Big problem with Makate’s Please Call Me revenue calculations

Due to errors in their assumptions, Kenneth Nkosana Makate’s legal team have asserted that Please Call Me generated 83% of Vodacom’s domestic voice revenue between 2002 and 2017.

It should be noted that these were non-trivial errors, as Vodacom’s financial reports do not break down mobile voice revenues. In recent years, it has stopped reporting mobile voice revenue entirely.

However, when Vodacom provided what it said were the correct revenue figures to base assumptions on, Makate’s lawyers responded with incredulity.

They said Vodacom had simply excluded all in-bundle revenue from contract customers, so the total voice revenue was only that from prepaid and out-of-bundle airtime.

Vodacom said that was inaccurate.

“The voice revenue was furnished from detailed internal management accounts,” Vodacom told the Supreme Court.

“[We] excluded voice revenue generated by customers when calling international numbers or roaming abroad,” it explained.

“[We also excluded] subscription revenue from contract customers based on a fixed amount of allocated minutes and/or data and/or SMSes.”

The summary of this part of the dispute between Makate and Vodacom was given in the Supreme Court of Appeal’s minority judgement in the order handed down last week.

“[Vodacom CEO Shameel Joosub] explained to Mr Makate’s counsel at the hearing that it is wrong to conclude that such revenue was as a result of contract customers receiving Please Call Me messages,” Justice Ashton Schippers noted in his minority judgement.

Ashton Schippers, Supreme Court Justice

MyBroadband obtained the original table of revenue figures Vodacom supplied to Makate and his legal team in 2019. They only go up to 2017.

These figures are tabulated beside the revenues Makate’s team estimated Please Call Me generated for Vodacom, which they named “Model 8A” and “Model 9A”.

Model 8A was used in Makate’s Constitutional Court case.

Model 9A was submitted in the High Court application arguing that the R47 million Joosub offered as compensation was too low.

The last column in the table was calculated using the Makate team’s Model 9A assumptions.

If you accept that Vodacom and Joosub were unwilling to risk perjury charges and had not made a mistake, the table shows that Makate’s models significantly overestimated how much revenue Please Call Me generated.

It is simply not realistic to assume that Vodacom’s organic voice traffic would have plummeted by 94% within two years of Please Call Me launching.

The dispute between Makate and Vodacom dates back to 2007 when he first sent letters of demand claiming he was promised compensation as the inventor of Please Call Me. He launched legal action in 2008.

Makate, a Vodacom finance manager at the time, pitched his idea of a method to “buzz” someone else’s phone without airtime to a superior on 21 November 2000.

Vodacom acknowledged Makate in an internal newsletter announcing that his idea was ultimately developed into a product initially named “Call Me”, which launched in March 2001.

Although Makate was not involved in the development or launch of the product — and compelling evidence that MTN was actually the original inventor of “Call Me” — his manager had promised him compensation for the idea.

Makate initially lost in the High Court with a cost order against him, had his appeal rejected by the Supreme Court, but found favour in the Constitutional Court.

South Africa’s apex court ordered Vodacom and Makate’s teams to negotiate reasonable compensation in good faith.

Foreseeing that talks would inevitably break down, the Court designated Vodacom CEO Shameel Joosub as the deadlock-breaker.

Shameel Joosub, Vodacom Group CEO

Joosub used several models to determine suitable compensation and arrived at a figure of R47 million, which Makate duly rejected and challenged in the High Court.

The High Court ruled in favour of Makate, and Vodacom took the matter on appeal to the Supreme Court.

Vodacom lost, with the Supreme Court ordering it to pay Makate 5% to 7.5% revenue share, calculated according to Makate’s Model 9A, 9B, or 9BB.

Model 9B and 9BB use a similar total call revenue figure as Model 9A — R194.8 billion.

Effectively, the Supreme Court has ordered Vodacom to pay Makate a minimum compensation of R29 billion for his “Buzz” idea.

That is over 15% of Vodacom’s current market cap and greater than the entire Vodacom group’s R18-billion annual profit in 2023.

It is also greater than Vodacom’s annual R10 billion to R11 billion annual network investment budget.

Should Makate win an over R20-billion settlement, it would instantly make him one of South Africa’s richest individuals — even after factoring in tax.