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TELECOMMUNICATIONS SHOCK

SA’s competition watchdog faces challenge for rejecting deal that would create major fibre internet provider

SA’s competition watchdog faces challenge for rejecting deal that would create major fibre internet provider
(Photo: Waldo Swiegers / Bloomberg via Getty Images)

The Competition Commission has prohibited a deal between Vodacom and Maziv, the owner of Vumatel, SA’s largest fibre-to-the-home operator. Both companies plan to approach the Competition Tribunal to overturn the commission’s decision.

Vodacom and Maziv (the owner of Vumatel) are preparing to challenge the Competition Commission’s decision to block a deal between both companies that would have created one of SA’s largest fibre internet providers.

The commission dealt Vodacom a huge blow when it recommended that its acquisition of a stake in Maziv be prohibited because it could lessen competition in South Africa’s fibre market.

Vodacom and Maziv now look set to challenge the commission’s decision at the Competition Tribunal, which acts as a court on competition and antitrust matters. The tribunal can overturn recommendations made by the commission for some mergers.

Under the deal, Vodacom planned to take a 30% stake in Maziv, worth an estimated R13-billion, with the option of increasing its stake to 40%. Maziv not only owns Vumatel, SA’s largest fibre-to-the-home operator, but also Dark Fibre Africa. Maziv is owned by Community Investment Ventures Holdings (CIVH), which falls under the JSE-listed investment holding company Remgro.

Maziv argued that the deal with Vodacom could bring fibre connection to one million new households in lower-income areas across SA, and also create 10,000 jobs. Vodacom was going to merge its fibre assets with those of Maziv and have its infrastructure available on an open-access basis to internet service providers.

The commission’s decision has sent shockwaves through SA’s telecommunications industry because the deal between Vodacom and Maziv looked set to pass through competition hurdles. The deal, initially announced in November 2021, had already received approval from SA’s telecommunications regulator, the Independent Communications Authority of SA. It took almost 22 months for the Competition Commission to investigate the merits of the deal and come to its conclusion of prohibiting it.

“It’s crazy that it took nearly a year for the commission to reject the deal. It underscores the red tape around mergers and acquisitions activity in SA, which harms much-needed investment into the economy,” said a Johannesburg-based analyst. The analyst said consolidation was needed in SA’s fibre market, which has many players who don’t have the resources to scale up and extend their coverage.

Behind the commission’s rejection of the deal

Justifying its decision, the commission said that it was “of the view that the proposed transaction is likely to substantially prevent or lessen competition in several markets and that the conditions offered do not fully address the resultant harm to competition.

“Further, the public interest commitments provided by the merger parties do not outweigh the competition concerns.”

The Competition Commission has argued that 5G fixed wireless access (FWA) and fibre compete in the same market and that consumers stand to benefit from increasing competitive rivalry between FWA and fibre. Vodacom is SA’s largest mobile provider and a substantial player in 5G technology (which brings the promise of faster internet connectivity and the ability to transfer large amounts of data across wireless networks), while Maziv is already the largest fibre-to-the-home player.

“The proposed merger will result in the loss of direct competition between Vodacom and Maziv in the areas where both Vodacom and Maziv have deployed fibre. The commission’s investigation has shown that fibre players tend to reduce prices in areas where more than one fibre network provider has deployed fibre. This price competition is lost with the merger,” said the competition watchdog.

The commission has acknowledged the commitments by Vodacom and Maziv to invest more than R10-billion in their infrastructure to expand fibre connectivity, particularly in underserved low-income and rural areas. But the watchdog has raised concerns that the deal between both companies “will likely prevent or lessen … competitive rivalry [between Vodacom and Maziv] and deprive low-income consumers of the benefits that fixed competition exerts on mobile products as currently enjoyed by wealthier and urban consumers in SA.”

The responses to the commission’s decision have come in thick and fast. 

Remgro’s CIVH said it “remains committed to the transaction”, inferring that it has not given up on the deal. Maziv has voiced similar sentiments. 

Vodacom said it was “surprised and disappointed with the commission’s recommendation, given that both Vodacom and CIVH have endeavoured to thoroughly address competition-related concerns through a list of remedies and public interest commitments put forward to the commission”.

Vodacom also said the commission’s recommendation was not the end of the road, and the next step involved the telecommunications giant approaching the Competition Tribunal. DM

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  • James Webster says:

    You neglect to mention that the competition commission turned down the deal because there were BLACK MINORITIES that would supposedly be adversely affected by it. This is yet another aspect of business that is being hampered by black minority interests. The only interests being looked after by the competition commission in this instance are those of potential – not even actual – black owned businesses. It is extremely disingenuous of you to essentially cover this up in case readers were irked by it.

  • Mike Silber says:

    Unfortunately the article completely misunderstands or misconstrues the process in a large merger.
    The merger *must* go to the Tribunal – whether supported or opposed by the Commission. So the suggestion that the Commission has prohibited the merger or that the Tribunal will “overturn” that decision is completely inaccurate.
    Maybe speak to a competition lawyer to explain the process – or even check out the commission and/or tribunal websites which will explain the process.

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