to the writings of Joseph Shampater and others. There was no new economics discovered here. The intellectually interesting part of looking at hi-tech industries is just trying to sort it out, as you described, sort of new practices and to try to sort of put them into the same basic analysis. 

The real work to be done, I think, here for economists is to do more case studies and empirical work on innovation, because as most of you know the theory, the economy theory of innovation really leaves us uncertain whether there is much of a relationship between concentration and innovation. And I think it varies by the type of industry, but my strong feeling, based on a lot of experience, has been that in hi-tech competition really does make a difference through innovation and I could tell you lots of stories if I had more time, about why I think that’s true in this case. But it’s exemplified by the fact that if you talk to venture capitalists in the United States about where they put their money, they’re the best test of where innovation is going to be, because they’re the ones who finance it. And they will tell you that they’re very reluctant to put their money in a firm that’s competing against a dominant firm unless they’re pretty sure the rules of competition are fair. They’re happy to put it behind the dominant firms, but otherwise they stay away from competition. I think that’s a pretty good signal that innovation needs some competition. 

MS LUHABE: Thank you. Yes. If there’s someone who has questions for Yasmin, I suggest they raise them now, because she needs to leave at one. She’s got a flight to catch. David, if we can just allow David to ask Yasmin a question so that we don’t delay her. 
MR LEWIS: It’s a question to Yasmin and a summation on something that Myron said. Do you not think that in regulating or I think more properly investigating and adjudicating, the kinds of issues that you and kinds of challenges that ICASA faces, that ICASA is storing up enormous potential problems for itself by the lack of separation between the investigative function in the agency and the decision-making or adjudicative function in the agency? And I say that because it’s distinguished from the situation in our Act where the investigator and the adjudicator have the same degree of separation that a prosecutor and a court would have in the normal judicial function. And it relates to something that to Myron’s identification … I can’t remember the term that he used, but his plea for a complaint … a private complaints-based system. It seems that a sector regulator or a licensing authority, which is essentially what ICASA is, looks forward and tells the holder of the licence what it can do or what it must do. Our Act has us, if you like, telling firms or actors in the economy what they can’t do. And then when a complaint is submitted to the Commission and then passed on to us, we look back and see whether they have indeed violated the Act or not. And is it not … you know, without … this is not a pitch for us in the areas in which we share concurrent jurisdiction, but is it not a structurally better set up mechanism for handling these kinds of complaints? 

I just imagine that ICASA are going to be beset with constant reviews, whether well founded or not, but simply because that’s what happens in our kind of constitutional system, our kind of legal system where the investigative function and the adjudicative function are blurred. They’re more than blurred. They’re seamless. They’re un-separated. 

MS CARRIM: Just to try and be very short David, we haven’t really thought about it. That matter has been raised before within ICASA, but we haven’t really thought about it beyond raising questions around a number of things. One is that we are a very sector-specific regulator and regulating both in a perspective and retrospective way. Licence conditions tell people what to do, but licence conditions also tell people what not to do and that the monitoring of that becomes part of the regulator’s functions, not necessarily the investigation of prohibitions. So that’s one difficult area. How do you separate those kinds of functions when they’re both so closely linked? 
The second aspect of it is that often the complaints that we receive also link to areas of regulation that the regulator is supposed to make some kind of perspective or create some of perspective regulatory regime. And one of those will be perhaps the debate around the VPN’s, the Virtual Private Networks and that’s become some of the sort of boundary disputes whether is it Virtual Private Network or VANS or is it a PTN’s. And that kind of investigation takes place through a public process and a consultative process rather than a police powers kind of investigation. And yet at the same time it makes sense that we would be able to decide on some of those complaints because of the linkages. 
So, I think, that there are issues of administrative law principles, but there are issues of efficiency in terms of the link between understanding where the market is going, what the technology is and what this new service is and the kinds of complaints we get. And often … I think, that some of that will change with the post exclusivity period. That the complaints will tend be more around anti-competitive behaviour rather than around whether something falls within someone’s exclusivity or not. 

