Tribunal releases its comprehensive reasons for prohibiting the Vodacom / Maziv transaction
The Competition Tribunal (“Tribunal”) has today issued its reasons for prohibiting the proposed transaction since its order, issued on 29 October 2024. In terms of the proposed transaction Vodacom (Pty) Ltd (“Vodacom”) intends to acquire 30%, and potentially 40%, of the issued share capital of Maziv (Pty) Ltd (“Maziv”), previously called Business Venture Investments No 2213 (Pty) Ltd (“the proposed transaction”). Vodacom and Maziv collectively are referred to as “the merger parties”.
In its reasons the Tribunal ultimately concluded: “The proposed transaction’s anti-competitive effects will be permanent. 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 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 Tribunal notes: “The subject matter involves a very important service – data/internet services and their future costs to millions of South African consumers. 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”; and further notes “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, as we explain in more detail below.
The transaction involves the largest Mobile Network Operator (“MNO”) in South Africa, Vodacom, and the largest dark fibre provider in South Africa, Dark Fibre Africa (Pty) Ltd (“DFA”), as well as the largest fibre to the home (“FTTH”) Fibre Network Operator (“FNO”) in South Africa, Vumatel (Pty) Ltd (“Vumatel”).
Vodacom as an MNO is active in the provision of mobile wholesale and retail voice, messaging and data services to residential and business customers. It is also active at various levels of the telecommunications value chain, using various business models to build, acquire and lease infrastructure and sell services using that infrastructure. Importantly, it also owns national long-haul, metro backhaul and last mile fibre, including FTTH and fibre to the business (“FTTB”). It holds several licences for the use of mobile and microwave spectrum.
The Tribunal notes in its reasons that South Africa has a history of high mobile data pricing that over recent years have reduced following intervention inter alia by the Competition Commission (“Commission”).
Maziv is a wholly owned subsidiary of Community Investment Ventures Holdings (Pty) Ltd (“CIVH”). CIVH is jointly controlled by certain parties, one of which is ultimately controlled by Remgro Limited.
The main operating subsidiaries of CIVH are DFA and Vumatel. DFA is both a fibre infrastructure provider and an FNO. Vumatel is an FNO that provides open access FTTH and FTTB infrastructure at the last mile level to Internet Service Providers (“ISPs”).
Concerns were raised during the Commission’s investigation by various third parties about the proposed transaction and the Commission recommended the prohibition of the transaction. The concerns raised by the third parties include concerns about market consolidation, horizontal concerns, vertical input and customer foreclosure, bundling, durable first mover advantage concerns, 5G based concerns, removal of a competitor, information exchange concerns and concerns about (the suitability of) open access conditions. Most third parties that made submissions were of the view that the proposed transaction should be prohibited and that no remedies would suffice to address those concerns. However, certain third parties made remedy suggestions.
The Department of Trade, Industry and Competition (“dtic”) representing the Minister, and the Communication Workers Union (“CWU”) participated in the hearing in relation to public interest issues. The dtic did not apply to intervene in relation to the competition issues and therefore did not participate in the proceedings in relation to any of the competition issues. It submitted that it would abide by the Tribunal's findings in regard to the competition issues.
The Tribunal gave defined intervention rights to Rain and MTN regarding competition issues. These firms are both customers and competitors of the merger parties. The Commission called factual witnesses from Telkom and Frogfoot to testify.
Small FNOs that operate in South Africa and other small players in the sector, including small ISPs, did not participate in the hearing. However, the Internet Service Providers’ Association (“ISPA”), that currently has 204 members, raised concerns during the Commission’s investigation, stating that the proposed transaction will change the structure of the fibre market in South Africa which constitutes a material risk to the ability of its members to compete in the retail market for the delivery of internet access and related services.
The Tribunal’s reasons, which comprise more than 350 pages, contain many references to strategic documents and company-specific figures of various players in the industry that testified and provided information/data. All parties involved will now be given an opportunity to claim confidentiality over figures and other confidential information. These claims must be motivated and will be assessed by the Tribunal. After this process, a non-confidential version of the Tribunal’s reasons will be published on the Tribunal’s website at www.comptrib.co.za.
