R29-billion Please Call Me battle

Vodacom is busy negotiating with Please Call Me idea-man Kenneth Nkosana Makate and has made provision for compensation owed to him as a contingent liability.

However, it has declined to comment on the negotiations and the contingent liability amount.

In its annual results released this week, Vodacom stated that its provision was “immaterial to the financial statements”.

This is despite a Supreme Court of Appeal (SCA) order that instructed Vodacom to pay Makate a minimum of R29 billion for his idea.

Asked how much the provision was, Vodacom Group CFO Raisibe Morathi declined to comment, saying the matter was sub judice.

Regarding the negotiations between the parties, Vodacom and Makate’s legal representatives, Stemela & Lubbe, said they were strictly confidential.

Makate’s dispute with Vodacom dates back to 2007, when he first sent the mobile operator letters of demand over compensation for an idea that was developed into Please Call Me.

Emails in court documents showed that Makate pitched his idea of sending a missed call to someone’s phone without airtime on 21 November 2000.

He called it the “buzzing option”. He was a trainee accountant at Vodacom.

Vodacom’s product development team ran with the idea and made it into what became Please Call Me. The first version of the service launched in March 2001.

Makate’s emails also showed a conversation between him and Vodacom product development manager Philip Geissler, where he requested a reward for his idea.

Geissler said he would discuss the issue with then-CEO Alan Knott-Craig.

“As for rewards. All staff are expected to assist the company to achieve its goals. That is part of normal business,” Geissler wrote in an email to Makate.

“As for you and your assistance. Once the product is launched (and assuming it’s successful) I will speak to Alan. You have my word,” Geissler said.

Kenneth Nkosana Makate

Makate launched legal action against Vodacom in 2008. The High Court and Supreme Court initially dismissed his case, but he found favour in the Constitutional Court.

South Africa’s apex court did not buy Vodacom’s argument that Geissler had no authority to commit the company to an agreement to discuss potential compensation with the CEO.

It ruled that Geissler had the ostensible authority and ordered Vodacom and Makate to negotiate compensation in good faith.

Foreseeing a breakdown in talks, Vodacom’s CEO was designated the deadlock breaker — in line with Geissler’s original email promising a discussion with Knott-Craig.

According to court documents, Makate demanded R20 billion, and Vodacom countered with R10 million.

Current Vodacom CEO Shameel Joosub was ultimately called on to break the deadlock and returned with an offer of R47 million in January 2019.

Makate rejected the offer, labelling it “shocking” and “an insult”.

His team launched legal action in the High Court, arguing that Joosub had made a mistake in his calculations.

The High Court ruled in Makate’s favour. Vodacom appealed, and the Supreme Court also found in Makate’s favour.

However, it was a close ruling, with a panel of five judges split 3–2.

The critical difference between the two judgements was that the majority said Vodacom should use Makate’s revenue share models to calculate the compensation he was owed.

The minority judgement said Joosub’s models were fine but that he calculated the compensation over the wrong timeframe.

All five judges agreed on one issue: Joosub erred by only calculating Makate’s compensation over five years.

The majority judgement ordered that Vodacom pay Makate 5–7.5% revenue share over 18 years, with interest.

This works out to between R29 billion and R63 billion, or 15% to 32% of Vodacom’s market cap.

The minority judgement said Joosub should recalculate Makate’s compensation over 18 years, which Vodacom said would’ve amounted to R186 million.

Shameel Joosub, Vodacom CEO

Vodacom has applied to the Constitutional Court for leave to appeal a final time on various grounds, including that:

  • The SCA ignored the evidence presented regarding how Vodacom’s proposed compensation was calculated.
  • The SCA issued unintelligible, incomprehensible, and vague orders that rendered them legally unenforceable.
  • The SCA’s order impinges on the Rule of Law in terms of section 1 of the Constitution, depriving Vodacom of its right to a fair trial under section 34 of the Constitution.

In a notice to shareholders announcing its application to appeal to the apex court, Vodacom also said it was open to restarting negotiations with Makate.

Makate accepted Vodacom’s olive branch.

“It is noteworthy that this is the first time (since the negotiations ended in a deadlock in December 2017) that Vodacom has given any indication that it wants this matter to be settled,” Stemela & Lubbe told MyBroadband at the time.

Stemela & Lubbe said that since they first challenged Vodacom CEO Shameel Joosub’s compensation offer of R47 million, the company opposed every step to finalise the matter.

Asked how much they would settle for, they said it was premature to discuss any amounts.

Vodacom said in its financial results that the range of possible compensation outcomes was very wide.

“The amount ultimately payable to Mr Makate is uncertain and will depend on the determination of the Constitutional Court to grant Vodacom’s application for leave to appeal,” it said.

“If granted, on the success of Vodacom’s appeal against the judgment and order of the SCA, on the merits of the case.”

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R29-billion Please Call Me battle