Competition Tribunal grants MTN, Rain leave to participate in Vodacom, BVI merger hearing

Illustration of a gavel used once a judge has reached a verdict in a case.

Illustration of a gavel used once a judge has reached a verdict in a case.

Published Nov 20, 2023


South African communication companies MTN and Rain have both been granted leave to intervene in the pending merger hearing between Vodacom and Maziv, the owner of Vumatel and Dark Fibre Africa, the Competition Tribunal announced on Friday last week.

In 2021, Vodacom said it had acquired a 30% stake in a Maziv for $862 million (R16 billion at that time), but this deal has been caught up in regulatory processes since then.

The Tribunal said MTN and Rain were competitors and customers of the merging parties, with Rain also being a supplier. Both applied to the Tribunal for participation rights in the pending merger proceedings, and a hearing in this regard was held on November 10.

During the hearing, the Tribunal heard and subsequently considered submissions by MTN, Rain and the merging parties.

The Tribunal’s order in respect of MTN grants the mobile network operator leave to intervene as a participant in the merger proceedings in respect of the following matters:

– Whether or not the proposed merger is likely to substantially prevent or lessen competition, including by assessing the factors set out in section 12A(2)(b) to (f) of the Competition Act; and

– The conditions proposed by the merging parties and/or to be considered by the Tribunal in relation to any approval of the proposed merger.

The Tribunal’s order in relation to Rain granted the mobile communications company leave to intervene as a participant in the merger proceedings in relation to whether or not the proposed merger was likely to substantially prevent or lessen competition in relation to certain theories of harm.

These included the effect of the proposed merger on Rain’s ability to compete in respect of retail internet services and mobile services as a result of portfolio effects and bundling, and the risk and potential effects of input foreclosure, reduction in competition in wholesale markets (including metro fibre backhaul used for mobile networks) and open access to fibre infrastructure and services; and information sharing.

According to the Competition Commission, the proposed Vodacom merger would combine South Africa’s largest fibre infrastructure player and its largest mobile operator. In August this year, the Commission recommended to the Tribunal that the proposed transaction should be prohibited on grounds that it raised both competition and public interest-related concerns and that the proposed conditions tendered by the merging parties did not address these concerns.

Both MTN and Rain participated in the Commission's investigation of the proposed merger and raised concerns at the time.

Vodacom spokesman Byron Kennedy said they looked forward to the process with the Competition Tribunal, during which Vodacom intended to showcase the strong public interest and pro-competitive advantages that the proposed transaction would have on the fibre market, and the country as a whole.

"In Vodacom’s view, the proposed transaction will in fact help bridge the digital divide and enhance competition in the fibre market as the parties have made a firm commitment to ensuring access to Maziv’s fibre assets – including Vodacom’s fibre assets contributed as part of the transaction – will be made available through an open access, non-discriminatory pricing model," Kennedy said.

Vodacom said the proposed transaction would significantly propel South Africa's social development and would be highly beneficial for the country, the economy and lower income households on a number of fronts, including: Maziv committing to invest Capex of at least R10 billion rand over a five-year period, including the commitment to pass at least one million new homes in lower-income areas such as Alexandra with fibre infrastructure over a five-year period.

Vodacom had committed to create up to 10 000 new jobs, while at the same time providing job security and enhanced benefits for current employees potentially impacted by the transaction.

SMME development would also be prioritised by establishing a new enterprise and supplier development fund to the tune of R300 million over three years, focused on increasing the level of localisation across the value chain and the investment by Vodacom in excess of R13 billion into South Africa at a time when attracting capital investment is particularly challenging.

"This level of investment cannot be made by Maziv alone and is over and above Vodacom's pledge at the recent SA Investment Conference to invest R60 billion over five years," Kennedy said.

MTN SA said they welcomed the decision by the Competition Tribunal to grant MTN leave to intervene as a participant in the large merger proceeding before the Competition Tribunal.

Peter Takaendesa, the head of equities at Mergence Investment Managers said they believed this was simply a continuation of the approval process for the transaction and it was likely to continue for the next six to 12 months before the competition authorities reach their final decision.

"We also believe that both MTN and Rain appreciate the potential benefits of this proposed transaction to the industry and the country in general, but they want to make sure that their businesses will not be constrained by the outcomes of this process. The telecoms regulator Icasa approved the transaction and the merging parties remain optimistic that the chances of success in the appeal process are decent as there is no spectrum involved," Takaendesa said.

He said obviously the parties to the transaction saw this as a great opportunity to build a bigger and more profitable fibre business that can keep growing fixed broadband penetration, while also taking fixed line market share from incumbent Telkom.

"It is quite likely that the aspects of the proposed transaction that the transacting parties find most attractive are also the key concerns for the competition authorities, especially given the fixed broadband market is still in the early stages of growth in South Africa compared to mobile data penetration."

Mergence said the future competition between fibre and 5G mobile data connectivity appeared to be one of the key focus areas for the competition authorities as well as some industry competitors.

"Failure of this transaction would obviously be a setback to Vodacom in the same way peer MTN has so far failed to acquire Telkom’s fibre assets. Our view remains that there are valid reasons in support and against the transaction, but it will all come down to what is more important to the regulatory authorities as they balance the need for investment in the country against long-term industry competition structure."