Startling Vodacom revelation in court documents

An urgent court application, filed by WirelessG and six other applicants, argues that Vodacom has signed away its right to offer Wi-Fi in any of its operations. The agreement essentially states that WirelessG has exclusivity on Wi-Fi in any Vodacom operation.

WirelessG is well known for its Wi-Fi developments, which include the first ever Wi-Fi in airplane service in South Africa and a converged Wi-Fi, 3G and ADSL offering.

According to the legal document, which is in possession of MyBroadband, Vodacom entered into an agreement with WirelessG which gives them exclusivity on all Wi-Fi services and infrastructure. This means that Vodacom may have signed its right to a technology (Wi-Fi) away.

The document points to a shareholder agreement which contains the following clause:

“Vodacom agreed to extend to WirelessG a first right of refusal to operate a channel to integrate to other (than WirelessG) Wi-Fi infrastructure providers that Vodacom would want to bring on board on offering Wi-Fi to Vodacom customers (a right of first refusal/exclusivity in providing Wi-Fi services to Vodacom’s customers)”.

In another agreement between WirelessG and Vodacom Service Provider Company, the following clause is included:

“…Vodacom Ventures (and/or any of its affiliated companies [which hence includes Vodacom]) is not permitted to provide Wi-Fi services independently from WirelessG…”

WirelessG CEO Carel van der Merwe confirmed that “Vodacom is not permitted to provide Wi-Fi independently from WirelessG”.

Vodacom reneging on Wi-Fi agreement with WirelessG?

According to WirelessG Vodacom was selling Wi-Fi to customers without including WirelessG as a Wi-Fi provider – a direct contravention of their agreement.

Van der Merwe further said in the document that a direct competitor to his company, Internet Solutions, has been engaged by Vodacom to offer local Wi-Fi integration.

WirelessG said that Vodacom did not approach it in any of these cases (or in other cases involving Wi-Fi services), which is in conflict with its shareholder agreement.

According to the court document van der Merwe met with Vodacom to discuss partnering on Wi-Fi data offloading, but before Vodacom would consider partnering they wanted out of their initial agreement.

“I was informed that Vodacom will only consider co-operating with WirelessG, if WirelessG relinquishes its exclusivity rights [on Wi-Fi] in terms of the Irrevocable Offer and Shareholders Agreement,” the document states.

Wireless G explains legal action

The WirelessG CEO said that Vodacom has failed dismally to implement the terms contained in their shareholders agreement.

“Our shareholders will undoubtedly suffer substantial damages if Vodacom’s conduct is allowed to proceed,” said van der Merwe.

“All other avenues to get the terms of the shareholders agreement implemented are exhausted and we had no other satisfactory remedy [other than legal action].”

However, van der Merwe is still keen on a negotiated settlement. “The first prize is still to settle this issue around the negotiation table, however, if it cannot be done in a good business spirit, the final relief that will be sought is specific performance of contractual obligations and damages for breach of contract.”

Van der Merwe said that the bottom line is that Vodacom is obliged to offer WirelessG any Wi-Fi opportunities.

“A fair negotiated deal after which Vodacom and WirelessG can co-operate in good faith to share the Vodacom customer base on this opportunity, is what is expected,” said van der Merwe.

Big risk to Vodacom?

If the Wi-Fi exclusivity agreement – as presented by WirelessG – holds up in court, it can pose a significant risk to Vodacom.

Mobile data offloading using Wi-Fi (hence carrying mobile data over a Wi-Fi network to relieve a congested cellular network) is starting to gain traction globally.

Mark van Vuuren, MD of Jasco ICT Solutions, argues that offloading 3G onto Wi-Fi can result in cost reductions of up to 60% on traditional 3G deployments. This leaves more room for profitability as well as improved customer service.

However, being forced to use WirelessG for all its Wi-Fi needs may not be the worst case scenario for Vodacom.

MyBroadband has received information that WirelessG has been in discussions with large telecoms players and investors regarding business partnerships (partly based on this exclusivity agreement).

Theoretically one of Vodacom’s competitors can purchase a stake in WirelessG, and through this agreement influence Vodacom’s fate in the Wi-Fi arena. Vodacom currently holds a 26% share in WirelessG.

Vodacom may be left with no other choice but to purchase the remaining shares in WirelessG.

MyBroadband asked van der Merwe about the rumoured negotiations with large telecoms players, but he would not elaborate the matter.

“We were contacted [by interested parties], but I cannot provide any details of who the companies are or information on any commercial or share related discussions,” said van der Merwe.

Vodacom responds

Vodacom spokesperson Richard Boorman confirmed that Vodacom received an urgent application from WirelessG in December.

“We’re in the process of compiling a response which is due on 11 February. The matter is then set down for hearing on 11 March 2013,” said Boorman.

“Vodacom has been advised not to comment ahead of this as this may prejudice the case. Whilst we believe we have a strong defence to the allegations made by WirelessG we would nevertheless prefer to sit down with WirelessG and resolve the matter if possible.”

The case is set to be heard on 5 February 2013, WirelessG said.

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