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R47-million not enough – Vodacom left seething after...

Business Maverick

PCM PAYOUT

R47-million not enough – Vodacom left seething after court orders a bigger payment to Please Call Me inventor

(Photo: Unsplash/Robin Worrall)
By Ray Mahlaka
09 Feb 2022 13

Vodacom has been ordered by the Pretoria High Court to offer Please Call Me inventor, Nkosana Makate, a new compensation offer for coming up with the service 20 years ago. The court rejected the R47-million offer the communications company made to Makate. Now, Vodacom is far from happy.

Vodacom’s intention to continue fighting Please Call Me inventor, Nkosana Makate, by appealing against his latest legal victory isn’t surprising since the telecommunications giant faces shelling out billions of rands in compensation. 

The Pretoria High Court has ordered Vodacom and its CEO Shameel Joosub to make a fresh determination regarding the compensation that is due to Makate for inventing Please Call Me two decades ago.

The court has rejected a compensation offer of R47-million – made to Makate in 2019 by Joosub – saying that the latter’s methods in determining the revenue generated by Please Call Me since its market launch in 2001 was flawed and riddled with errors. 

The revenue generated by Please Call Me, among others, was part of the data that Joosub used to determine the figure of R47-million as compensation to Makate. Joosub has described the offer as “overly generous”. 

However, in some instances Joosub had used incorrect data, resulting in him reaching a compensation figure that automatically prejudiced Makate, Judge Wendy Hughes found in her 42-page judgment dated 7 February 2022. 

Makate believes he is entitled to compensation of at least R20-billion, considering that the launch of Please Call Me in 2001 was lucrative for Vodacom and a game-changer for South Africa’s then-fledgling telecommunications industry. 

At a basic level, Please Call Me enables a mobile subscriber without airtime to send a text message requesting to be called back by another subscriber. 

The stakes would be high if Vodacom agreed to Makate’s demand of a minimum R20-billion payout as this would have a considerable financial impact on the company, upsetting its shareholders in the process. 

Makate’s demand is about 8% of Vodacom’s market value on the JSE (R266-billion) and a third of the revenue that the company’s South Africa operations generated in 2020 from selling things like airtime and mobile data to customers. 

The David vs Goliath battle continues 

The High Court effectively sends Vodacom and Joosub back to the negotiating table to determine a new figure to be paid out to Makate. But Vodacom is not giving up without a fight. It plans to appeal against Judge Hughes’ ruling. The company believes it acted “in good faith” when it offered Makate R47-million.

The battle between Vodacom and Makate has become a protracted feature in South Africa’s courts. Makate first sued Vodacom some 20 years ago after it reneged on compensating him for inventing Please Call Me while he was a trainee accountant at the company. 

In 2016, Makate scored a Constitutional Court victory when it ruled that he was entitled to compensation and ordered Vodacom to start good-faith negotiations for compensation. Were these negotiations to collapse, the apex court required Joosub to act as an arbitrator to break the impasse. 

The negotiations have since collapsed because both parties disagree on how much revenue Please Call Me generated for Vodacom, the share of this money that would be due to Makate, and whether the full operational duration of Please Call Me (21 years) should be considered in Makate’s payout. 

Joosub based the R47-million compensation to Makate on the total revenue that Please Call Me generated for the company over five years. This is despite the service running for over 20 years and Vodacom continuing to profit from it.

In court papers, Joosub argued that five years was the standard period Vodacom used for agreements involving third-party service providers. Makate rejected Joosub’s argument, saying the Please Call Me financial benefit to Vodacom is ongoing and the period to determine his cut of the revenue that the service generates for the company should be more than five years. He agreed to settle for a period of 18 years. 

Makate presented evidence to the court showing that it was a norm for Vodacom to enter into revenue-sharing agreements with third-party service providers that go beyond five years — in fact, 17 years in some cases. One of these third-party service providers is a company called Cellfind, with whom Vodacom entered into an agreement in 2003 and was still in business as of 2020. Thus, it was incorrect for Vodacom to use a five-year revenue split period for Please Call Me, Makate argued.

Judge tears into Joosub

Joosub conceded in court that he didn’t consider Vodacom’s long-running arrangements with other third-party service providers when using five years to determine the compensation due to Makate. 

Judge Hughes slammed Joosub for this, saying it “was disingenuous to project that PCM [Please Call Me], as a third-party service provider, should only be allocated a duration of five years”. 

