Competition Commission takes aim at Vodacom and Vumatel deal

The Competition Commission has warned that Vodacom’s proposed acquisition of a stake in Vumatel’s parent company will be destructive and decrease competition in the telecommunications industry.

Advocate Daniel Berger, representing the Commission, presented its argument and concluded that this merger would “fundamentally restructure the industry.”

The case, which will run from 20 May to 19 July 2024, concerns Vodacom acquiring a minority share of 30% in Maziv, the parent company of Vumatel and Dark Fibre Africa (DFA).

If the merger is approved, Vodacom will pay R6 billion plus a variable portion depending on Maziv’s valuation and hand over its fibre assets valued at R4.2 billion.

When the deal was announced, the variable portion was R3 billion, making the total value of the deal R13.2 billion. It is for 30% of the company, with Vodacom having the option to increase this stake to 40%.

By doing so, Vodacom will transfer its fibre-to-the-home (FTTH) business to Vumatel and its fibre-to-the-business (FTTB) and fibre-to-the-site (FTTS) business to DFA.

The deal excludes Vodacom’s long-distance network.

The acquisition of the shares will give Vodacom co-control over Maziv and veto powers.

According to the Commission, these powers will give Vodacom operational co-control over Maziv regardless of its minority stake.

The merging parties have stated that the co-control provision protects Vodacom’s interests as a minority stakeholder.

What worries the Commission, however, is the market power obtained in the merger and how it does not favour the public interest.

The argument also includes potential shared incentives between Maziv and Vodacom within the industry and vertical and horizontal concerns.

Firstly, concerning market power, the Commission said Vodacom is currently the country’s dominant mobile network operator (MNO), and DFA is the top provider of dark fibre to fibre network operators (FNOs) and MNOs.

The Commission sees Maziv as the dominant FTTH wholesale provider of metropolitan fibre through Vumatel.

Therefore, the company will have a strong grip on the supply of dark fibre and its usage by FNOs and MNOs.

Secondly, the Commission argued that the merger allows for shared incentives due to any growth of Maziv growing Vodacom and any growth of Vodacom creating a more stable anchor customer for Maziv.

The Commission says the co-control provided to Vodacom in the merger would also allow it to control Maziv for its commercial interest.

Thirdly, according to the Commission, the merger is against the public interest.

This is because 60.5% of South Africans currently have access to mobile broadband, whereas only 13.3% have access to home internet, according to the 2022 Census.

This means most Internet users in the country rely on mobile broadband, and uncompetitive pricing would disadvantage the poorest of them.

Lastly, there are also horizontal and vertical concerns regarding the merger.

Dark fibre, unused optical fibre, is supplied to MNOs to increase the capacity of their backhaul networks and sold to FNOs to supplement their infrastructure.

“MNOs and FNOs have relied on DFA’s open-access principles to make sure their competitors haven’t been favoured over them,” according to the Commission.

Therefore, as Vodacom is likely to become DFA’s anchor customer, it opens several opportunities for foreclosure and weakening rivals.

The Commission believes that approving the merger will bring about structurally irreversible changes.

It said the only remedy for the merger’s effects is to prevent it from happening in the first place.