Telkom-MTN merger may face block
Analysts believe that because the competition authorities would block a merger involving all the assets of both companies, the deal is likely to involve only part of Telkom's asset base – unless the merging parties could persuade the competition authorities that there was credible and effective fixed-line competition in the form of Neotel and Vodacom in conjunction with its parent, Vodafone.
The fact that the competition authorities were faced with a combined Telkom and Vodacom back in 1998, when the Competition Act came into force, does not imply that they will readily accept the replacement of Vodacom by MTN in this partnership.
Because the deal would involve the delinking of Vodacom before a tie-up with MTN, the authorities might argue that the period between the delinking and the subsequent tie-up represented one of increased competition, however brief.
The tie-up would then represent a reduction in that level of competition, to which the competition authorities might object. This is all the more likely given that it is generally known that current relations between Vodacom and Telkom are strained to the point that they operate quite independently of each other.
It is likely that MTN would insist on exerting more authority in a Telkom/MTN operation.
Last week the government took the unusual step of not only supporting the discussions between MTN and Telkom, but announcing that it had formed a task team "to formulate a strategy that will ensure that the interests of the country, workers and shareholders are protected".
The team will comprise representatives from the departments of communications, trade and industry, and public enterprise, as well as the treasury.
One analyst speculated that this announcement indicated that the government might be trying to create a national champion that could compete effectively in the international market. The government might then attempt to persuade the competition authorities that an otherwise anti-competitive merger was justified on the grounds of public interest.
The Competition Act requires the competition tribunal to consider the effects a merger would have on a particular industrial sector or region; employment; the ability of small businesses, or businesses owned by historically disadvantaged persons, to become competitive; and the ability of national industries to compete in international markets.
But given Telkom's dismal track record on each of these fronts, and in particular its inability to achieve the roll-out obligations set out by the government in the mid-1990s, the competition authorities might not be persuaded that Telkom could play any role in creating a national champion that would promote the public interest.
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