Nicola Mawson
Vodacom, South Africa’s largest mobile network operator, could well appeal a Competition Tribunal ruling prohibiting a proposed multi-billion-rand merger between it, Dark Fibre Africa (DFA) and Vumatel to create what would have been South Africa’s largest fibre operator.
In a statement issued yesterday, the Tribunal said its reasons for the decision would be issued at a later stage. The Tribunal’s order follows the Competition Commission’s initial recommendation in August last year that the proposed merger be prohibited.
Vodacom sought to buy DFA and Vumatel from Remgro through a combination of R6 billion cash and the contribution of some transmission access fibre network infrastructure at a valuation of R4.2bn, which would have expanded Maziv into the largest fibre infrastructure player in South Africa. Vodacom was set to own between 30% and 40% of the entity.
Remgro’s share price tumbled 8.5% on the news. By 5pm the share was 5.44% lower at R152.97 while Vodacom’s shares slid 1.53% to R111.42 at 5pm.
Vodacom Group CEO, Shameel Joosub, said he was “deeply surprised and disappointed by the Tribunal’s decision”.
In a statement, Vodacom said it had been set to invest up to R14bn into Maziv, which was recently established through the combination of Vumatel and DFA.
“South Africa desperately needs additional significant investment, especially in digital infrastructure in lower income areas. Our investment of up to R14bn would have changed millions of lives and created thousands of jobs,” it said.
The Tribunal held hearings after the Competition Commission opposed the merger on the basis that it would create a monopoly that could control pricing and would also see poor people lose out on cost-effective broadband connectivity.
Joosub said it had “comprehensively addressed” concerns “through remedies and commitments by the parties”.
During the hearings, held over 26 days and also included written submissions, the Tribunal heard evidence from various factual witnesses including from each of the merging parties, Frogfoot Networks, Telkom Consumer and Small Business and Mobile Networks of Telkom Consumer and Small Business, divisions of Telkom, MTN and Rain. At the Tribunal’s request, Hero Telecoms also provided factual testimony.
Vodacom said its merger bid would have resulted in the investment of about R10bn over five years, mostly in low-income areas. It would also have run fibre past a million homes during the same period, while also creating 10 000 jobs.
Simultaneously, it would have established a R300 million enterprise and supplier development fund to prioritise SMME development and provided high speed internet to over 600 adjacent schools and police stations at no cost.
In a separate statement, Maziv said it was also disappointed by the outcome but respects the Tribunal’s process. Both it and Vodacom said they were awaiting the reasons behind the prohibition to consider their options, which Vodacom said may may include an appeal in the Competition Appeal Court.
The Competition Commission spokesperson, Siyabulela Makunga said they welcome the decision by the Tribunal to prohibit the proposed merger.
“The proposed merger would have resulted in the country’s largest mobile operator, Vodacom, acquiring a controlling interest in one of South Africa’s largest fibre infrastructure players, Maziv. Vodacom also has fibre assets which would have been transferred to Maziv. The Commission looks forward to the Tribunal’s reasons for its decision,” Makunga said.
Mergence head of equities, Peter Takaendesa, told Business Report that although reasons had yet to be published, the approach that the Competition Commission took from the start had significantly reduced the chances of success at the Tribunal.
“This prohibition will have implications for other market consolidation transactions that were waiting for the outcome of this case. It is quite likely that Vodacom will deploy more of its capital outside South Africa or prioritise repaying debt [should its bid ultimately fail],” he said.
Takaendesa said Mergence felt that both Vodacom and MTN realised that it may be too late to build large national fibre networks of their own and were looking to buy minority stakes in existing fibre network operators to optimise capital expenditure and share infrastructure.
Mark Walker, who leads the telecoms data and analytics practice at IDC Middle East and Africa, told Business Report that the matter came down to Vodacom’s bid to merge with DFA and Vumatel, which is a valid tactic to expand its market share in underserved areas.
“Both Vodacom and MTN would want to expand their presence and Vodacom’s aim was attract more subscribers through the deal, which would then aid it in growing its market, potentially through increasing its subscriber base. The question, however, is whether it would get the necessary return on its investment should this deal have been approved” he said.
Walker added that both players were seeking to expand as quickly as possible in what was essentially a “game of chess,” and each player will make strategic moves to advance their own interests as quickly as possible.
BUSINESS REPORT