Market watchers and industry players are largely of the view that South Africa’s competition authorities erred in prohibiting the proposed R14 billion merger between mobile operator Vodacom and fibre infrastructure company Maziv.
They were responding to yesterday’s announcement by the Competition Tribunal that it had prohibited the proposed merger deal.
In making the announcement, the tribunal said it will give the reasons for blocking the deal at a later stage.
Vodacom and Maziv yesterday issued statements expressing their disappointment with the order, with the former signalling it is considering appealing.
The order came after in August last year, the Competition Commission recommended the R14 billion merger be prohibited.
This, after the competition watchdog found the proposed deal would likely prevent or lessen competition in several markets and that the conditions offered by the merging parties did not fully address the resultant harm to competition.
The Association of Comms and Technology (ACT) views the blocking of the transaction as a “missed opportunity” to facilitate a meaningful response to market − developments that would have benefitted the entire ICT ecosystem.
“While Vodacom is a member of ACT, our stance considers the broader potential for a more sustainable industry considering the rapidly-changing landscape and the impact, or potential impact, of large global enterprises and needs of the ICT SMMEs with the desire for scale in South Africa’s fragmented market,” comments Nomvuyiso Batyi, CEO of the telecoms industry body.
Debilitating decision
She believes this transaction’s approval could have set a transformative precedent, aligning with global telco trends, where consolidation has boosted efficiencies, product offerings and innovation, to keep pace with over-the-top players, satellite and other non-traditional entrants.
“This navel-gazing prohibition of the R10 billion to R14 billion merger after over three years of deliberation reflects a considerable delay to offer a substantial response to competition, raising concerns about the ICT sector’s ability to drive critical investments in infrastructure, particularly for underserved areas,” says Batyi.
She adds that this prohibition impacts broader socio-economic objectives. “More specifically, this transaction was positioned to not only expand reach and efficiency of the merging parties, but also to open doors for SMMEs to scale up their operations, benefit from increased resources and integrate more robustly into the sector.”
Through the establishment of a R300 million enterprise and supplier development fund, she notes, the merger aimed to directly support local SMMEs, providing them with capital, mentorship and access to an expansive customer base.
For Batyi, such a fund would have enabled these smaller players to enhance their capacity, adopt new technologies and increase their competitive-edge, which is often limited by resource constraints.
“Ultimately, the ICT sector needs significant capital to accelerate fibre rollout, and the Competition Tribunal’s decision risks slowing the industry’s progress. Our members have been fielding questions about how universal connectivity will be achieved, especially as consumers and businesses look to the ICT sector to bridge South Africa’s digital divide.
“This merger represented a pivotalopportunity to demonstrate the sector’s commitment to large-scaletransformation, but without necessary investments, the pathway to universalconnectivity remains challenging.”
Constricting purpose
Arthur Goldstuck, MD of World Wide Worx, says the tribunal may have made the right decision in sticking to the letter of the Competition Commission’s mandate, “but I would argue that they made a major mistake in terms of the spirit of that mandate”.
According to Goldstuck, the primary purpose of the commission and tribunal is to promote and maintain competition in South Africa, and by extension to prevent restrictive practices and abuse of dominance.
“They appear to have developed a block around the ramifications of dominance, rather than a focus on the purpose of the Competition Act itself, which is, among others, to promote the efficiency, adaptability and development of the economy. This decision has the hallmarks of steps leading to the opposite effect of that purpose.”
He believes the decision is a major setback for the expansion of high-speed connectivity beyond affluent suburbs and business areas.
“We have seen heroic efforts from small and large telecoms and internet operators at achieving this goal without support from government, and with very little enabling action, policy or legislation. It is ironic and sad that state entities step in only to block expansion of these efforts, instead of ways to facilitate and enable them,” Goldstuck says.
“Smaller companies have a superb can-do ethos in South Africa, and have made a major contribution to connectivity, but they do not have the scale or funding to transform the connectivity landscape on a national scale. This deal had the potential to do so.”
Dobek Pater, telecoms analyst at Africa Analysis, says he expected the tribunal to approve this deal but with stringent conditions attached.
He believes building broadband infrastructure on a large scale requires big players with the ability to fund such deployment, typically with funding from third-parties.
“Building broadband infrastructure costs a lot of money. This is achieved better on a large scale by large entities, with the ability to raise the required funds. Without these large-scale actors in the market, higher connectivity levels will be achieved but possibly over a longer period of time,” Pater says.
“This may, in particular, have a negative impact on the lower-income areas’ good quality broadband connectivity. It may take longer to achieve this. However, capex invested in infrastructure needs to be recovered by the investors (operators or other funders). Therefore, there is no guarantee that larger operators will build fixed-line (fibre) infrastructure into low-income areas if they do not see a business case in such areas.
“But they can invest more in backbone fibre infrastructure and in wireless last-mile supported by that backbone (eg, fixed 4G or 5G or WiFi 6). This would still provide very good quality broadband connectivity in low-income areas.”
No more ‘freebies’
On the other hand, Leon Rolls, president of the Progressive Blacks in ICT (PBICT) lobby group, has welcomed the blocking of the deal.
“The PBICT advocates for a distributed economy system where monopoly bullies are stopped in their tracks. We support the decision of the tribunal fully,” says Rolls.
“Vodacom, just like other telcos, have made many promises. They must fulfil their ICASA obligations first before they are given another freebie that makes them hog the space. It is all smoke and mirrors.”
He points out that South Africa needs to start investing in its SMMEs. “Look at SA Connect and how BBI [Broadband Infraco] have empowered SMMEs. That’s why we need people in the right positions to make the right decisions that are right for this country.”
According to Rolls, the group is in the processing of lobbying support through its 8 000-plus members to stand with the tribunal to reject the appeal.
“We will ensure this deal never sees the light of day. We all want to be connected; however, on the same note, we want our people to be part of the digital economy. The data monopoly must fall. BBI must be funded for the full-scale rollout of its open access model that will bring small ISPs into the market, so that we compete on fair ground. Vodacom must do good on its obligations and must stop bullying us in the space.”
Meanwhile, Peter Takaendesa, head of equities at Mergence Investment Managers, comments: “It is difficult to assess the chances of success at the Competition Appeal Court, but Vodacom is no stranger to legal cases that run over long periods of time. In the Please Call Me case, they have been to the Constitutional Court twice now and the case is still not resolved.
“The merging parties must be frustrated and concerned that they have now lost twice and the longer it goes, the more actual and opportunity costs they will incur,” he concludes.
Share