Vodacom’s R13-billion Vumatel deal blocked

The Competition Tribunal has blocked Vodacom’s proposed acquisition of a 30% to 40% stake in Vumatel and DFA’s parent company, Community Investment Ventures Holdings (CIVH).

The deal between Vodacom and CIVH would see the companies pool their fibre networks, with Vodacom owning a 30% to 40% stake in the combined entity.

That combined entity is Maziv, a company established specifically to hold CIVH and Vodacom’s fibre assets and facilitate the transaction.

Vodacom had offered a combination of assets and cash of at least R13.2 billion for a 30% shareholding.

That included an initial cash consideration of R6 billion, Vodacom’s fibre assets worth R4.2 billion, and a secondary purchase based on CIVH’s valuation when the deal went through, estimated to be roughly R3 billion.

Vodacom also had the option to increase its stake to 40%.

“The proposed transaction would have combined the country’s largest mobile operator, Vodacom, with one of South Africa’s largest fibre infrastructure players, Maziv,” the Competition Tribunal said in its announcement on Tuesday.

“In terms of the proposed transaction, Vodacom intended to acquire a certain shareholding in Maziv and to sell certain assets to Maziv.”

The Tribunal said its decision to prohibit the proposed merger followed an extensive hearing that took place over 26 days between 20 May to 27 September 2024.

“The parties also made further written submissions after this, the last of which was received by the Tribunal on 16 October 2024,” it said.

It noted that it heard evidence from various witnesses, including from each of the merging parties, Frogfoot, Telkom, MTN, and Rain.

“At the Tribunal’s request, Hero Telecoms (i.e. Herotel) also provided factual testimony,” the Tribunal said.

“In addition to the factual witnesses of the abovementioned firms, four economic experts presented evidence on behalf of the Competition Commission, the merging parties and MTN.”

The Tribunal said it would publish the reasons for its decision in due course.

Vodacom and CIVH submitted the proposed transaction to the Competition Commission and the Independent Communications Authority of South Africa (Icasa) in December 2021.

While Icasa approved the transaction in November 2022, the Competition Commission dragged its feet.

After 20 months of back-and-forth negotiations that culminated in a host of conditions that would be attached to the deal, the Competition Commission rejected it.

It recommended to the Competition Tribunal in August 2023 that the transaction be prohibited.

The Tribunal then conducted weeks of public hearings, which concluded at the end of September.

Its blocking of the transaction comes amid President Cyril Ramaphosa’s drive for the private sector to invest R2 trillion by 2028.

Vodacom had pledged to invest R60 billion in South Africa over the next five years at Ramaphosa’s Investment Conference in April last year.

Major delays to affordable fibre projects

Remgro, which has an effective 57% stake in CIVH, previously warned that without Vodacom’s investment, Vumatel’s initiative to roll out fibre to South African townships would face significant delays.

Vumatel commercially launched its Vuma Key service in Alexandra and Kayamandi in mid-September, offering uncapped fibre services from R99 per month.

Remgro CEO Jannie Durand stated that, had the Vodacom deal been approved 18 months ago, CIVH would have already invested an additional R3 billion to R4 billion in its fibre networks — most of that in townships.

Pieter Uys, Remgro’s head of strategic investments, previously told MyBroadband that with Vodacom’s cash injection, Vumatel would be able to roll out to most of South Africa’s townships in 3–4 years.

Without the investment, that time horizon balloons to 8–10 years.

This is because Vumatel’s balance sheet is tapped out. CIVH currently has around R20 billion in debt, most of which belongs to Vumatel.

The company either needs a cash injection, or it needs to focus on sweating its assets like MetroFibre to pay down some of its debt.

Therefore, Vumatel would first need to generate profit from its existing customer base to reinvest in building township fibre rather than roll it out with borrowed money.

The consequences of the Competition Tribunal’s decision today are far-reaching, and the long-term fallout and benefits are difficult to predict.

Besides sending a signal to investors that South Africa will not tolerate any large-scale consolidation in the telecommunications sector, it has also set back plans to bring cheap, uncapped broadband to some of the country’s most underserved residents.

Maziv said in a brief statement on Tuesday that it was disappointed with the outcome but respects the Tribunal’s ruling.

“We will await the reasons for the prohibition in order to consider our options and remain committed to driving innovation and economic growth through the power of connectivity,” it said.