The many issues in dispute between the parties that are dealt with in the Tribunal’s reasons include inter alia:
- the true rationale of the proposed transaction (including the issue of so-called co-control) and the merger parties’ post-merger incentives;
- the competitive dynamics and effects of the proposed transaction relating to the following markets:
- whether or not dark vs lit fibre are in separate relevant markets and the market position of DFA; and
- market delineation in regard to home broadband and (the degree of) competitive interaction between FWA and FTTH;
- relevant counterfactuals including a competition, investment and fibre roll-out counterfactual;
- the horizontal effects of the proposed transaction relating to the following markets:
- metro fibre and FTTB actual and potential future competition; and
- competitive interaction between FWA and FTTH, including in the future;
- portfolio effects, specifically post-merger bundling concerns;
- vertical foreclosure in relation to:
- metro/FTTS used by MNOs;
- wholesale metro and FTTB used by FNOs; and
- wholesale FTTH/FTTB used by ISPs;
- the adequacy and effectiveness of the merger parties’ proposed mostly behavioural (and one structural divestiture) conditions; and
- the public interest effects of the proposed transaction including the merger-specificity of the effects.
We provide a summary of the proposed transaction and the Tribunal’s key findings made in its reasons:
The proposed transaction
In terms of the proposed transaction, Vodacom will acquire a shareholding in Maziv by subscribing for shares, acquiring shares and selling assets to Maziv. Vodacom will first achieve a 30% shareholding. It will then have the option to subscribe for additional shares, which would increase its shareholding in Maziv to 40%.
Vodacom has made public that it is investing up to R14 billion into South Africa through the proposed transaction. We note that a significant portion of this amount relates to assets of Vodacom that will be transferred to Maziv in terms of the deal. This will increase the market position of the largest fibre incumbent in South Africa, Maziv.
Based on our evaluation of the factual evidence Vodacom will, through its significant stake in Maziv and significant other rights, have extensive decision-making rights and powers at shareholder, director and even committee levels in relation to Maziv as well as its subsidiaries and controlled investee companies. We explain in our reasons how the merger parties’ commercial and economic incentives are aligned post-merger.
True transaction rationale
The merger parties submitted that Vodacom inter alia wishes to invest in Maziv because Maziv has the unique capability, know-how and expertise to roll out fibre at scale and with speed.
Throughout our assessment we gave weight to the merger parties’ own internal, strategic and other documents since these documents, unlike the merger parties’ factual witness statements, were created in the normal course of business and not prepared specifically for this merger hearing.
After considering the strategic evidence and factual witness testimony (including cross-examination), we concluded that CIVH’s true rationale for the proposed transaction is defensive in nature in relation to both DFA and Vumatel, as set out in CIVH’s own strategic documents. In relation to DFA this relates inter alia to Vodacom establishing: (i) a FibreCo; and (ii) a TowerCo. In relation to Vumatel, it relates to Vodacom introducing pricing pressures to increase market share potentially resulting in a national price war absent the proposed deal.
From Vodacom’s side we found that its rationale is that it wants to have a significant stake in the future fibre revenues of the largest dark fibre and FTTH provider in South Africa, given its (very large amount of) Value at Risk (“VAR”). VAR refers to Vodacom’s estimates of the loss of mobile data spend within a household if they move to fibre.
Market characteristics
In competition analysis context matters and we consider in our reasons the key characteristics of the fibre sector in South Africa, specifically in relation to FTTH (that the merger parties’ roll-out commitments relate to), based on the extensive factual evidence.
The factual evidence revealed the following key market characteristics for FTTH:
- the so-called second ‘land grab’ phenomenon, which is about being the first fibre operator to roll-out fibre in an area. The first land grab related to the higher income/high LSM areas of our country, and that segment is saturated (this is known in the industry as the Core segment and comprises approximately 2.2 million household customers who earn above R30,000 per month). The FTTH segment is now focussed on the second land grab relating to the low-income areas, secondary towns and rural areas;
- the significant first mover advantages enjoyed by the first FNO to provide fibre to a specific geographic area;
- relatively low average rates of ‘overbuild’ in FTTH (overbuild refers to the duplication of fibre infrastructure by two or more fibre infrastructure providers that have laid their own fibre optic cables in the same area);
- relatively low average uptake or penetration rates for FTTH where it has been rolled out (inter alia in the high-income areas); and
- the growing demand for fibre/data in South Africa and South African consumers’ (limited) disposable income used for the internet.