Where your question has relevance is that currently in the policy directives there’s a prohibition on VOIP, on VANS and maybe that that concern will arise in that situation is that the only way a regulator can regulate Voice Over Internet is by using extensive police powers, because … well this is my understanding, is that you can’t tell what is data and what is voice when it’s being conveyed across a Packet switched network. It’s all bits and bytes and it’s all voltage. You can’t tell until it comes at the end and is converted into something. 
So that kind of prohibition will require, I think, fairly extensive police powers where you have to send in people to search premises and things like that. And, I think, that becomes … that’s a concern for us and I think there we are going to have to look at whether you separate that, even if it’s within the authority, like the separation of the Broadcasting Monitoring Complaints Committee under the IBA Act, which has some kind quasi independence from the Authority. 
Chair I have some questions, if I can ask them? 
MS LUHABE: Yes, please. 
MS CARRIM: And maybe the other people in the audience could assist. From a regulatory point of view, just going back to this whole thing about the new economy and the underlying principles being the same. I agree with that, but one of the issues that I’ve been thinking about is the Telecoms Act is technology neutral. Its emphasis is on describing types of services. So we have a Public Switched Network, we have Mobile Cellular Communication services, we have Value Added Network Services. The emphasis is on prescribing services and people are given licences according to the services that they provide. 
One of the concerns that I have is how do we deal with convergence and things like Internet telephony where you’re using Internet protocol to provide basic telephone services? With convergence you’ve got a situation where you’ve got a fixed and mobile convergence switch. We’re still trying to understand what that is, but with that kind of convergence how do you then utilise … do you prescribe new services? If somebody is using Internet telephony or Internet protocol to provide basic telephone services, do you just slot them in under Public Switched Network Services or do you slot them in under VANS? That raises a lot of issues as to how you define a market and cross-ownership issues. Because if you’re going to prohibit cross-ownership as a form of promoting competition and preventing growth of market share by one or two players, it’s going to raise the question of how you define markets. And I’m hoping that people in the audience can actually… 
MS LUHABE: Is there someone in the audience that can help? Richard probably would have been best suited and I don’t think he is here. Is there anyone who can assist with this question in the audience? Dan can you make an attempt from your experience? 
PROF RUBINFELD: Well in the US we handle these issues somewhat differently. So I’m reluctant to really talk and then the FCC would have authority, even for these telecom issues, even as they reach the Internet. But we handle it somewhat differently. So I think I’ll leave it at that. 
MR ZLOTNICK: Just an observation on that I think what Jasmine’s question exposes is the difficulty of attempting to attach labels, which define powers of regulatory bodies in an industry which moves so fast, because notwithstanding that is technology neutral. The claims made by the competing parties, the incumbents versus those who are trying to edge in, at least what the incumbents perceive as being edged in on their territory, turns on a definition of language used in either legislation or regulations. And that, I mean we’ve seen this been dragging for four (4) or five (5) years, has shown that that kind of attempted regulation is perhaps proving … notwithstanding its motives, is proving inefficient. 

MS CARRIM: Can I just respond to one other thing before I leave, Chair? This is a question that was raised by Alan about polls and basic infrastructure sharing. And, I think, that just as a response that as a regulator we anticipate a fair amount of problems around the sharing of infrastructure between the SNO and Telkom. And I think a lot of that debate is going to revolve around whether polls and rights of way, public rights of way, etc, are essential facilities. I think that’s going to become where you’re going to draw the line. I think, that one of the ways you could avoid that debate from becoming crippling is by regulating, prospectively saying this is how infrastructure sharing would be and issue some kind of guidelines in the way that the regulator has issued interconnection and facilities leasing guidelines. And hopefully they won’t be challenged by anybody and that we’d be able to move pretty swiftly in helping the SNO come to some kind of successful commercial operation. 
MS LUHABE: Thank you. 

PROF RUBINFELD: It might be useful to look at the US expanse here for some guidance, because I think it’s worked quite well overall. In the United States telecom is regulated through the Federal Communications Commission, but Telecom is also significantly studied by the competition authorities, by the Anti-Trust Division of the Justice Department. There is a very significant staff that follows Telecom and the two groups actually, generally speaking, work quite well together. They have somewhat different missions. Now the Telecom Group in the Anti-Trust Division does more than just look at mergers. They actually study the markets as they’re revolving and actually occasionally come out with policies. They’re involved occasionally with business reviews where they have a look at new issues as they’re arising. And over the next couple of years, I think, you’ll see a further division of labour between the FCC and the Anti-Trust Division, because Michael Powell, who is the Head of the FCC who was quoted as saying that regulation is not good for innovation. Most people don’t realise he had been the Chief of Staff for Joel Kline at the Anti-Trust Division and I think Mike Powell would say competition enforcement is good for innovation as well. That would be the second part of this quote. 
So I think you’ll see some further co-operation and also a division of labour between the two groups that handle telecom and I think it’s working quite well. 

MS LUHABE: There were two hands. You wanted to ask a question or did you change your mind? 
QUESTION: I just want to ask the panel, when it comes to the regulation of technology in South Africa, do you think South Africa has sufficient skills, financial resources, proper legislation and authority to be able to keep up with developments in the broad technology field and be able to regulate it properly? 

MS LUHABE: Who wants to answer that one from South Africa? 
DR HIRSCH: Ja, I mean I think that I’ve already said it and I don’t think anybody disagrees that we don’t currently have sufficient … but I don’t see why we shouldn’t. You know if we can make the same investment in the other authorities as we did in the competition authorities. 
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