More than six months after prohibiting telecommunications group Vodacom’s proposed acquisition of a significant shareholding and the merger of fibre assets of private equity firm Community Investment Ventures Holdings (CIVH) subsidiary Maziv, the Competition Tribunal has published the reasons document unpacking its decision.

On October 29, the Competition Tribunal prohibited the proposed transaction wherein Vodacom intended to acquire 30%, and potentially 40%, of the issued share capital of Maziv, which will house all of the fibre assets owned by CIVH, including Vumatel and Dark Fibre Africa.

The transaction outlines that Vodacom would pay R6-billion in cash into Maziv and R4.2-billion to acquire shares in Maziv from CIVH, as well as transfer fibre to the business.

If the “top-up” to 40% shareholding moves forward, Vodacom will pay a further R4-billion in cash.

In August 2023, the Competition Commission recommended to the Tribunal that the proposed transaction should be prohibited on the grounds that it raises both competition- and public interest-related concerns and that the proposed conditions tendered by the merging parties do not address these concerns, a viewpoint that the Competition Tribunal agreed with when blocking the deal a year later.

In the 374-page public version of its reasons document, published late on Tuesday evening, the Competition Tribunal says that the proposed transaction raises both horizontal and vertical competition concerns and, ultimately, negatively affects South African consumers.

According to the document, the Competition Tribunal considered the effects of the proposed transaction particularly on low-income consumers, including future access to products and services through the roll-out of fibre to support the provision of Internet in lower income areas and the effects of the proposed transaction on the future costs of those products and services.

The Competition Tribunal laid out its reasoning for blocking the deal, including taking into consideration various third parties’ concerns related to vertical input and customer foreclosure, market consolidation, horizontal concerns, tying and bundling, durable first mover advantage concerns, 5G-based concerns, removal of a competitor, information exchange concerns and suitability of open access conditions, besides others.

In the report, it said that most third parties were of the view that the proposed transaction should be prohibited and that no remedies would suffice to address those concerns. However, certain third parties made remedy suggestions.

Further, the merger parties’ proposed, mostly behavioural, conditions, in their different iterations do not address the competition concerns, which outweigh the merger parties' public interest commitments.

“Although the merger parties tendered several iterations of behavioural remedies in an attempt to deal with the vertical concerns, the proposed remedies do not, other than a divestiture remedy in relation to fibre-to-the-home infrastructure, address the horizontal competition concerns.”

The “extremely complex and technical in nature” remedies, which will affect many customers and competitors of the merger parties, will also place a “huge” regulatory burden on the Competition Commission and Competition Tribunal and both institutions cannot take on the regulatory burden of indefinite duration.

“After considering the version of the remedies that were finally tendered, and hearing from the Competition Commission and witnesses, we conclude that the remedies will not be effective and cannot be effectively monitored and enforced by the competition authorities.”

Another point raised in the reasons document is that Vodacom is DFA’s largest customer, and given that Vodacom will have a 30% to 40% economic interest in Maziv, there remain concerns that post-merger Vodacom would have influence over the operations of DFA and Vumatel.

“The evidence shows that Vodacom will have extensive decision-making rights and powers at shareholder, director and even committee levels in relation to Maziv as well as its subsidiaries and controlled investee companies.

“We have to reject the merger parties’ claim that Maziv would continue doing business as if it were unaware for Vodacom’s presence.”

The reasons document also outlined the anticipated effect on the competition that CIVH will face absent the proposed deal, particularly concern over significant increased competition for DFA, with Vodacom’s ambitions of establishing a FibreCo and a TowerCo, in which Vodacom could invest R6-billion capital expenditure to fund its expansion.