Tracking firms in competition dispute

A Competition Tribunal hearing into whether vehicle-tracking companies colluded to prevent other entrants from gaining traction in the market, building networks and gaining clients, is set to continue in September.

The complaint was initially lodged by Tracetec in 2005, on the basis that it had not been able to become Motor Vehicle Security Association of SA (VESA) accredited and was, as a result, unable to grow its network.

The company complained that, in order to become accredited, it required an unfairly high number of subscribers and recovered vehicles, but - in order to do this - needed to become accredited so that it could market itself to insurance companies.

VESA is a non-profit body that was established in 1987 and is the only organisation of its kind that regulates the manufacturing standards, installation standards and certification of vehicle security systems in SA.

It says on its Web site that it “protects the interests of insurers and the general public from being misled by unscrupulous businesses offering inferior services and products for vehicle security”.

VESA's Stolen Vehicle Recovery (SVR) committee used to consist of Netstar, Matrix Vehicle Tracking, Tracker, Global Telematics SA and Bandit; however, the companies jointly resigned from the committee in 2004.

These companies compete directly with Tracetec, although each operates a different network. Netstar operates a land-based radio network, Bandit a cellular system, Matrix combines a cellular and GPS satellite system, Tracker uses a ground-based radio system, while Global Telematics deploys a GPS satellite system.

Tracetec alleges the respondents collectively agreed on criteria for VESA membership for the SVR category. This, it claims, effectively obstructed it from taking part in the market, to consumers' detriment, as its products were a third of the price of others.

Tracetec also alleges that prices of products were fixed, and that the respondents tarnished its reputation by making misrepresentations about its VESA accreditation, causing it to lose clients.

The Competition Commission found Netstar had a market share of 46.2% and was a dominant player. Tracker, with about 39.8%, was also dominant. Matrix had about 9.5% of the market and the others had less than 5%. However, between them, the respondents had almost 100% of the market, and collectively dominated the market.

In order to compete in the market, tracking companies had to be VESA accredited, as this was an insurance industry requirement. To become accredited, companies initially needed to have 5 000 subscribers and have recovered 100 stolen cars. The membership requirement was later dropped to 3 000. Later, companies could lodge a R2 million guarantee with VESA in lieu of members in 2003, the commission found.

The commission said: “The service track record standard requirements set by the respondents in the SVR committee raised an almost insurmountable barrier to entry to potential new entrants in the relevant market, since, without VESA accreditation in the SVR category, firms seeking accreditation were unable to build up a sufficiently large client base.” This also meant companies could not expand their networks in order to cater for a larger client base, it said.

Respondents were found to have prevented competition from taking place in the market, and the commission referred the matter to the Competition Tribunal. Hearings at the tribunal started late last year and are set to continue in September.

The respondents have denied the allegations, contending VESA set and applied the standards, not the respondents. They also say the SVR committee made representations to the VESA board, which was independent of the respondents.

They say it was VESA and not the respondents that refused to accredit Tracetec, which is not a competitor to the respondents as it focuses on corporate asset tracking, not vehicles.

In addition, the respondents argue, VESA accreditation is not a prerequisite for success. Success depends on several factors, including quality, pricing and the efficiency of the roll-out of the tracking network.

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