Competition Law

Sustaining Competitive Markets in Nigeria’s Evolving Digital Economy

sustaining competitive markets in Nigeria’s evolving digital economy - Chukwuyere Izuogu
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Chukwuyere Izuogu

Nigeria, home to Africa’s largest internet subscribers had its President and Commander-in-Chief in 2019, give assent to the Federal Competition and Consumer Protection Bill 2018 (the Bill), which subsequently enacted the Federal Competition and Consumer Protection Act 2018 (the Act). According to, the present Director General of the now repealed Consumer Protection Council this piece of legislation has had a tortious history and several false starts since 1999 when it was first presented to the National Assembly for their consideration. Indeed, from personal knowledge, this Bill is no stranger to been listed on the Order Paper of both chambers of legislature, in fact this Bill made its usual appearance under several sponsors in the last three legislative sessions (2007 – 2019) until its enactment in the present session.

The importance of the Act lies in the fact that previously, anti-competitive practices were rarely ever challenged by a regulator or, in court, hence the timeliness of enacting the Act. At a fundamental level the Act will ensure among other things that; consumers are protected in the market place; are not left at the bargaining mercy of undertakings that wield market power; that consumers get a good deal in terms of price and quality; and that businesses compete on the merits without resorting to anti-competitive practices that impedes effective market competition. In this regard, the Act seeks to protect consumers and businesses from anti-competitive practices.

The digital economy in Nigeria’ relies on access to the internet provided by internet service providers (ISPs) and thrives on the consumption of a wide range of online content provided across a spectrum of value chains. Prior to the enactment of the Act, the digital economy constituted a vast expanse of unregulated activities that could hardly be caught by any conduct modifying rules initiated by regulators or enacted by the legislature in Nigeria to checkmate anti-competitive practices. Even the Nigerian Communications Act enacted in 2003 to address regulatory issues in Nigeria’s telecommunications sector is unable to assert jurisdiction over services in the digital economy like over-the-top (OTT), social media networks, e-commerce, online advertising, etc, (which I collectively refer to as content and applications providers “CAPs”). It even becomes a jurisdictional nightmare to undertake enforcement activities if an undertaking acting as a CAP does not physically conduct its business from within Nigeria. The good news is that the Act cures this defect by stating clearly in Section 2 (1) that its scope of application shall extend to “all undertakings and all commercial activities within, or having effect within Nigeria”. Black’s Law Dictionary defines a commercial activity as an activity, such as operating a business, conducted to make a profit. Thus, to the extent that a CAP’s profit can be attributed (whether directly or indirectly) to its activities within Nigeria’s digital economy, such activities would no doubt constitute commercial activities within or having effect within Nigeria as provided in the Act. This provision is irrespective of the physical location of the CAP.

The observation of developments in enforcement activities by competition authorities in multiple jurisdictions in the last 3 years presents a reoccurring concern reflected in their reports, which seeks to understand how well are existing competition frameworks suited to protect consumers in the digital economy where disruptor CAPs, Big Data, blockchain and Artificial Intelligence (AI) are changing the dynamics of market competition. From a competition perspective, the Act is able to challenge the anti-competitive practice of undertakings within the digital economy in the following hypothetical scenarios.

Restrictive Agreements

Directly applicable in this scenario, is the Act in Section 59 (1) which prohibits agreements that restricts market competition. These agreements could be horizontal, that is among direct competitors or vertical, that is among undertakings (or CAPs) operating at different parts of a value chain. It is interesting to note that the Act gives a wide connotation as to what constitutes an agreement, which includes a “concerted practice”, a type of practice that falls short of an actual agreement between the parties. The Act lists some of these restrictive agreements as price fixing, market allocation, limiting allocation and tying/bundling agreements. An example in the digital economy is the possibility of a concerted practice or collusion facilitated by the use of AI, for instance in a CAP’s pricing strategy where the real time collection of datasets online enables the frequent adjustment of price. Because such price setting by AI is transparent, predictable and easily observable by other competing CAPs, the question arises as to how to distinguish CAPs’ unilateral use of AI in setting their prices from price setting resulting from a restrictive agreement or in this case, a concerted practice, which are in both instances anti-competitive. The likely anti-competitive effect is the ability of CAPs utilising AI in their price setting strategy to excessively price the product/service to the detriment of consumer welfare. The Act can intervene if it can be established that the use of AI is to monitor and enforce a price fixing agreement between competing CAPs, the fact that a computer software executed the agreement is irrelevant for a finding of an infringement.