All the fibre markets relevant to this transaction are poised for substantial growth, as FTTH enters a second ‘land grab’ for secondary cities/towns and lower income areas, FTTB through business broadband extension to outlying business areas and secondary cities/towns, fibre to the site (“FTTS”) to support the roll-out of 5G on mobile networks and metro fibre backhaul to support all of these initiatives.
These characteristics are common cause between the parties and are highly relevant to our assessment of the relevant counterfactuals, relevant product/service markets and horizontal and vertical competitive effects of the proposed transaction. They are further relevant to the assessment of the merger parties’ tendered FTTH roll-out commitments.
Horizontal competition concerns
We assessed various counterfactuals i.e. what will happen/be the situation absent the proposed transaction. In relation to the ‘competition counterfactual’ we, based on the strategic documentary and oral evidence, found that Vodacom is a competitive threat to Maziv and that the counterfactual to the proposed transaction is a world where Vodacom increasingly puts itself in competition to Maziv.
In relation to market delineation, we found that there are separate relevant product markets for dark and lit fibre respectively and that these products/services do not place significant competitive constraints on each other. This is relevant to the wholesale markets for the provision of wholesale metro fibre and last mile FTTB and FTTH.
DFA is the dominant provider of dark fibre in South Africa to MNOs (FTTS) and to FNOs (metro backhaul) with a national market share exceeding 80%. Furthermore, adding to DFA’s market power, it in many cities provides the only open access dark fibre network, or the only network of acceptable density. Additionally, DFA’s product rules entrench its dominant market position. Factual witnesses explained that they are locked into DFA’s dark fibre ecosystem. This is relevant to both our horizontal and vertical assessments.
For market delineation purposes, we found that there is sufficient evidence to consider a broader market for the provision of home broadband services including fixed wireless access (“FWA”) and FTTH (FWA is a home broadband product supplied by MNOs using their licensed spectrum via a router device located at the customer’s home).
In relation to the horizontal effects of the proposed transaction, we considered the effects that the proposed transaction will have in relation to respectively: (i) a lessening of competition in FTTH; and (ii) the removal of a (future) competitor, Vodacom, in metro fibre and FTTB.
Merger analysis, by its nature, is forward looking and involves an assessment of actual current as well as future competition, including any changes brought about by the merger to the market dynamics and (future) market structure. We note: “In this case we have strategic evidence from the merger parties’ own documents that cautions against a static view of the markets based only on current market shares, considering inter alia the evidence as we have traversed in relation to the true rationale for the proposed transaction, including that the proposed merger from a Maziv perspective has a defensive motive, as Maziv’s strategic documents plainly show, and the competition counterfactual”; and
“A static competitive assessment is deeply unsatisfactory when a merger has a defensive motive (as we have noted Maziv has) and furthermore takes place in markets enjoying substantial and dynamic growth. An assessment of dynamic competitive effects is appropriate given inter alia that the FTTH/FTTB space is set for a second land grab with follow-through growth for the backhaul infrastructure, driven by 5G rollout also.”
FWA and FTTH interaction
The competitive interaction between FWA and fibre is borne out by the evidence, specifically from a demand-side, i.e. customer, perspective. As one witness put it, “consumers buy data, not technology”. This is important considering that FTTH is shifting to the lower income segment of the market in South Africa where there will be competition between FWA and FTTH specifically for the marginal consumer, as we explain based on the factual evidence.
