Vodacom’s R29 billion Please Call Me debacle

While the spectre of a R29-billion Supreme Court ruling hangs over Vodacom, shareholders have been spared severe swings in the company’s share price.

This suggests that the market believes Vodacom is likely to negotiate or secure an order for a much smaller compensation amount in the Please Call Me saga.

The Supreme Court of Appeal (SCA) ruled in February 2024 that Vodacom must pay Kenneth Nkosana Makate a share of the revenue generated by its Please Call Me product.

The ruling came after sixteen years of legal battles and ordered Vodacom to pay 5% to 7.5% of revenue.

Crucially, this revenue must be calculated according to models Makate’s legal team presented in court.

Effectively, the Supreme Court has ordered Vodacom to pay Makate compensation of R29 billion to R63 billion for his idea.

Equity analyst Richard Cheesman, from Urquhart Partners, said the case does not seem to be weighing on Vodacom’s share price.

“The group has made an immaterial provision for the matter and is challenging the SCA judgement,” Cheesman told MyBroadband.

He noted that the potential compensation ordered by the SCA ruling is substantial for a company with a market capitalisation of R200 billion.

“A severe reaction would be expected if the market expected a payment of that magnitude was likely in the imminent future,” said Cheesman.

“Tough financial results, as well as weak economies, currencies and political risks both locally and elsewhere in Africa seem to be more top of mind for investors at this time.”

According to court records, Makate pitched his idea of sending a missed call to someone’s phone without airtime on 21 November 2000 while employed as a trainee accountant at Vodacom.

He called it the “buzzing option”.

Vodacom’s product development team ran with the idea and made it into what became Please Call Me. The first version of the service launched in March 2001.

Makate’s emails also showed a conversation between him and Vodacom product development manager Philip Geissler, where he requested a reward for his idea.

Geissler reminded Makate that staff don’t usually get extra rewards for their work but promised to speak to then-CEO Alan Knott-Craig on his behalf.

Makate sent letters of demand in 2007 and launched legal action against Vodacom in 2008.

The High Court and Supreme Court initially dismissed his case, but he found favour in the Constitutional Court.

While the court cases briefly explored issues like whether Makate was the true inventor of Please Call Me, the apex court’s ruling ignored these and focused on the arguments around Geissler’s email to Makate.

The court did not buy Vodacom’s argument that Geissler had no authority to commit the company to an agreement to discuss potential compensation with the CEO.

It ruled that Geissler had the ostensible authority and ordered Vodacom and Makate to negotiate compensation in good faith.

It should be noted that Geissler was never called to testify.

Foreseeing a breakdown in talks, Vodacom’s CEO was designated the deadlock breaker.

Makate’s team opened the negotiations by demanding compensation of R20 billion. Vodacom countered with R10 million.

Current Vodacom CEO Shameel Joosub was ultimately called on to break the deadlock and returned with an offer of R47 million in January 2019, which Makate rejected.

His team launched legal action in the High Court, arguing that Joosub had made a mistake in his calculations.

The High Court ruled in Makate’s favour. Vodacom appealed, and the Supreme Court also found in Makate’s favour.

Vodacom has applied to the Constitutional Court for leave to appeal a final time.

At the same time, it reached out to Makate to reopen negotiations for an out-of-court settlement. Makate accepted Vodacom’s olive branch.

Neither party has been willing to disclose the progress of the talks, saying they are “strictly confidential”.