Abuse of a dominant position

The abusive practice by one or more undertakings with market power is prohibited in Section 72 (1) of the Act. Market power exist where an undertaking is able to act without any regard to its competitors and/or consumers. An abusive practice is said to exist where an undertaking with market power in a section of a defined market exercises such power with the intention of excluding competitors from the market and/or suppressing consumer choice. For instance in the context of CAP/ISP v. CAP/ISP relationship, issues like net-neutrality whereby an ISP’s discriminates through its traffic management practices online content provided by any CAP(s), raises important question of competition law under the Act because an act of discrimination in whatever circumstance constitutes an abuse if it can be established that the undertaking engaging in the discrimination has market power and that the anti-competitive effect of such practice outweighs any technological efficiency and other pro-competitive gains. In the same vein, the ability to access and process big data including the personal data of a living person has helped solidify the market power of the big four CAPs worldwide, Google, Amazon, Facebook and Apple (colloquially referred to as GAFA) which according to German and French competition authorities in a 2016 joint report “may result in entry barriers when new entrants are unable either to collect the data or to buy access to the same kind of data, in terms of volume and/or variety, as established companies”. Last year in February, the German competition authority determined that Facebook’s data collection practices constituted an abuse of its dominant position. Although this decision was subsequently overturned by a German court, it nevertheless suggests that it is plausible that competition law standards may become applicable where a dominant CAP engages in the unlawful processing of personal data acquired from users of its service.

Mergers

Competition concerns can also be addressed through the substantive analysis of mergers occurring in the digital economy. Under the Act, mergers that fall within the Federal Competition and Consumer Protection Commission (FCCPC) prescribed threshold are required to be notified to the FCCPC for approval and assessment to determine whether it is likely to substantially lessen competition. Mergers not notifiable to FCCPC are considered “small mergers” as they do not reach the prescribed threshold in terms of annual turnover. Despite the status of small mergers, it is still notifiable within 6 months of implementation if in the opinion of the FCCPC the merger may substantially lessen competition.

Irrespective of whether or not a merger occurring in Nigeria’s digital economy is notifiable to the FCCPC in the first instance, it may nonetheless raise competition concerns if for instance such merger involves a party with access to an extensive trove of personal data and the FCCPC considers personal data as a key parameter of non-price competition in the same manner as EC, EU’s lead competition authority in the merger assessment of Facebook/WhatsApp and subsequently in Microsoft/LinkedIn. This reasoning is based on the argument that a failure to protect the personal data of individuals using a service indicates that the quality of the service is degraded which in turn retards innovation, one of the scourges competition law seeks to combat. This holds true especially in instances where according to the EC in Microsoft/LinkedIn, the service is free and therefore quality becomes an essential element of non-price competition. This regulatory scrutiny of access to personal data in data-rich mergers occurring in the digital economy is gaining traction among competition authorities in the EU and US and appears to be in line with the recent statement of the Honourable Minister of Communications and Digital Economy that data [protection] is key to Nigeria’s digital economy.

Conclusion

While this article has provided a glimpse of potential competition concerns that can arise in Nigeria’s digital economy, although most of the scenarios highlighted are hypothetical but not impossible and the arguments made will not readily lend itself to an easy resolution through existing precedents in Nigeria as the case may be, but rather should inform our thinking and analysis of the spectrum of anti-competitive practices that can occur in the digital economy and how competition law may be able to challenge or mitigate their effects.

Competition law is very fluid as is the dynamics of digital economies. Interestingly, the National Digital Economy Policy and Strategy paper recently released by the Federal Ministry of Communications and Digital Economy has as one of its policy objectives the review of existing legislation to enhance the development of Nigeria’s digital economy. This review in my view, would not doubt complement the Act in sustaining a thriving digital economy for Nigeria.

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Chukwuyere, formerly a Tech Policy Fellow at Mozilla Foundation, presently a Research Fellow at the African Academy Network on Internet Policy and Senior Associate at Streamsowers & Köhn.

 

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