Starlink and Vodacom/Vumatel deal show how South Africa kills progress

South Africa’s regulatory and competition authorities are damaging innovation and progress, which are desperately needed to bolster economic growth.

SpaceX’s fast and uncapped satellite Internet service Starlink has launched in numerous countries globally.

The service is perfectly suited to bring fast and affordable broadband to rural households, businesses, schools, and clinics across South Africa.

It is hard to find a better case study for Starlink than bushveld lodges in the Kruger Park or schools in the Northern Cape.

However, South Africa’s black ownership rules for communications services hinder the service from launching in South Africa.

Starlink can only acquire the necessary licences by either buying an existing licence or licence-holder, which often comes at a substantial cost.

Ownership and control of those licences would also still need to be transferred to Starlink, and industry regulator Icasa would only approve that if the company met the ownership requirements.

This means that the service’s biggest beneficiaries — disadvantaged people living in rural areas — cannot receive it because of a law intended to help them.

This shows how interventions with the best intentions can cause tremendous damage because of unintended consequences.

Another example of overzealous state intervention stopping progress is the Competition Commission’s work on the Vodacom-Maziv deal.

The Competition Commission wants to block Vumatel and DFA parent company CIVH from selling a 30% stake to Vodacom.

The first problem is the time it took for the case to progress. Vodacom and Community Investment Ventures Holdings (CIVH) announced the deal on 10 November 2021.

A year later, in November 2022, the Independent Communications Authority of South Africa (Icasa) approved the deal.

Although this can be considered a very long wait, the Competition Commission made Icasa look like a highly effective organisation.

The Competition Commission took nearly two years to negotiate a swathe of conditions to be attached to the proposed transaction between Vodacom and CIVH’s Maziv — then recommended blocking it.

The impact of this poor performance and the anti-business stance of the Competition Commission is significant.

The fibre industry has cut back on fibre investments as all eyes are on the Competition Tribunal’s decision.

Simply put, South African fibre network operators stopped rolling out fibre as they await the ruling. They want to see if future mergers or acquisitions will be blocked.

Fibre network operators need scale to make money. Mergers and acquisitions are a core part of the fibre market’s success.

If these deals are blocked, companies will be hesitant to invest in fibre networks as their chance of getting a return on investment is limited.

So, while the Competition Commission may have the best intentions, it has inadvertently blocked the growth of fibre networks in South Africa.

The worst affected are the poorest communities. This is where fibre networks are rolling out networks, which has now ground to a halt.

Vestact founder and chief executive Paul Theron recently explained how focusing on regulations can kill innovation.

“It’s widely noted that the US innovates, China imitates, and Europe regulates,” Theron wrote in his newsletter.

A recent study led by former Italian prime minister and former ECB head Mario Draghi explained what Europe should do to encourage growth.

The study proposed that Europe should stop focusing on regulating technology and instead build cutting-edge tech itself.

His report suggests that the EU should spend EUR 800 billion to promote mergers and scale-ups and create a European innovation agency.

However, a day later, EU competition and digital boss Margrethe Vestager made a triumphant speech, celebrating courtroom wins against Apple and Google.

Her organisation slapped Apple and Google with multibillion-dollar fines for falling foul of tax and competition law.

Vestager and her colleagues have dreamed up many laws that hobble innovative companies, including:

• The Digital Markets Act
• The General Data Protection Regulation
• The EU Artificial Intelligence Act

“She’s very proud of herself, but this is exactly the reason that tech startups get launched elsewhere,” Theron said.

South Africa has the opportunity to avoid these pitfalls and encourage innovation by creating a business-friendly environment.

Instead, it is following Europe’s example. It blocks deals, places unnecessary ownership requirements on businesses, and creates a hostile business environment.

Unsurprisingly, it chases away capital as investors take their money to more business-friendly markets.