Please Call Me idea-man tells ConCourt he will accept R9.4 billion compensation

Nkosana Kenneth Makate has told the Constitutional Court that he would accept compensation of R9.4 billion from Vodacom for his “buzzing option” idea, effectively foregoing the 18 years of interest granted by the Supreme Court of Appeal (SCA).

This is reaffirmed in Makate’s responding papers, which argue against Vodacom’s appeal to the apex court. Vodacom has asked the Constitutional Court to overturn the orders of the High Court and SCA in favour of Makate.

As an alternative, Vodacom has said that if the rulings cannot be overturned, the matter should be referred back to the SCA with a new panel of judges.

The matter is once again before the Constitutional Court because Vodacom and Makate couldn’t agree on what constituted reasonable compensation for his idea, which was developed into Please Call Me in 2001.

Vodacom has argued that Makate’s original concept does not resemble what Please Call Me eventually became, highlighting that his idea was to send a missed call to “buzz” someone’s cellphone even if you didn’t have airtime.

It also argued that his idea effectively became worthless when MTN beat Vodacom to the punch with its “Call Me” product in January 2001, which it offered for free when Vodacom wanted to charge 15 cents per message.

Makate said this argument doesn’t hold water, as Vodacom continues to offer Please Call Me to this day, suggesting the idea has value.

In 2016, after eight years of failures in South Africa’s court system, the Constitutional Court ruled in favour of Makate and ordered the parties to negotiate reasonable compensation in good faith.

The ruling effectively disregarded questions of whether Makate’s idea was novel, practical, and whether MTN had patented it first.

Instead, it focused on the contractual aspects, finding that on balance of probabilities, there was a verbal agreement between Makate and Vodacom regarding compensation.

The apex court also designated Vodacom CEO Shameel Joosub as the deadlock breaker in honour of the original verbal agreement.

Makate demanded R20 billion in compensation, Vodacom countered with R10 million, and after a legal tussle over access to Vodacom’s records, the task of determining how much was owed landed on Joosub’s desk.

Joosub considered four different models, including a revenue share model calculated over five years, then took the average of the two results that favoured Makate the most and returned with an offer of R47 million.

Makate rejected it out of hand, calling it “shocking” and “an insult”.

This time when Makate brought the case before the High Court, it ruled in his favour. When Vodacom took the matter on review to the Supreme Court of Appeal, it lost.

The SCA ordered that Vodacom must pay Makate between 5% and 7.5% of the total voice revenue its Please Call Me product generated over 18 years, plus interest.

It stipulated that the latter should be mora interest, or alternatively interest in terms of Section 2A(5) of the Prescribed Rate of Interest Act.

Crucially, the order instructed Vodacom to use Makate’s models to calculate how much revenue Please Call Me generated rather than Joosub’s. The ruling did not stipulate which of the three models Vodacom should use.

The company has now asked the Constitutional Court to hear the case on the grounds that it did not receive a fair hearing.

It also said the SCA’s order was vague, unenforceable, and unlawful.

Vodacom stated in its papers before the Constitutional Court that the SCA’s ruling would amount to compensation of between R29 billion and R63 billion.

This is 12% to 27% of Vodacom’s entire market capitalisation, which the operator intimated was an unreasonable sum for an idea.

However, Makate said Vodacom’s calculations were incorrect.

“The quantum, as Mr Makate stated on oath before this court in his answering affidavit, while still substantial, is an order of magnitude less — at R9.4 billion,” his responding papers stated.

Makate’s papers also highlighted that Vodacom’s market cap was over R200 billion and that it was financially backed by an even larger giant from England — Vodafone.

“Vodafone’s 65% shareholding in Vodacom means that it is extremely unlikely that the payment of R9.4 billion would lead to Vodacom’s demise,” said Makate.

“Vodafone has had no difficulty in settling prior disputes for amounts equal or beyond what Mr Makate is owed under the SCA’s order.”

The image below shows Makate’s Model 9B as presented to the Supreme Court of Appeal.

It shows that according to his legal team’s calculations, Vodacom would owe close to R29 billion if mora interest were factored into the equation over 18 years.

Makate’s Constitutional Court papers state that they tweaked some of the variables in accordance with the Supreme Court’s ruling, reducing the capital amount from R9.7 billion to the R9.4 billion he is asking for now.

Although one portion of Makate’s papers talks about a R9.4 billion payment, it should be noted that when it goes into detail elsewhere, he does not explicitly forego the mora interest part of the SCA order.

As part of an argument against Vodacom’s claim that the SCA’s order was vague, Makate said this was now a moot point because he had abandoned the offending parts of the ruling.

This includes the part granting him up to 7.5% revenue share and where it mentioned interest per the Prescribed Rate of Interest Act.

Therefore, Makate confirmed that he has agreed to 5% revenue share, but has not abandoned his mora interest claim.

In fact, elsewhere in his papers, Makate’s attorneys state that Vodacom’s counsel conceded during the Supreme Court hearings that mora interest should have started to run on 18 January 2019 at a rate of 10.25%.

“Mr Makate accepted that,” it stated.

Therefore, there is still some uncertainty about whether the R9.4 billion is the full final amount Vodacom would be required to pay, or whether the mora interest running from January 2019 still had to be added.

Adding this interest over 5–6 years could add several billion rands to the final payment.

That said, Vodacom has previously stated that the total call revenue Makate’s model comes up with — roughly R194 billion — was not a realistic number.

According to Vodacom, its total applicable voice revenue between 2002 and 2017 was R221.2 billion.

Therefore, based on Vodacom’s numbers, Makate was claiming that over 80% of its voice revenue between 2002 and 2017 was generated by Please Call Me.

Adding the next three years to get to the full 18-year period, and assuming Vodacom’s applicable voice revenue remained around R15 billion per annum (although it is in decline), the percentage drops to around 75%.

Regardless, it is nonsensical to believe that three quarters of Vodacom’s voice revenue over 18 years was due to Please Call Me.

However, it should also be noted that this would have been a non-trivial error to spot by Makate’s legal team as Vodacom’s financial reports do not break down mobile voice revenues.

In recent years, Vodacom has stopped reporting mobile voice revenue altogether.

Vodacom said it provided the correct revenue figures to Makate’s lawyers, who 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 previously 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.”