Rain’s future is at risk if the Competition Tribunal agrees with a recent Telkom complaint that spectrum arrangements between Vodacom and Rain constitute a merger.
The spectrum arrangements which Telkom is referring to relate to a 2016 network leasing and roaming agreement between Vodacom and WBS, now known as Rain.
This agreement allows Rain to lease aspects of Vodacom’s sites and facilities, while Vodacom gets access to Rain’s LTE network through a non-exclusive roaming agreement.
This lease agreement with Vodacom made it possible for Rain to fast-track its network roll-out and helped it to fund it through roaming fees.
Telkom, however, argues that the partnership between Vodacom and Rain goes beyond what the companies said and is actually a merger.
It has now approached the Competition Tribunal, arguing that this merger should have been notifiable in terms of the Competition Act.
“The multiple agreements between Vodacom and Rain grant Vodacom use and control over the deployment of Rain’s spectrum, including the planning, rollout, maintenance and service of its radio access network,” Telkom said.
Telkom group executive for regulatory affairs Siyabonga Mahlangu argues that Vodacom’s ability to control Rain’s spectrum entrenches its position as a dominant player in a concentrated market.
Telkom is now asking the Competition Tribunal to find that the arrangements constitute a notifiable merger and should be subjected to scrutiny by the competition authorities.
This case can crush Rain, but most likely won’t
Should the Competition Tribunal side with Telkom in this case, Rain stands to lose its biggest customer and put its future in jeopardy.
Rain is heavily reliant on the network partnership and wholesale revenue from Vodacom to fund its network.
Rain can simply not afford to lose Vodacom as a customer, as it will crush its current business model.
Although it is rapidly growing its subscriber base, which is somewhere north of 400,000, it is not generating enough revenue from these subscribers to build a network.
It also does not want to fund its network rollout through debt – a strategy which ended very poorly for Cell C.
While there is a tremendous risk for Rain related to Telkom’s Competition Tribunal complaint, it is unlikely to be successful.
Rain CEO Willem Roos said the arrangement with Vodacom has been scrutinized and approved by the Competition Commission and ICASA.
Vodacom added that the Competition Commission found that the 2018 agreements do not constitute a merger in terms of the Competition Act.
ICASA also found that the 2018 agreements are not in breach of the Electronic Communications Act.
The regulator even stated that the arrangement has facilitated the expansion of Rain as a wholesale and retail competitor in mobile broadband, which is pro-competitive.
Telkom’s claim that Vodacom is controlling Rain’s spectrum is simply not accurate and is unlikely to hold up under scrutiny.
It will also be tough to argue that the partnership between Vodacom and Rain limits competition in the South African mobile market.
Rain competes fiercely in the retail 4G and 5G data markets in South Africa with innovative and affordable unlimited broadband products.
Questions raised about the timing of the complaint
An interesting question raised by industry players about Telkom approaching the Competition Tribunal is – why now?
The agreement between Vodacom and Rain has been in force for four years and has passed regulatory approvals.
Industry speculation suggests that it may relate to the recently announced spectrum auction, which is set to take place in 2021.
ICASA has published the Invitation to Apply (ITA) for mobile networks wanting to bid for 4G and 5G spectrum earlier this month.
Vodacom and MTN, which have the deepest pockets, are likely to be the biggest benefactors of this spectrum auction.
They not only need the spectrum the most, but they also have more money than their competitors to make the most of this resource.
It is, however, not clear whether Telkom is playing a political game around spectrum or whether it is taking aim at Rain, which is starting to gain market share in the fixed-LTE and 5G market.