A Maziv win-win?

It looks like a win-win for all concerned – Vodacom and Maziv get the mega-merger they wanted, and South African consumers are afforded shelter from some of the anti-competitive effects of the deal.  

That is how it should work. Powerful, aggressive profit-seeking corporate players pushing the boundaries beyond acceptable levels, and competition authorities – with consumer interests in mind – reining them in. 

Mind you, the R13.2bn transaction – four years since it was first announced – is not entirely a done deal yet. The Competition Commission has said it will no longer oppose Vodacom’s proposal to acquire co-control of South Africa’s largest fibre operator, but the Competition Appeal Court (CAC) has still to give its stamp of approval to the controversial transaction. 

The CAC is scheduled to hear the matter from July 22 to 24; the assumption seems to be that it will approve the deal. Not because “business opinion” and Parks Tau, the minister of trade, industry and competition – the boss of the competition authorities – have said it should but, hopefully, because the CAC reckons the additional conditions agreed to by the commission and the merging parties address the concerns initially raised by the commission and those subsequently raised by the Competition Tribunal. 

A cursory reading of the tribunal’s 378-page report containing its reasons for endorsing the commission’s (initial) prohibition recommendation suggests the revised conditions will address most of its concerns. Of course, it’s not impossible that a more considered reading might suggest otherwise. The CAC will have time to determine that. 

The tribunal’s tome provides one of the most comprehensive analyses of South Africa’s telecommunications market. It highlights how powerful the players are in every aspect of our daily lives, not only today but likely years into the future.  

One analyst remarked: “The Maziv deal would give Vodacom control over 14,000km of fibre, enabling it to undercut competitors on latency and costs – a critical advantage as Africa’s data consumption grows at 40% annually.”

The original deal was expected to boost Vodacom’s earnings before interest, tax, depreciation and amortisation margin by 2%-3%.   

Perhaps four years was not such a long time to spend interrogating a deal that will have long-term effects on most of our lives. 

The conditions

The notion that the commission did a U-turn, presumably under pressure from Tau and the business community, is not borne out by the details of the tougher conditions.  

First up, to protect competition between fixed-wireless access (FWA) and fibre to the home (FTTH), Maziv has to give a five-year enhanced capex commitment to ensure it will service third-party operators; site rollout targets have been replaced with connection-per-site targets; and low-cost broadband packages have to be maintained to ensure competitive pricing. 

Then there’s the tougher divestiture condition to deal with overlapping infrastructure owned by the soon-to-be merged entities. This is designed to ensure no foot-dragging on asset disposals and also should ensure a transparent and competitive divestiture process is followed. 

Finally, the likely increased incentive and ability of the merged entity to foreclose competitors, which is always a danger when a powerful entity is created, will be addressed by providing fast-track interim relief for competitors while the lengthier formal investigation process is under way. 

Perhaps the question to ask is why the merging parties didn’t offer these conditions while the commission was doing its initial investigation. It would have shortened the process by almost two years. 

The easiest course of action for the competition authorities was to prohibit the deal. This seemed appropriate enough in an industry where the big players have a history of abusing consumers. And prohibition has the great advantage of avoiding the difficulty involved in enforcing complex conditions. 

But it has the disadvantage of losing out on the possibility of enhanced competition, not just for the merging parties but for consumers.  

However, for the revised deal to be truly win-win, competitors and consumers will have to play a part in the competition authorities’ enforcement role and report on any failure to adhere to the conditions.