Did commission err on Telkom, MTN deal? - TechCentral

Did commission err on Telkom, MTN deal?

Duncan-McLeod-180-profileDid the Competition Commission do the right thing in seeking to block — in the process scuppering — the network sharing deal between Telkom and MTN? On the surface, it appears it was the right move for consumers, but dig a little deeper and one has to question whether the regulator made the right call.

First, a little background to the now-abandoned deal is necessary.

Telkom entered discussions with MTN as far back as 2013 about the two companies signing a bilateral roaming agreement, allowing each other’s customers to roam between their networks. Telkom would also outsource management of its radio access network (RAN) to MTN. A RAN is the part of a mobile network that connects end users to base station equipment.

Such a deal is highly complex and it took the parties well over a year to work out the details. But it’s not unprecedented. Indeed, operators around the world – and particularly in developed markets — are hammering out similar deals as pressures mount on profit margins and as operators seek to roll out 4G/LTE networks at lower cost. Examples of such network sharing deals are commonplace in the UK and across Europe.

One has to ask, then, why, if this is the international trend, did South Africa’s competition authorities move to block the deal between a tiny fourth player in mobile (Telkom), and MTN, which is distinctly smaller than market leader Vodacom? The question takes on an even more interesting dimension when one considers the fact that the Competition Commission has recommended that Vodacom’s acquisition of Neotel — also a deal ostensibly about spectrum — be approved, albeit with some conditions attached. Is it fair to prevent the MTN/Telkom arrangement in light of the fact that in two years’ time, under the commission’s sanction, Vodacom will be permitted to switch on a super-fast national LTE-Advanced broadband network using Neotel’s valuable spectrum?

“Effectively, MTN will be able to access additional spectrum capacity from Telkom to roll out an LTE network,” the commission said this week in justifying its decision to seek to prohibit the deal. Yet that’s precisely what Vodacom will be doing with Neotel!

“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,” the commission added.

It appears it is concerned that the South African mobile market will return to a situation where an MTN and Vodacom duopoly is able to call all the shots. The regulator is right to be worried given how the two companies historically never really competed aggressively on retail prices until Cell C upset the applecart a few years ago. But it can’t ignore the fact that the market is a lot tougher now than it was then and infrastructure sharing may be necessary to prevent smaller players from being driven to the wall.

MTN argued this week that the deal with Telkom would have been good for competition.

“The transaction between MTN and Telkom would have constituted the first RAN infrastructure sharing arrangement in South Africa between two mobile network operators and was aimed at meeting the demand in the unprecedented global shift from traditional voice to data,” MTN said.

“The transaction would have resulted in an efficient utilisation of the networks of both parties and would have been to the benefit of the sector and the country as a whole in terms of the rapidly growing demand for data.”

Telkom now has some hard choices to make. Its mobile division is not particularly sustainable as a small, standalone unit trying to compete nationally.

Sipho Maseko

Sipho Maseko

One option could be to buy Cell C, and Telkom CEO Sipho Maseko has already hinted at this possibility, but a deal won’t happen unless Cell C’s parent, Oger Telecom, is willing to accept a reasonable offer price or is willing to restructure the operator’s debt mountain.

A second option is for Telkom to close down its mobile business, or sell the assets to someone. But in a world of fixed and mobile convergence, where operators are keen to have their feet firmly in both worlds, this appears to be the least likely option.

The third, and least satisfying, option is for Telkom to maintain the status quo. Its mobile arm is, after all, close to turning a profit. But it lacks the scale to be a meaningful competitor to MTN and Vodacom.

Perhaps the key to understanding the commission’s decision lies in its admission that it asked MTN and Telkom to provide remedies aimed at addressing the likely competition and public interest harm arising from the transaction. No workable remedies were identified that would adequately address the harm to competition arising from the transaction, it said.

Reading between the lines, this may suggest that Vodacom was more willing to compromise with the commission so that its acquisition of Neotel would be green-lighted. It’s speculative, but perhaps MTN and Telkom were not prepared to agree to similar terms.

What is clear is that Telkom needs to do something, and soon, to improve its chances of building a strong mobile alternative to the big incumbent operators. The ball is firmly in Maseko’s court. His options, though, are now more limited.

6 Comments

  1. Yeah I could not really see much of a problem with it. Future data needs dictate that all these little wanna-monopolies get out of their bubbles.

  2. Norman Masiya on

    This is one of your worst I’ll researched article. You cannot compare the deal between Vodacom and Neotel to the deal between MTN and Telkom Mobile.

    “Telkom would also outsource management of its radio access network (RAN) to Telkom. A RAN is the part of a mobile network that connects end users to base station”

    These are your words. Compare Apples to Apples.

  3. It would have been better for everyone, however I don’t think MTN is going to cry about it considering they earn millions monthly from Telkom roaming on their base stations. The loser is ultimately the consumer, maybe not now but in the long run as pressure increases on Telkom Mobile.

  4. Eisch and Telkom had it all owning fifty percent of Vodacom which money they successfully squandered in thMultiLinks joker. Unaccountable maladministration if ever.

  5. “Perhaps the key to understanding the commission’s decision lies in its admission that it asked MTN and Telkom to provide remedies aimed at addressing the likely competition and public interest harm arising from the transaction. No workable remedies were identified that would adequately address the harm to competition arising from the transaction, it said.”

    There it is.

  6. mulalo shandukani on

    The headline is suggestively misleading and the article itself provides no facts to remotely indicate that the Commission erred. The question Duncan Mcleod should be probing is why the Telkom/MTN did not contest the Commission’s decision at the Competition Tribunal…..and the answer to this suggest no hint that the Commission could have erred.