JOHANNESBURG - Listed mobile network operator Vodacom rebounded yesterday after falling on Wednesday, following reports that the Competition Commission was investigating the company four-year contract to be the sole provider of mobile telecommunication services to the government.
The shares rose 2.17% to R154.65 on the JSE after falling more than 3% on Wednesday, following the commission’s announcement.
Telecommunications industry expert, Spiwe Chireka, said the share price recovered mainly because of Vodacom’s response to the probe. “I think the share price has recovered because there is an element of trust. The shareholders have taken to heart the company’s explanation,” said Chireka.
The stock took a beating after the commission said the contract constituted an exclusionary abuse of dominance by Vodacom in contravention of the Competition Act. The anti-trust body said it had reasonable grounds to suspect that the exclusive contracts might constitute exclusionary abuse of dominance by Vodacom.
Vodacom chief executive Shameel Joosub said the company was fully co-operating with the commission. Joosub said the company was confident that it had followed due process.
“None of the pricing structures put forward to National Treasury was based on an exclusive provider award basis, or any restrictive minimum commitments,” he said.
Paul Coetser, Head of Competition Law at, Werksmans Attorneys yesterday said the share price shook on the announcement of the commencement of an investigation instead of an outcome.
Coetser said investors acted on the announcement without necessarily understanding the nuances of the commission’s processes .
They assume that an investigation means that a conviction and a large fine are inevitable, which may not necessarily be the case,” Coetser said. “This often leads to a premature sell-off or over-reaction in the market, with large gyrations in the trading price of the shares of the company being investigated. This is sometimes called a ‘false market’ in which investors can lose a lot of money.”
Coetser said that if the commission found the agreement to be anti-competitive, the matter would be referred to the Competition Tribunal for a full scale litigation process. “At the Tribunal, Vodacom will have the opportunity to defend itself. If the Tribunal ultimately finds Vodacom guilty, it has the power to impose an administrative penalty and to declare the agreement void,” said Coetser.
The probe has brought into focus the extent to which exclusive contracts comply with the competition legislation. Coetser said it was not impossible to seal an exclusive contract without contravening competition laws.
“However, it would depend entirely on the market circumstances, for instance whether the parties to the agreement are dominant, the duration of the agreement, whether it can be terminated on short notice, and whether the other market players have access to a significant portion of the remaining customers in the market. All of this will have to be considered in the course of the investigation,” he said.
- BUSINESS REPORT