We found that for a very large part of the Vumatel FTTH areas, there is no overbuild and hence the only (future) competition can come from FWA for home broadband services. The factual evidence is that average FTTH penetration levels in South Africa are relatively low across the spectrum. Given Vodacom’s unilateral incentives due to its shareholding in Maziv, the proposed transaction will chill competition in those areas resulting in harm to consumers, in a growing market. Absent the proposed transaction, Vodacom will likely compete more aggressively with its FWA, and in the areas where Vumatel has fibre. Competition from Vodacom will increase absent the proposed transaction, forcing Vumatel to respond on price, and on overall value-proposition to consumers, including a mix of speed, Fair Usage Policies (FUP) and router packages. Price levels influence affordability and usage, both of which are harmed by higher pricing.
Furthermore, as the proposed merger would be permanent, it will likely entrench Maziv as the leading FTTH provider in South Africa going forward, and the harm to competition together with the foreclosure effects that cannot effectively be remedied (dealt with below) will grow over time. The proposed transaction enables both the merger parties to strengthen their market positions and reinforce and grow existing concentration in the telecommunications sector as a whole.
Metro fibre and FTTB
We found that the factual evidence confirms Vodacom has a strategic imperative for infrastructure sharing and, in the counterfactual, it would look at joint ventures and partnerships to expand in fibre and compete with Maziv. We considered the dynamic competitive landscape that will exist absent the proposed deal, and the competition lost from Vodacom if the proposed transaction were to be implemented. We note that if the merger were to be implemented, all the pro-competitive benefits of future competition from Vodacom (and potentially others), seen by Maziv as a massive threat to its businesses with impacts on its pricing, will be lost.
We concluded that the proposed transaction, which eliminates Vodacom as a future competitor, will substantially lessen future dynamic competition in metro fibre and FTTB to the ultimate detriment of South African consumers.
Post-merger bundling
In regard to post-merger bundling concerns raised by third parties we conclude: “The merger parties’ own strategic documents reveal that bundling remains a key strategic focus post-merger and the proposed merger would, due to its size and other advantages from the combination, enable them to execute this strategy. Successful bundling as a result of the merger would further entrench the dominance of Maziv in fibre, and entrench Vodacom’s market position in mobile. Therefore post-merger bundling is a merger-specific concern”.
Vertical competition concerns
We assessed three main areas of concern based on the vertical overlaps arising between the activities of the merger parties, namely: (i) foreclosure in metro backhaul access that affects MNOs; (ii) foreclosure of access to metro backhaul and dark FTTB used by FNOs; and (iii) foreclosure of access to wholesale FTTH/FTTB used by retail ISPs and for business. We concluded that the proposed transaction raises significant price and non-price vertical foreclosure effects at several levels, which will lead to a substantial lessening of competition in the affected markets.
Regarding harm to rival MNOs that compete with Vodacom we found, inter alia, that DFA’s dominant position in the provision of critical dark fibre inputs for FTTS connectivity or mobile backhaul gives rise to an ability to harm MNO rivals. We further found that the merged entity will have the incentive to foreclose MNO rivals of Vodacom including through non-price mechanisms which would have significant harmful effects on these competitors and ultimately their customers.
In relation to the supply of dark fibre inputs to FNOs that provide lit FTTB services, we considered DFA’s large market position in the provision of wholesale dark FTTB, the significant degrees of dependency of its clients on its services, the serious concerns raised by market participants and that there are few viable alternatives in the market. The evidence also pointed to strong incentives on the part of the merger parties to undermine rivals given, inter alia, the interests of both Maziv and Vodacom to grow in the FTTB market as revealed in their internal company documents. We concluded that the merged entity will have both an ability and incentive to foreclose in relation to the provision of metro connectivity and wholesale dark FTTB to FNOs, with a likelihood of substantial anti-competitive effects in terms of the ability of FNOs that rely on the inputs to compete downstream to service business/enterprise and ISP customers, particularly in localised markets.
