Tribunal gives reasons for blocking Vodacom-Maziv merger deal

The Competition Tribunal has finally released the details of its prohibiting of the R14 billon Maziv and Vodacom merger deal.

In October, the tribunal decided to block the deal, which would have combined the country’s largest mobile operator, Vodacom, with one of South Africa’s largest fibre infrastructure players, Maziv.

Maziv is a wholly-owned subsidiary of Community Investment Ventures Holdings (CIVH), which has two main operating fibre subsidiaries, Dark Fibre Africa and Vumatel.

Under the deal, Vodacom was looking to acquire a 30% stake in the newly-created Maziv, with an option to increase the stake by 10%.

In a statement on Friday, the Competition Tribunal said the proposed transaction’s anti-competitive effects will be permanent.

It added that the merger-specific public interest benefits of the proposed transaction, on the other hand, are limited in duration and do not outweigh its negative competition effects that relate to various relevant markets and that will ultimately impact millions of South African consumers that will increasingly in the future be making use of data/internet services.

The Competition Appeals Court is set to hear representations in July from Vodacom and Remgro, which owns CIVH, over the blocked multibillion-rand Maziv merger deal.

According to the tribunal, the proposed transaction relates to various markets that impact access to the internet/data and future pricing, and has implications for millions of South African consumers that, now and increasingly in the future, require access to affordable data and internet services.

“The subject matter involves a very important service – data/internet services and their future costs to millions of South African consumers,” says the competition watchdog.

“Our decision bears heavily on us since it has implications for the millions of South African consumers that now and increasingly in the future require access to affordable data and internet services.”

“Moreover, the implications for the public arising from this proposed merger are far-reaching in that they flow well beyond just the telecommunications sector itself since the end-customers that require access to affordable data/internet services, and the medium and longer term future costs of these services, affect the millions of South African consumers and all sectors of the economy that make use of such services.”

“Our analysis, after considering the factual and economic evidence, has found that the public interest benefits claimed by the merger parties are to a very large extent not merger-specific for a number of reasons, including that certain commitments made already form part of Vodacom’s various licencing obligations, are part of previous conditions imposed by the tribunal in a merger, or will occur regardless of the proposed deal when considering the factual evidence relating to inter alia market characteristics and dynamics.

“Thus, although the merger parties tendered inter alia public interest commitments we, based on the evidence, found: therefore, a very large part of the benefits that the merger parties claim will result from the proposed transaction and their commitments, are, based on the factual evidence, in fact not merger-specific. Thus, the public interest benefits are substantially lower than claimed.”

After considering all the factual and economic evidence, including the merger parties’ internal strategic documents, the tribunal found both horizontal and vertical competition concerns in relation to several relevant product/service markets.

Maziv was committing to invest capex of at least R10 billion 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.

The companies also made a commitment 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.

They were also prioritising SMME development by establishing a new enterprise and supplier development fund of R300 million over three years, focused on increasing the level of localisation across the value chain.

Vodacom also committed to invest in excess of R14 billion into South Africa, though this transaction would come at a time when attracting capital investment is particularly challenging.