Vodacom-Neotel deal approval, with conditions

The Competition Commission has recommended to the Competition Tribunal that the merger between Vodacom and Neotel be approved, with conditions.

Post-merger, Vodacom will have control over Neotel, and Neotel will operate as a wholly-owned subsidiary of Vodacom.

Vodacom is a licensed mobile network operator (MNO) and provides voice, messaging and data services.

Vodacom also offers retail fixed-line services to business customers, while offering fixed leased lines on a wholesale basis to third parties.

Neotel also offers retail fixed-line services to business customers and fixed leased lines on a wholesale basis to third parties.

These parties include MNOs and other firms that compete with both Vodacom and Neotel for the provision of retail fixed-line services to business customers.

Neotel also provides a fixed-wireless service offering to residential and business customers.

The Commission found that the proposed transaction is likely to lessen or prevent competition in the mobile services market.

Vodacom is the market leader in mobile services markets and the additional spectrum from Neotel will result in spectrum concentration effects that will likely consolidate Vodacom’s dominant position.

The acquisition will confer first mover advantages to Vodacom relating to relating to network speed, capacity, and mobile offerings.

Vodacom will not be constrained by other competitors as they are unlikely to match its offering.

These factors taken together will likely lead to reduced choice and higher prices to end customers in the absence of effective constraints on Vodacom.

The merger is also likely to have a significant impact on the structure of the South African mobile markets and future competitive dynamics. This is also a negative effect of the merger on the structure of the mobile market in South Africa.

To address the concerns arising from the proposed merger, the Commission recommended that some structural and public interest conditions be imposed, to which the merging parties have agreed to.

On Structural Conditions

Vodacom shall not directly or indirectly use Neotel’s spectrum for the purpose of offering wholesale or retail mobile services to any of its customers for a period of two years from the Approval Date or 31 December 2017, whichever is earlier.

The two-year deferment period is intended to give an opportunity to policy makers to address the spectrum challenges in the industry.

It is the Commission’s view that such a process may be concluded within two years as there are indications from the relevant government departments that plans are underway to introduce and implement relevant policy.

On Future Investment

Within Vodacom’s five financial years following the approval date of the merger by the Competition Tribunal, Vodacom shall commit to a R10 billion investment in fixed network, data, and connectivity infrastructure.

This investment will include all capital investments and long-term commitments, additions and upgrades in transmission, national long distance fibre, backhaul, connectivity, and in the development of value adding services.

At least 50% of the committed investment amount will specifically comprise investments in all fixed network elements required to enhance services to homes and enterprises in South Africa, including the development of value adding services.

On Public Interest

Vodacom will, within a period of 24 months following the approval date, ensure that the value of shares in its share capital held by Black Economic Empowerment shareholders shall increase by an amount of R1.4 billion.

This is the value attributable to Neotel in terms of the merger multiplied by 19% – being the current BEE shareholders’ direct shareholding in Neotel.

Should the value of the BEE obligations imposed by Icasa in terms of the ECA exceed the value set out above, then the obligations imposed by Icasa will apply.

Further, Vodacom will not retrench any of Neotel’s employees as a result of the merger.

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Vodacom-Neotel deal approval, with conditions