Blow to Vodacom, Vumatel deal as competition watchdog wants it blocked | Business

The Competition Commission has recommended that Vodacom not be allowed to become a large shareholder in Vumatel and Dark Fibre Africa (DFA).

As part of a deal worth more than R13 billion, Vodacom wanted to buy an initial 30% stake (with an option to quickly increase it to 40%) in Remgro-owned Maziv, which owns the two fibre infrastructure groups.

Vumatel is South Africa’s largest fibre-to-the-home network operator, while DFA provides fibre services in and between the country’s towns and cities.

Last year, a group of more than 200 internet service providers (ISPs) objected to the proposed deal, which they said would result in market dominance in the industry.

They were specifically concerned about getting access to wholesale fibre offerings from Vodacom, which currently only offers access to certain ISPs.

As part of the new deal, Vodacom and the other parties committed to “open access”, which means it can’t exclude ISPs and must treat them all the same.

But the commission says their proposed open-access “remedies” to address the complaints are complex, incapable of being effectively monitored and do not address the full extent of the competition concerns.

“Moreover, the supposed benefits of Maziv’s open access regime have not been universally confirmed by the investigation; instead, evidence and allegations of self-preferencing behaviour and discriminatory pricing have arisen. The merger is likely to further reinforce the incentives for self-preferencing and discriminatory behaviour.”

The commission also said that 5G Fixed Wireless Access (FWA) and fibre compete in the same relevant market and that consumers stand to benefit from increasing competitive rivalry between FWA and fibre.

“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.”

In addition, the commission found that fibre “exerts a constraint” on mobile data prices – and that the deal would reduce this constraint.

It also was concerned about the fact that mobile network operators rely on DFA to help them deliver mobile retail services. “The commission believes this creates the ability and (increased) incentive to partially foreclose or otherwise disadvantage rival MNOs. The merger amplifies the merged entity’s incentive to preference their own retail businesses over those of competitors.”

The commission didn’t see any significant benefits arising from the proposed deal that are not already in place, and recommended that the proposed transaction be prohibited.

The Competition Tribunal will now adjudicate whether the deal can go ahead.

In a statement on Tuesday, Vodacom said it was “surprised and disappointed” with the Competition Commission’s recommendation.

“Though we are disappointed, it is important to note that the Competition Commission’s recommendation is not the end of the process. Instead, the next step is for the proposed transaction to be presented to the Competition Tribunal.”

Vodacom said it intended to “showcase the strong public interest and pro-competitive advantages” that the proposed transaction would have on the fibre market, and the country as a whole.  

“Vodacom’s planned investment holds particular significance as a considerable proportion will be focused on developing new fibre infrastructure at a time when attracting capital investment is particularly challenging.”

* This article was edited post-publication to include comment from Vodacom.