In a surprise move that will have wide implications for South Africa’s telecommunications industry, the Competition Commission has recommended that Vodacom’s acquisition of a stake in fibre operator Maziv be blocked.
The commission, which has taken a considerable amount of time to investigate the transaction, has recommended that the deal be blocked on competition concerns.
Maziv’s main assets include Vumatel, South Africa’s largest fibre-to-the-home operator.
Under the deal, Vodacom was going to contribute its fibre assets to the merged entity, which would have made its infrastructure available on an open-access basis to internet service providers. It had been expected the deal would be approved, but with customary conditions.
The decision by the commission to block the deal will send shockwaves through the local telecoms industry, which had expected a wave of consolidation on the back of it. It also throws a big spanner in the works for Remgro, the largest shareholder in Maziv shareholder CIVH, which had seen the Vodacom transaction as a way of dealing with the company’s debt.
Justifying its decision, the commission on Tuesday that it is “of the view that the proposed transaction 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,” it said, “the public interest commitments provided by the merger parties do not outweigh the competition concerns.”
Maziv surprise
According to the competition regulator, 5G fixed-wireless (FWA) services and fibre compete in the same market and 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 [companies] 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,” it said.
“Importantly, the proposed merger is also likely to result in the prevention or lessening of future competition in relation to fibre and 5G FWA. Both Maziv and Vodacom have significant pre-merger plans to expand coverage, particularly in underserved low-income areas. Vodacom, through its spectrum allocation obligations, and Maziv, through its planned Vumatel roll-out plans, are both investing in infrastructure roll-out to target underserved low-income and more rural consumers.
“These expansion plans would bring benefits of price competition and consumer choice to underserved or unserved consumers. The proposed merger will likely prevent or lessen this competitive rivalry and deprive low-income consumers of the benefits that fixed competition exerts on mobile products as currently enjoyed by wealthier and urban consumers in South Africa,” the commission said in Tuesday’s statement.
“In addition, the evidence shows that fibre exerts a constraint on the extent to which mobile operators can set prices for mobile data more generally. The merger will reduce this constraint.”
It said, too, that its investigation “identified several concerns about incentives for self-preferencing and foreclosure of competitors post-merger”.
“One concern arises from the fact that mobile network operators rely on Maziv, and [its subsidiary Dark Fibre Africa] specifically, to a varying but significant degree for fibre backhaul and metropolitan connectivity services to provide mobile retail services. The merger creates the ability and (increased) incentive to partially foreclose or otherwise disadvantage rival mobile operators. Similarly, providers of lit fibre-to-the-business services rely on the merger parties, and particularly DFA, to a significant but varying degree for dark (unlit) fibre. The merger amplifies the merged entity’s incentive to preference their own retail businesses over those of competitors.”
The commission claimed, too, that there are “no significant benefits arising from the proposed merger that are not already independently planned prior to the merger or not already in place”.
“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,” it said. – © 2023 NewsCentral Media
- This is a developing story