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May 18, 2009

Icasa won’t oppose Vodacom ruling, independence questioned

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Communications regulator the Independent Communications Authority of South Africa (Icasa) on Monday said it would not oppose the judgement handed down by the High Court on Sunday, regarding the Vodacom and Vodafone merger.

Sunday’s judgement meant that the Congress of Trade Unions (Cosatu) and Icasa did not get the interdict they sought, and this signalled the go-ahead for mobile operator Vodacom to list on the JSE and restructure, so that UK-based Vodafone holds a majority 65% interest in the company.

The remaining 35%, which was held by Telkom, was unbundled and the company listed on the JSE on Monday.

The regulator “has heard of the judgment”, and although it did not have a copy of the actual judgement in its possession, would not be opposing it. “There wont be any follow up from our side,” said Icasa spokesperson Sekgoela Sekgoela.

On the other hand, Cosatu national spokesperson Patrick Craven on Monday said that “the fight against this deal will continue. Cosatu will be consulting with its lawyers on possible further court action to appeal against the decision, up to the Constitutional Court if necessary.”

“Vodacom group received a letter from Icasa on Friday, May 15, 2009 purporting to rescind its previous decision that the transactions only required notification rather than prior approval from Icasa, and stating that a public consultation process will take place. Vodacom Group continues to believe that only a notification of the transactions to Icasa was required,” said the newly listed Vodacom, in a statement to shareholders on Monday.

Sekgoela confirmed that the envisaged public consultation process would no longer take place.

Icasa initially said that the merger could go ahead without regulator approval.

On Friday, Icasa rescinded the decision after pressure from the Communication Workers Union (CWU), and more recently the Cosatu, which filed court papers requesting the Icasa decision to be set aside.


For Icasa to intervene at this late stage and rescind the initial decision that it took, proves one of two things, explained Africa Analysis telecoms analyst Dabek Pater.

“Either that Icasa staff is incompetent because there was a period of two or three months when the transaction was announced publicly, and they should have been able to investigate it to a sufficient degree, to decide whether they did need to engage in a more open, public transparent process or not. Or otherwise, it would mean that someone has been intervening behind the scenes, suggesting strongly to Icasa that they should step in and support the Cosatu application,” Pater said.

“None of the cases are favourable to Icasa’s image,” he added.

Pater suggested that Icasa does have enough competent staff and resources to dedicate time and effort to a transaction of this size.

Indeed, it was the largest transaction in the South African telecoms market to date.

This posed the question why Icasa chose, so late, to intervene?

“If there is some third party involvement, resulting in Icasa voicing reservations, then that would, unfortunately, mean that it is not as independent as we would like it to be. This is problematic, because the reason we have these institutions is to provide checks and balances to maintain the democratic system,” Pater said in an interview with Engineering News Online.

The initial signal sent to the international investment community was not positive.

“For something like this to happen at the last minute before the listing, and the conclusion of the deal, it presents doubt in the mind of the investors as to the surety of our system, and an assurance that things will go as promised,” noted Pater.

He did add, however, that the High Court decision not to issue the interdict, sent a countering positive message, “reassuring the world that our legal system is still reliable, and sufficiently strong to act independently”.

The need to attract foreign investment into South Africa was emphasised, particularly in the current economic climate. “We cant afford to scare off potential foreign investors by having a political force such as Cosatu bringing the whole process to a grinding halt,” stressed Pater.

It was, however, felt that the debacle did not damage the Vodacom listing. Investors hoping to acquire shares were confident that the listing would go ahead as planned.

“But, had it gone the other way, I think it would have done quite a bit of damage. The positive growth in the share price shows confidence in the company – despite the wobble along the way,” said Pater.

The Vodacom merger with Vodafone was approved by the Competition Tribunal in February 2009, despite the CWU raising concerns that ranged from Vodafone’s alleged “bad record” and “union-bashing” tactics, to the potential decrease in Telkom revenue after the sale of its stake in Vodacom, which would lead to retrenchments at Telkom.

At the end of April, the CWU’s bid to halt Telkom's sale of its 15% stake in Vodacom was dismissed with costs in the High Court in Pretoria.

On May 8, Cosatu applied to the High Court in Pretoria to halt the deal between Telkom and Vodafone, stating that without Icasa approval the transaction was void, and Icasa was entitled to void Vodacom’s license.

When questioned on the issue of Vodacom’s operating license being withdrawn, Sekgoela said, “no, lets not even start speculate about that.”

Cosatu was opposed to the deal stating that it would result in job losses, and loss of revenue at Telkom, which would lose the significant contribution to the bottom line from Vodacom.

Cosatu also said that the entity was a “strategic national asset”, which should not be controlled by a foreign company.

Pater pointed out that there was no factual evidence that any job losses would take place.

Edited by: Mariaan Webb
Creamer Media Senior Researcher and Deputy Editor Online
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