French broadcasting giant Groupe Canal+ has expressed confidence in its bid to acquire South African pay-television operator MultiChoice Group, despite the high regulatory hurdles the Vivendi Group subsidiary must first overcome.

“The deal would have to go through both [communications regulator] Icasa and the Competition Commission, and Icasa is very strict on foreign ownership rules. There is no exemption from section 64 of the Electronic Communications Act (ECA),” Kerron Edmunson, legal and regulatory specialist at Kerron Edmunson, said in an interview with TechCentral on Friday.

Section 64 of the ECA limits foreign ownership of South African broadcasters to 20% of voting rights, although their economic interest may be higher. This is the scenario currently at play regarding the Canal+/MultiChoice relationship, where Canal+ owns 31.7% of MultiChoice but does not enjoy an equivalent share in voting rights.

Proposed changes to legislation, in the form of the white paper on audio-visual services, is still in draft form – and are unlikely to be gazetted for years still. The white paper has proposed lifting the 20% restriction to 49% (for both the economic and voting interests) for any foreign entity investing in a local broadcaster.

“Canal+ would have made their decision to bid with the upcoming legislation in mind, which could take at least a year to come into effect, but we must consider that the draft has been around for some time already,” said Edmunson.

The draft legislation could take years to come into effect, and even if it does, it likely won’t solve Canal+’s problem as it wants a controlling stake in MultiChoice.

Another point for consideration is Icasa’s rules pertaining to transformation, an agenda which the regulator is cracking down on in 2024.

BEE rules

Transformation legislation in South Africa’s broadcasting and telecommunications sectors dates back to the Telecommunications Act of 1996, with other stipulations outlined in its replacement law, the ECA of 2005.

After noting that the industry was largely non-compliant regarding transformation, Icasa published the Limitations of Control and Equity Ownership by Historically Disadvantaged Groups regulations in March 2021. Under the rules, licensees must have a minimum of 30% of their equity owned by previously disadvantaged individuals and reach level-4 broad-based black economic empowerment status as defined by the IT sector empowerment codes. The deadline for compliance is 31 March this year.

“Canal+ would have to set up a local entity, have an office, and employ local staff,” said Edmunson, explaining some of the steps the broadcaster will have to take to meet the transformation criteria.

Read: South Africa still keen to amend broadcast ownership rules

The French broadcaster’s intention to unbundle from parent Vivendi and pursue a separate listing in South Africa will help its cause, but the MultiChoice acquisition may be blocked, not due to a lack of compliance, but on the basis of market dynamics and competition law.

The Competition Commission aside, Icasa itself has been carrying out an inquiry into the subscription broadcasting services market since 2016. In a preliminary findings document from 2019, Icasa found that MultiChoice “possessed significant power in markets that are characterised by ineffective competition”, effectively saying that MultiChoice holds a monopoly in its operational markets.

As a remedy, the regulator proposed several changes to the broadcast licensing regime. The matter is currently open for stakeholder comment before a final decision is made. Edmunson suggests that the Competition Commission’s view of MultiChoice’s position in the market is likely similar to Icasa’s.

“You have MultiChoice having a monopoly that the commission says it wants to remedy and then Canal+, which is just a bigger MultiChoice with even deeper pockets and more ‘monopolistic’ power wanting to take it over. Allowing the transaction would go against commission’s current thinking,” said Edmunson.

Justifying Groupe Canal+’s optimism is a business case that is hard to argue against: the combined forces of Africa’s market leaders in the Anglophone and Francophone pay-TV markets would give birth to a continental broadcasting powerhouse.

Read: Why Canal+ wants control of MultiChoice

“Combined with Canal+, MultiChoice would have the resources to invest in scale, local African talent and stories, and best in class technology, to allow it to grow in Africa and compete with the global streaming media giants. We are steadfast in our belief that MultiChoice could enjoy a bright future as part of a combined group with Canal+,” said Maxime Saada, chairman and CEO of Canal+, in a statement on Thursday.