“In my view, it is therefore projectable that PCM, as a brilliant concept, would have had the longevity which it has today. Thus, the 18 years proposed by Makate is reasonable, probable, and has been achievable. In the circumstances, with respect to the issue of duration, the CEO is to apply the 18-year period,” Hughes wrote in her judgment. 

Makate’s team of legal and technology experts calculated that Vodacom generated revenue of R205-billion from Please Call Me from March 2001 to 2021, excluding advertising revenue linked to the service. 

Makate wants 5% of the total revenue Please Call Me has generated for Vodacom, plus interest accrued. A 5% share is a compromise for Makate as he initially wanted 15%. 

Judge Hughes agreed with Makate, saying he “is entitled to be paid 5% of the total voice revenue generated from the PCM product from March 2001 to March 2021”. 

In determining the fresh compensation to Makate, Vodacom must also include the total voice revenue that the company generated from prepaid and contract customers (both in bundle and out of bundle) and interconnection fees when they spent airtime to initiate a call after receiving a Please Call Me message. DM/BM

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All Comments 13

  • My personal experience of Vodacom as a contract customer with multiple lines is that they act in bad faith.

    This judgment does not surprise me.

  • Surely this gut was paid as an employee by Vosacom at the time of the “Invention”..so part of the job..unless he patented the idea..I DOUBT that..take the 47m and run

    • I agree. It is normal that any IP generated while working at a company becomes the property of that company, in my view. In this case there may be good reason to compensate the suggester. R47m sounds way generous. Demanding more smacks of greed.

      • It’s only normal if it’s written into the contract of employment. The fact that this is sitting in the High Court says that that point has been dealt with and there is no such clause in the letter of appointment. Pay the guy, they were very happy to reap the profits whilst they were rolling in. It’s not a case of generosity or greed at all, it’s about what percentage of the profit made and the judge agrees that the offer made was too little. Vodacom have stalled long enough, time to pay out. They should have had their ducks in a row from the day they employed him, but they didn’t.

  • I wonder who is pushing him for the bigger payout? His legal team? How much are they getting? Doesn’t this guy realize that the longer this goes on, the more his lawyers are going to benefit? Take the 47 mil and live the rest of your life in luxury. As well as your kids, grandkids…….
    Its hard to believe the his legal team can even consider asking for 20 BILLION. What are they smoking?

    • Ok so lets assume that Makate’s lawyers are pushing for a higher settlement because they get a fixed percentage of the settlement. Here is my compromise for Makate and the lawyers. Lets assume that the lawyers fund the legal action and Makate and lawyers share in the settlement 50:50. So let lawyers pay Makate R47m or some lower still very substantial amount now and in return change share in settlemnt to 40:60 or 30:70. That gives Makate a substantial amount now and the lawyers an even higher share of the settlement if legal action continues after, admittedly, stumping up a considerable sum.

  • I agree, normally any idea that one generates while in the employ of a company then belongs to that company, whether it is directly in your work area or not. therefore I have never understood why Makate is entitled to such huge amounts of compensation.
    I don’t agree that subsequent calls made can all be attributed to the Please Call me. For years I didnt respond to those messages (still don’t), so didn’t call back. Do
    es that mean that the next call I make is related to that message? I think not.

  • Certainly if you work for the State anything you develop is not yours. You would need to keep it to yourself, resign, patent the idea, fund it, market it, and maybe benefit. Or not.

    Also lets do some sums. The lawyers think Vofacom made 2o5 billion over 20 years from this app. That wouldn’t all be profit, but let’s ignore the marginal extra costs. That’s 10.25 billion pa . Supposing each call generated cost a reasonable R3 , we have 3.4 billion calls pa. Divide by 50 million persons and we ger 70 calls per person per annum. Hmm.. I would believe 7.

  • This couldn’t have happened to a nicer company! Dubious “fine print” contracts and opportunistic ambush marketing of online cell phone games you never asked for. The shoe is now on the other foot.

  • Can’t say I have much sympathy for Vodacom. Yes , maybe the sum demanded seems high , but they are now experiencing what many of their hapless clients have experienced for years from them! Their data fees are outrageous , and the less said about their customer service, the better! The wheels of justice turn slowly , but at least in this case , they seem to be achieving some result.

    • Which is exactly why I am not pondering the fairness of the judgment.

      Maybe we cannot all receive just compensation for their lack of service, over pricing, ambush marketing, contract hostage taking and the list goes on but at least we can sit back and watch this unfold and feel a small sense of justice.

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