By Nicola Mawson
Fibre network operator Frogfoot has argued that Vodacom, Vumatel, and Dark Fibre Africa (DFA) should not be allowed to merge to form the largest fibre infrastructure company in South Africa, Maziv, as this would limit competition.
This was argued yesterday at the second day of the ongoing Competition Tribunal’s hearing into the proposed merger, to which the Competition Commission is opposed as it believes it would be anti-competitive.
Frogfoot founder and director Abraham van der Merwe said that the deal would limit downstream players’ ability to connect to different fibre providers’ networks.
He said this would limit competition, as Vodacom’s network would no longer be available as a “counterweight” to DFA.
Concerns have been raised that Vodacom will have main control over the merged company, even though it will only own between 30% and 40%, because it will be providing funding for investment.
Vodacom aims to buy DFA and Vumatel from Remgro through a combination of R6 billion cash and the contribution of some transmission access fibre network infrastructure at a valuation of R4.2bn.
Van der Merwe was accused of being a disgruntled customer, hence his opposition to the deal, a statement that he denied.
He added that it was also possible that prices would go up, which would affect the ability of telecoms companies to roll fibre out into townships.
However, Van der Merwe’s statement was challenged as Vodacom, DFA’s largest customer, would not stand for prices being increased.
The Frogfoot founder did concede that roll-out to townships could speed up should the pricing come in at the right level.
Van der Merwe was also worried that there may be onerous conditions imposed on players that may wish to connect to Maziv’s combined network, or that the new entity may compete with smaller players in the FTTx (Fiber to the X) market because it may offer cheaper prices than the downstream companies can offer due to its size advantage.
However, Peter Takaendesa, the head of equities at investment group Mergence Investment Managers, was concerned that the Commission had decided that the only outcome it wished to see was an outright prohibition of the deal.
He said it did not also “give some weight towards encouraging investment in the South African economy”.
Takaendesa said that as a result, it was quite likely that Vodacom will deploy more of its capital outside South Africa or prioritise repaying debt if the competition authorities ultimately prohibited the transaction.
“We get the sense that both Vodacom and MTN have realised that it may be too late already to build large national fibre networks of their own, hence looking to buy minority stakes in existing fibre network operators to optimise capital expenditure and share infrastructure as we are seeing in tower markets and related consolidations taking place globally,” he said.
The analyst noted that Vodacom and MTN were no longer in best financial positions as they used to be because of a weaker mobile market in South Africa, currency devaluations in their rest of Africa operations, and significant recent investments into acquiring new mobile spectrum.
“The reality is that most telecoms markets will ultimately come down to a few operators that can sustain themselves over the long term, given the capex intensity nature of the industry and declining returns as markets mature,” Takaendesa said.
“Competition concerns are genuine, but after the points we have raised above, we believe competition authorities should focus on finding remedies rather than simply prohibiting the transaction.”
BUSINESS REPORT