The Competition Commission has recommended to the Competition Tribunal that the proposed radio access network sharing and bilateral roaming deal proposed by Telkom and MTN be prohibited.

The decision is a huge blow for Telkom and MTN.

In terms of the proposed deal, MTN and Telkom will conclude a network management services agreement and reciprocal roaming agreements in terms of which MTN will take over financial and operational responsibility for the roll-out and operation of Telkom’s radio access network and each party will be able to roam on the other party’s mobile network.

“Effectively, MTN will be able to access additional spectrum capacity from Telkom to roll out an LTE network,” the commission said in a statement on Monday.

“Although the transaction does not involve the combination of MTN’s and Telkom’s mobile retail businesses, the commission found that the proposed transaction is likely to substantially prevent or lessen competition in the mobile services market,” it said.

“The access to additional spectrum capacity by MTN will confer first mover advantages to it relating to network speed, capacity and mobile offerings. MTN would be able to gain a significant competitive and time advantage, offering network and services that cannot be significantly constrained by rivals, particularly given the market position of Cell C and Telkom Mobile.”

The decision comes after the commission recommended that MTN rival Vodacom be allowed to acquire Neotel. The commission recommended that Vodacom not be allowed to use Neotel’s radio frequency spectrum assets to provide mobile services until late 2017.

The commission, in justifying its decision to want to block the MTN, Telkom deal, said the nature of the transaction is such that Telkom’s ability to aggressively grow in mobile and respond to competition will be “significantly curtailed”. This is because the mobile data capacity available to Telkom will be limited by the agreement between the merging parties whereas MTN’s capacity will not be limited, it said.

“The commission found that the merger would effectively limit the ability of Telkom Mobile to grow and independently compete against MTN and other mobile operators. This is particularly so in the mobile data markets where future competition is likely to take place.

“This outcome of this merger transaction is likely to entrench a duopolistic market structure dominated by Vodacom and MTN. Such a resultant duopoly market structure is unlikely to serve customers well, particularly when considering that it is the smaller mobile operators that lower prices before the larger operators, MTN and Vodacom,” the commission added.

“The merger is also likely to have a significant impact on the structure of the South African mobile markets and future competitive dynamics. This is also a negative effect especially when considering that South Africa experiences higher mobile prices than other comparable countries in the world. There were several objections to the merger received from third parties in the industry.”

The commission said it had invited MTN and Telkom to provide remedies aimed at addressing the likely competition and public interest harm arising from the transaction. “However, there were no workable remedies identified which would adequately address the harm to competition arising from the transaction.

“This merger will change the South African mobile industry significantly. We’ve taken due care in our analysis and the recommendation seeks to protect and preserve competition now and in the future. The resultant market structure, especially the limitations imposed upon Telkom Mobile, are not good for competition in the industry as it has been the smaller operators like Telkom Mobile that have been aggressive in disciplining the larger mobile companies.