The Competition Commission has recommended that the Competition Tribunal approve, with conditions, Vodacom’s proposed R7-billion buy-out of Neotel.

Post-merger, Vodacom would have sole control over Neotel, which would operate as a wholly owned subsidiary.
 
The commission found that the proposed transaction was likely to substantially reduce or prevent competition in the mobile services market.

Vodacom was the market leader in mobile services and the additional spectrum from Neotel would result in spectrum concentration effects that would likely consolidate Vodacom’s dominant position.

The acquisition would confer first mover advantages to Vodacom relating to network speed, capacity and mobile offerings.

Vodacom would not be constrained by other competitors as they were unlikely to match its offering. These factors, taken together, would likely lead to reduced choice and higher prices to end-customers in the absence of effective constraints on Vodacom.

The merger was also likely to have a significant impact on the structure of the South African mobile markets and future competitive dynamics.

To address these concerns, the commission recommended that some structural and public interest conditions be imposed, to which the merging parties agreed.

Vodacom agreed that it would not, directly or indirectly, use Neotel’s spectrum for the purpose of offering wholesale or retail mobile services to any of its customers for two years from the approval date, or December 31, 2017, whichever was earlier.

The two-year deferment period was intended to provide policy-makers with an opportunity to address the spectrum challenges in the industry.

Further, Vodacom would, in the five financial years following the merger approval date, invest R10-billion in fixed network, data and connectivity infrastructure.

At least 50% of the committed investment amount would specifically comprise investments in all fixed network elements required to enhance services to homes and enterprises in South Africa, including the development of value-adding services.

In addition, Vodacom would, within a period of 24 months following the merger approval date, ensure that the value of shares in its share capital held by black economic-empowerment (BEE) shareholders increased by R1.4-billion, being the value attributable to Neotel in terms of the merger multiplied by 19% – the current BEE shareholders’ direct shareholding in Neotel.

Should the value of the BEE obligations imposed by the Independent Communications Authority of South Africa (Icasa) in terms of the Electronic Communications Act exceed R1.4-billion, the obligations imposed by Icasa would apply.

Vodacom may not retrench any Neotel employees as a result of the merger.

“This merger will change the South African mobile network and fixed line industry significantly. We’ve taken due care in our analysis and recommendation to protect competition now and in the future, but the success of these conditions is predicated on the relevant government departments and Icasa promulgating necessary policies and allocating spectrum for the benefit of the whole country.

“The conditions also contain unprecedented investment commitments that will go a long way in improving telecommunications services in South Africa,” commented commissioner Tembinkosi Bonakele.