JOHANNESBURG - Vodacom yesterday tumbled more than 3% on the JSE after the Competition Commission said that it was investigating the mobile phone operator’s R5bn contract with the National Treasury.
The stock fell 3.22% to close at R151.36 as the company said it was suprised at the investigation and the Treasury arguing that it had consulted the commission prior to awarding Vodacom exclusive rights to provide mobile telecommunications to the government.
But commission spokesman Sipho Ngwema hit back last night, charging that the agency advised the Treasury last year that the agreement could be in breach of the Competition Act.
Also read: Vodacom responds to #DataMustFall
“They sought advice...but only on the duration of the contract. We said we will assess the entire contract.” Ngwema said. The commission said it had initiated the investigation for abuse of dominance. Before the agreement, government departments could procure telecommunication services from any network operator. The Vodacom contract runs from September 15 last year to August 31, 2020.
The commission said it had information that there were 20 government departments which would be subjected to the new Vodacom contract. Other departments, including state owned entities and municipalities, would be incentivised to adopt the new contract. It said it had reasonable grounds to suspect that the exclusive contract might constitute an exclusionary abuse of dominance by Vodacom in contravention of the Competition Act.
“The Act prohibits a dominant firm from abusing its dominance by requiring or inducing a supplier or customer to not deal with a competitor and engaging in an exclusionary act that impedes or prevents a firm’s entry or expansion within a market, unless the firm concerned can show technological, efficiency or other pro-competitive gains which outweigh the anti-competitive effect of its act,” the Commission said, adding that Vodacom’s dominant position raised barriers to entry and expansion in into market, distort competition in the market and result in a loss of market share for other network operators.
Image: Vodacom narrowband Internet of things (NB-IoT) laboratory at its campus in Midrand
Vodacom chief executive Shameel Joosub said, while the company was surprised by the investigation, Vodacom was committed to fully cooperating with the commission.
“The tender process was initiated and controlled by National Treasury through its procurement officer with the award based on various elements including cost savings, quality of service, security, coverage, support and billing, quality of network and technology innovation,” Joosub said.
“One of the key objectives of which was to reduce Government’s communication costs.” He said he was confident Vodacom had followed due process in a fiercely contested and transparent bidding process.
“None of the pricing structures put forward to National Treasury was based on an exclusive provider award basis, or any restrictive minimum commitments. In our various dealings with National Treasury throughout this 18-month process, we understand they were subjected to rigorous governance processes, including consultation with the Competition Commission prior to awarding the contract,” he said.
Momentum S.P. Reid Securities equity research analyst, Sibonginkosi Nyanga, said yesterday that the probe added to Vodacom’s pressures in the key South African market. Vodacom and fellow mobile network providers are under pressure to reduce data costs. Nyanda warned of negative consequences if the probe went against the company. “Analysts had already factored the positive contribution of the government’s contract to Vodacom’s future earnings,” Nyanga said..