We also considered the likelihood of anti-competitive foreclosure in relation wholesale FTTH as an input to retail FTTH services, and in wholesale FTTB which is used to service businesses around the country directly or through ISPs. The proposed transaction is such that Vodacom would effectively stop operating as an FNO post-merger but would continue to operate as an ISP and in providing services to business clients. It would likely stand to benefit if Maziv chose to prefer it over Vodacom’s downstream competitor ISPs. This is especially concerning as Vumatel (in wholesale FTTH) and DFA (in wholesale FTTB) already enjoy leading positions in these markets, with Vodacom as a strong and well-resourced ISP downstream with a large sales presence that would benefit the merged entity. In relation to the provision of both wholesale FTTH and FTTB, we concluded that the merged entity will have both an ability and incentive to foreclose, through price and non-price mechanisms which will substantially lessen competition in both wholesale and retail fibre markets to the detriment of rivals and consumers. We also noted the absence of substantive merger efficiency claims by the merger parties that could outweigh any anti-competitive effects.
Overall conclusion on competition
Regarding the competition effects holistically, we considered the cumulative structural and strategic competitive effects of the proposed transaction. The analysis of the horizontal and vertical aspects shows a range of mechanisms through which competition will be undermined as a result of the proposed merger. The interrelated nature of the markets for FTTH and FTTB, dark and lit fibre, and strategies for vertical control through the wider fibre supply chain necessitate a broader consideration of the likely effects of the proposed transaction. That there is market power on the part of the merged entity at key levels of the fibre ecosystem warrants a consideration of the significant structural shift brought about by the proposed merger that will give rise to effects on prices, innovation and market development for the foreseeable future. The competitive effects of strategies in one part of the ecosystem will ultimately shape competitive outcomes and consumers/buyers in another.
Proposed conditions in relation to competition concerns
The merger parties tendered remedies to deal with the horizontal competition concerns by divesting of FTTH infrastructure. They however tendered no remedies that specifically deal with the dynamic future horizontal concerns resulting from the proposed merger. We found the divestiture condition problematic since it does not conform to best practice in terms of providing for a ‘Trustee Divestiture Period’, leaving a loophole for non-compliance. Significantly, the divestiture is inadequate to address the permanent loss of future competition and change in the structure of the market.
The merger parties also tendered behavioural conditions aimed at addressing the various vertical competition concerns. We found the behavioural remedies highly technical and cumbersome in nature and, in our assessment, they will not be effective in addressing the vertical competition concerns. We took guidance from the Competition Appeal Court in its Imerys judgement where it reasoned as follows: “I think it is permissible for the Tribunal to reason thus: ‘The merger will likely give rise to an SLC [Substantial Lessening of Competition]. Although the proposed conditions are more likely than not to remedy the likely SLC, there is a reasonable possibility that they will fail to do so. Therefore we prohibit the merger.’” (Own emphasis)
On monitoring and enforcement of the proposed competition remedies we inter alia concluded: “Monitoring and enforcing these conditions effectively, will likely place a huge regulatory burden on the Commission and Tribunal given that the conditions are lengthy, extremely complex, cumbersome and highly technical in nature, and furthermore are of infinite duration. The competition authorities are not in a position to take on this regulatory burden in this sector, and certainly not for an indefinite duration”.
Public interest
We considered if the merger can or cannot be justified on substantial public interest grounds by assessing the five factors set out in the Competition Act (“the Act”) in terms of the proposed merger’s effects on: (a) a particular industrial sector or region, in this case the telecommunications sector; (b) employment; (c) the ability of small and medium businesses (“SMMEs”), or firms controlled or owned by historically disadvantaged persons (“HDPs”), to effectively enter into, participate in or expand within the market; (d) the ability of national industries to compete in international markets; and (e) the promotion of a greater spread of ownership, in particular to increase the levels of ownership by HDPs and workers in firms in the market.
We had regard to the Constitutional Court’s decision in Mediclinic that the consideration in any merger should include an assessment of the interests of the public in approving or refusing a merger. As Mediclinic was concerned with patients and how the proposed merger would affect them, this matter ultimately concerns end-consumers of data/internet services in South Africa, services of great importance, and the future costs of these services.
The first step in the assessment of any public interest effects resulting from a merger (both positive and negative) is to determine if they are merger-specific, considering inter alia the relevant counterfactual(s). Effects are not regarded as “merger-specific” if they are not related to or as a result of the proposed transaction and/or if they will likely occur regardless of or absent the proposed transaction.
As indicated above, 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.
