Concerns about Vodacom’s influence over Vumatel and DFA

MTN is unconvinced that Vodacom will not influence the operations of Dark Fibre Africa (DFA) and Vumatel if a proposed deal to acquire a stake in their parent, Maziv, goes through.

Advocate Robin Pearse, representing MTN, presented the company’s concerns over the deal to the Competition Tribunal on Monday, 20 May 2024.

In his opening statement, Pearse said MTN isn’t determined to see the proposed merger prohibited.

However, he raised several of the company’s concerns about the deal, particularly Vodacom’s influence over decision-making at DFA and Vumatel.

Pearse said a corporation of Vodacom’s standing wouldn’t invest up to R14 billion into a company and then let it run as it wants, hoping it will do a decent job with the resources.

This was especially so considering that Vodacom will be contributing its metro and last-mile fibre assets to Maziv as part of the deal, and allowing all comers open access to this previously closed infrastructure.

“In the real world, in every matter of strategic significance, Vodacom would materially influence the decision of Maziv, which would materially influence the related decision of DFA or Vumatel,” MTN stated.

Pearse added that the Competition Tribunal should be concerned that the deal could dampen Maziv’s drive to roll out fibre to under-resourced areas where Vodacom provides 4G or 5G.

He explained that pre-merger, the capacity-constrained Vodacom had little incentive to grow its secondary fixed wireless access offerings.

“Post-merger, however, both it and Maziv would have every ability and incentive, and substantial market power, to take fibre to secondary towns, townships and rural areas more quickly and profitably than the merged entity’s FNO rivals,” said Pearse.

However, he listed conditions that could remedy its concerns. The merger parties had proposed appointing a “monitoring trustee” to act as a competition regulator.

Pearse said such a trustee would require sufficient independence, expertise, and capacity to detect and discipline even subtle examples of prejudice or preference.

He added that, as they are currently framed, the proposed conditions don’t guarantee a ready supply of dark fibre assets.

The conditions specify that the merged companies will be prohibited from refusing to supply wholesale metropolitan fibre services.

“[This] could be interpreted as entitling DFA to offer lit fibre services but not dark fibre assets,” Pearse said.

“Equally, revised proposed conditions would need to assure MTN and others of open access to the merged entity’s network on fair, reasonable, and non-discriminatory terms.”

He explained that, as the conditions are currently framed, they could allow for non-equivalence-justified pricing differences.

“That could benefit Vodacom, and the security of an anchor tenant in the form of Vodacom could embolden Vumatel to increase wholesale FTTB/FTTH prices and ‘squeeze’ the margins of ISP rivals,” said Pearse.

The Competition Tribunal of South Africa is currently hearing submissions related to Vodacom’s proposed acquisition of a stake in Maziv.

MTN spoke on the first day of the Tribunal’s hearings. The Competition Tribunal is set to hear submissions from the Competition Commission, Vodacom, Maziv, the Communication Workers’ Union, and Rain.

Maziv is a subsidiary of Remgro’s Community Investment Ventures Holdings (CIVH), which holds the assets of Vumatel and Dark Fibre Africa.

MTN previously said that while it supports consolidation in South Africa’s telecommunications sector, it wanted to have its say to ensure the conditions Vodacom and Maziv agreed to are appropriate.

Pearse said MTN would be unable to compete with Vodacom unless conditions were placed on the companies.

He argued that MTN, which sells Vumatel FTTH and FTTB products and uses DFA infrastructure, could suddenly face a supplier of those services with substantially different incentives.

“The merged entity’s incentives would change significantly because it would make it favour the connectivity of Vodacom over MTN and Rain,” he said.