Telecommunications group Vodacom intends to showcase the strong public interest and pro-competitive advantages that its proposed transaction will have on the fibre market, and the country as a whole, when it presents the proposed fibre deal to the Competition Tribunal.

This follows the Competition Commission’s decision not to recommend to the Competition Tribunal Vodacom’s planned acquisition of co-controlling 30% stake in the newly formed open-access fibre infrastructure company Maziv, which holds all the material assets owned by Community Investment Ventures Holdings (CIVH), including Vumatel and Dark Fibre Africa (DFA).

Maziv operates the fibre assets of fibre operators Vumatel and DFA, while Vodacom plans to transfer its fibre assets into Maziv.

The November 2021 agreement also outlines that Vodacom has an option to acquire an additional 10% equity interest in Maziv to increase its shareholding to 40%.

Late on Tuesday, the Competition Commission announced that it had recommended that the proposed large merger be prohibited, based on its view that the acquisition 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.

“Having engaged extensively with the Competition Commission’s investigative team since the proposed transaction was announced, Vodacom is surprised and disappointed with the Competition 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 Competition Commission,” Vodacom said in a statement in response to the Competition Commission's decision.

The proposed transaction seeks to accelerate South Africa’s fibre reach, network quality and resilience, foster economic development and help to bridge South Africa’s digital divide in some of the most vulnerable parts of society, the company assured.

The Competition Commission, however, highlighted several vertical and horizontal competition concerns, with the proposed merger to result in the loss of direct competition, and thereby price competition, between Vodacom and Maziv in the areas where both have deployed fibre, and is likely to result in the prevention or lessening of future competition in relation to fibre and fifth-generation (5G) fixed wireless access.

Further, significant pre-merger plans, and the competitive rivalry, of Maziv and Vodacom to expand coverage, particularly in underserved or unserved low-income consumers and more rural areas, is likely to be prevented or lessened through the merger.

Mobile network operators rely on Maziv and DFA for fibre backhaul and metropolitan connectivity services to provide mobile retail services and the Commission’s investigation identified several concerns about incentives for self-preferencing and foreclosure of competitors post-merger.

“The merger creates the ability and increased incentive to partially foreclose or otherwise disadvantage rival mobile network operators. The merger amplifies the merged entity’s incentive to preference their own retail businesses over those of competitors.

“The Commission conducted an extensive investigation consulting with several market participants including mobile network operators, fibre network operators, Internet service providers and others and the majority of these market participants have expressed opposition to the merger,” the Competition Commission commented.

While the parties have proposed open-access remedies to address the competition concerns, the Commission found that the remedies were complex, incapable of being effectively monitored and did not address the full extent of the competition concerns likely to arise from the proposed transaction.

The Competition Commission said that the parties had submitted that the merger would contribute to the public interest through 5G and fibre rollout commitments, the establishment of a supplier development fund, the implementation of a notional employee benefit scheme, a moratorium on retrenchments, the creation of additional employment opportunities and maintaining the use of suppliers owned/controlled by historically disadvantaged persons.

However, it found that most of these public interest commitments would occur regardless as a result of existing spectrum obligations or existing rollout plans and that these commitments did not outweigh the competition harm that had been identified.

“Therefore, the Commission recommends that the proposed merger be prohibited.”

Vodacom commented that its next step was to present the proposed transaction to the Competition Tribunal, which would have been the case even if the Competition Commission were to have recommended the proposed transaction for the Competition Tribunal’s approval.

“In Vodacom’s view, the proposed transaction will, in fact, help bridge the digital divide and enhance competition in the fibre market as the parties have made a firm commitment to ensuring access to Maziv’s fibre assets,  including Vodacom’s fibre assets contributed as part of the transaction, will be made available through an open-access, non-discriminatory pricing model.”

The proposed transaction will, it believes, be highly beneficial for the country, the economy and lower-income households.

According to Vodacom, Maziv committed capital expenditure of at least R10-billion over five years to, besides others, pass more than one-million new homes in lower-income areas such as Alexandra with fibre infrastructure.

The parties further committed to creating up to 10 000 new jobs, providing job security and enhanced benefits for current employees potentially impacted by the transaction and prioritising small, medium-sized and microenterprise development through the establishment of a new R300-million enterprise and supplier development fund, over three years, focussed on increasing the level of localisation across the value chain.

“The investment by Vodacom in excess of R13-billion into South Africa through this transaction would come at a time when attracting capital investment is particularly challenging. This level of investment cannot be made by Maziv alone and is over and above Vodacom’s pledge at the recent South Africa Investment Conference to invest R60-billion over five years,” Vodacom stated.

“We firmly believe that the transaction will deliver substantial benefits to both the South African consumer and the economy. Vodacom’s planned investment holds particular significance as a considerable proportion will be focussed on developing new fibre infrastructure at a time when attracting capital investment is particularly challenging,” the company concluded.