In our reasons we assess each of the commitments offered and determine whether or not they are merger-specific and ultimately do a balancing exercise of the positive merger-specific effects or benefits and the anti-competitive effects.
Sector effects
Vodacom’s tendered capex commitment
Based on the factual evidence, we have found that Vodacom’s tendered capital expenditure of R60 billion in capex over a five-year period is not merger-specific since it is Vodacom’s planned expenditure without the proposed transaction. This was conceded by Mr Joosub, the CEO of Vodacom Group Limited in his evidence.
Vodacom’s 5G sites commitment
Similarly, Vodacom’s roll-out commitments with respect to 5G sites are not merger-specific. Its tendered roll-out commitments in terms of 5G sites do not improve on the counterfactual as the factual evidence confirms that it would likely happen absent the proposed merger. This roll-out was part of Vodacom’s pre-merger plans, and its strategic documents show that its commitment to 5G services are greater than the rollout commitments made in terms of sites.
In terms of the commitment to provide fibre to schools, police stations and health care facilities to be passed, we have concluded from the factual evidence that the commitments are to a large part not merger-specific. Vodacom’s Spectrum Licence (under Social Obligations) requires it to contribute to connectivity targets that are shared among the licensees. Furthermore, the commitment in relation to free FTTH services for every public or private school is not specific to this merger because it is in line with existing obligations imposed by the Tribunal in the previous Vumatel/CIVH merger. The merger parties have not adequately demonstrated or quantified any alleged incremental benefits that would result from this proposed transaction over and above what is contained in their licencing obligations and the previous remedies imposed by the Tribunal.
FTTH roll-out commitment
In terms of FTTH rollout, Maziv has committed that its capex spend will result in at least one million homes being passed (i.e., not connected) with infrastructure on a cumulative basis in Lower Income Areas (i.e., Reach and Key Areas) within a period of five years. We note that the commitment is to homes being passed and not actually connected. The factual evidence confirms that the average FTTH penetration rates in South Africa are below 50%. We further note that there is no price commitment tendered in terms of connecting the homes to be passed in these areas.
The Reach segment comprises approximately 4.8 million customers and is aimed at suburbs where the average monthly household income is between R5 000 and R30 000 a month. The Key segment refers to low-income households who earn under R5 000 per month, comprising between 9 and 11 million customers.
In terms of the tendered conditions, of the abovementioned one million homes to be passed, at least *[…] homes will be in Key areas.
Importantly, having analysed the investment and fibre roll-out counterfactuals, we found that the roll-out of fibre to low-income Reach areas will continue even if the proposed transaction does not take place given the common cause market characteristics that include competition for the market in FTTH, the second land grab phenomenon and significant first mover advantages. It is further common cause that this is a growing sector and markets, in relation to mobile, FWA and fibre.
The second land grab in FTTH has moved to the lower income areas of South Africa since the high-income areas are saturated. This means that all players now have their eyes on the lower income areas where they want to get a first mover advantage. The factual evidence suggests that Maziv’s competitors are actively participating in the second land grab. Therefore, with regard to Maziv’s commitment of *[…thousand] homes that will be passed in Reach Areas, we conclude that, because of the market characteristics and dynamics, the roll-out in the Reach areas will happen because of competition for the market and the other market characteristics regardless of the proposed transaction. Competition at all levels impacted by the proposed transaction will ultimately yield the best outcomes for South African consumers (that are affected not only by roll-out considerations but also future price considerations) and any faster roll-out through the proposed transaction does not weigh up to the negative competition effects of the proposed transaction considered holistically.
We further explain in the reasons why Maziv (absent the proposed transaction) will be significantly incentivised to seek additional funds and/or an external investor(s) to do its own roll-out in the Reach areas without the proposed transaction.
With regard to the merger parties’ commitment of *[… thousand] homes that will be passed in Key Areas, based on the available evidence, we found no evidence that other players would at this stage target this market segment at this scale. There are however a number of smaller players active in this market segment with offerings. We concluded that this rollout is a merger-specific benefit of the proposed transaction and we considered it in our weighing-up exercise of the positive (merger-specific) public interest and negative competition effects.
