Massive fight brewing between Vodacom and MTN over secret deals

Vodacom has filed court papers against the Independent Communications Authority of South Africa (Icasa) over spectrum pooling agreements the regulator approved between its competitors.

According to the papers, Icasa allowed MTN to pool spectrum belonging to Cell C and Liquid Intelligent Technologies with its own, giving it a substantial competitive advantage.

“This was all done in secret, without any notice to Vodacom (or the public), and without any opportunity afforded to comment and make representations on whether this ought to be allowed,” it stated.

Vodacom also argued that the pooling agreements constitute notifiable mergers that should have been lodged with the Competition Commission.

Since Icasa did not follow proper procedure and Vodacom believes the agreements were unlawful, it wants the approvals set aside.

Spectrum is the lifeblood of any wireless network carrier. It is the raw bandwidth they use to communicate between their towers and customer devices like smartphones.

Vodacom filed the legal papers after conducting an internal investigation on why its network appeared to be underperforming relative to MTN’s.

MTN began overtaking Vodacom in objective network quality metrics in 2018.

MyBroadband’s Q4 2017 Mobile Network Quality Report showed that MTN had narrowly beaten out Vodacom as the best network in the country.

The two operators fought a tight race in 2017 and 2018, but by 2019, MTN was well ahead of the much larger Vodacom.

The result wasn’t that surprising then, as MTN SA had out-invested Vodacom SA for a few years at that point.

However, Vodacom eventually corrected this and now spends slightly more than MTN on capital expenditure every year.

As MTN overtook Vodacom, a bruising battle ensued between the two operators.

Vodacom hopped from one measuring company to the next to continue claiming in its advertising that it offered the better network.

The matter eventually landed before an Advertising Standards Authority (ASA) tribunal, which ruled in favour of Vodacom, saying its adverts were not misleading or dishonest.

It was a strange situation because Vodacom had essentially convinced the ASA to overturn a ruling in its favour from years ago that blocked competitors from doing what it was now doing.

MTN went on to win MyBroadband’s Best Mobile Network award several years in a row. It also beat Vodacom on several other competing metrics the larger network had previously used to claim its superiority.

Despite this, Vodacom has continued to advertise that it has the best network in South Africa.

Vodacom said it started getting increasingly suspicious that something untoward was going on in March 2023 when speed test data consistently showed that MTN South Africa had completely pulled away from its peers across the continent.

Given that they had similar amounts of wireless network capacity on paper, and had begun investing similar amounts into their networks, Vodacom was curious about what its rival might be doing differently.

It conducted its own testing around South Africa and found that MTN used significant portions of Cell C and Liquid’s spectrum.

The specific frequencies being used also gave MTN a large contiguous block of bandwidth, allowing it to use the “guard bands” set aside to prevent interference between different spectrum licensees.

Vodacom argued that since these guard bands have never been assigned, it is unlawful for MTN to use them regardless of any spectrum pooling approvals it received from Icasa.

It contacted Icasa for feedback, and the regulator confirmed that it had approved applications from MTN to share spectrum owned by Cell C and Liquid in 2022.

Vodacom said Icasa’s attempt to call the arrangements “spectrum sharing” was inaccurate at best and that it was better described as spectrum pooling.

Spectrum sharing and pooling are governed by strict regulations. Spectrum trading is prohibited in South Africa, although work is underway to change this.

Operators have used various loopholes to circumvent these restrictions, including roaming agreements.

President Cyril Ramaphosa’s cabinet approved a Next Generation Radio Frequency Spectrum Policy for publication in November 2023, which includes plans to establish a secondary market for spectrum.

However, communications minister Mondli Gungubele has yet to publish the document.

According to Vodacom, pooling requires a joint venture between two entities and the transfer of control of the secondary party’s spectrum. Under Icasa’s regulations, such a transfer of control requires public participation.

It also said that by approving MTN’s spectrum pooling agreements, Icasa allowed it to obtain a significant competitive advantage.

Vodacom CEO Shameel Joosub and MTN SA CEO Charles Molapisi on the left, in a meeting with electricity minister Kgosientsho Ramokgopa in 2023

Not mentioned in the court papers is Vodacom’s agreement with Rain for additional network capacity — a deal which has been incredibly lucrative for Rain.

Many of South Africa’s network operators have business arrangements with one another that are on shaky regulatory grounds and could be challenged.

Vodacom’s secret deal involving Cell C’s contract subscriber base is one such arrangement that could land in the crosshairs.

Unless somehow resolved amicably, Vodacom’s legal action against Icasa could be the first salvo in a war of mutually assured wireless capacity destruction.

Telkom — which has been a wallflower during this spectrum dance — has previously expressed its discontent with these opaque backroom spectrum deals between network operators.

It remains to be seen how Telkom might respond to claims from a titan like Vodacom that it has been competitively disadvantaged by the industry regulator.

MyBroadband contacted Vodacom, MTN, Cell C, Liquid, Telkom, and Rain for comment.

“It is our considered view that spectrum pooling is a material change of control event that has wide-ranging implications for both competitors and consumers,” Vodacom told MyBroadband.

“As such, in terms of the Electronic Communications Act, Icasa should have followed a public consultation process, prior to making a decision on the spectrum sharing applications of MTN, Cell C and Liquid Telecom.”

“After exhausting other options, Vodacom was left with little choice, but to approach the High Court for relief.”

Liquid and MTN confirmed they had received the court papers and were reviewing them. Cell C, Telkom, and Rain could not immediately provide feedback.