Employment
The Commission makes no negative findings on the impact of the proposed transaction on employment and the merger parties submit that the proposed merger will not give rise to any retrenchments. We found no reason to disagree.
The Maziv Group undertakes to create or enable within *[…] years 10 000 direct or indirect employment opportunities through the introduction of an Internet Retailer distribution model for services in lower income areas (as defined in the conditions). It however does not commit to any specific number of direct employment opportunities during this, in our view, relatively long period of *[…] years, considering that the markets in question are expected to grow rapidly. Indirect job commitments (in this case “opportunities”) from our experience in other cases are difficult to measure and enforce since it is not in the hands of merger parties.
Since it is common cause that both the mobile and fibre sectors are growing, jobs are likely to be created and enabled by other parties absent the proposed transaction. On the fibre side specifically, we found that jobs will be created by third-party building contractors appointed by players other than Maziv, specifically in relation to the Reach areas as competition in the second land grab unfolds. The factual witnesses have confirmed that for FTTH the Reach areas in South Africa are now the focus of all the FNOs given that the Core areas are saturated. Furthermore, FNOs do not tend to overbuild and given the second land grab, job creation will be facilitated by other FNOs absent the proposed transaction. In our view a counterfactual of competition would deliver on land grabs with ancillary benefits including employment creation by other FNOs. That counterfactual highlights the anti-competitive consequences of this merger.
The other merger-specific benefit of the proposed transaction is that Maziv will increase its procurement spend on goods manufactured and assembled in and services provided in South Africa by *[…]% over a *[…]-year period.
Effects on SMMEs and HDPs
SMMEs
On the impact on SMMEs we found that the negative competition (including price) effects that will ultimately also impact SMMEs, will overshadow any benefits from the proposed transaction: “Importantly, one must not only consider the positive effects on SMMEs in terms of rollout but also future negative (price and non-price) effects as a result of the competition concerns associated with the proposed transaction. In our view many more SMMEs stand to be adversely affected (through the negative competition affects) than positively affected (through the defined rollout in the Key areas).”
HDPs
We note that both Vodacom and Maziv already utilise HDP suppliers and the commitment to ‘where reasonable, and practically feasible’ use SMEs and HDPs is not quantified and therefore could not be monitored by the Commission and enforced by the competition authorities. Importantly, the Commission found that there is likely to be a negative impact on HDP suppliers as numerous Vodacom HDP suppliers would have their contracts terminated as they overlap with Maziv HDP suppliers. No remedy is offered to deal with this.
We have found that Maziv’s commitment to establish an Enterprise and Supplier Development Fund and contribute a total amount of R300 million to such a fund over a period of *[…] years to be a merger-specific benefit of the proposed transaction. However, we have also found this amount to be trivial when compared to the size of Maziv's business.
Ability of national industries to compete in international markets
We found that the merger parties have not made out a case that this merger will improve the ability of national industries to compete in international markets.
Spread of ownership, particularly for HDPs and workers
HDP ownership
Maziv is subject to industry-wide legislative obligations that apply to all telecommunications companies. These obligations (that are not specific to the merger parties) include that all telecommunications companies require a certain empowerment shareholding. We concluded that the merger parties’ HDP ownership-related commitments do not appreciably promote attainment of a greater spread of ownership by HDPs in terms of the Act and are largely required by the abovementioned regulatory obligations absent the proposed transaction.
Worker ownership
In terms of worker ownership, Maziv commits to establish and implement an Employee Benefit Scheme within a certain period. This scheme involves a specified number of employees, funded in a certain amount per employee. As conceded by a factual witness for Maziv, this is a “phantom scheme” and not a direct share ownership scheme as envisaged in section 12A(3)(e) of the Act.
The CWU objected to this phantom scheme and submitted that it found it disheartening that the merger parties are proposing a Participatory Phantom Scheme as a vehicle to be used to comply with the provisions of section 12A(3)(e) of the Act, which requires a greater spread of ownership. It noted that with a Participatory Phantom Scheme, no actual shares are given to employees directly or indirectly. As a result, the employees cannot claim to be owning the company with the consequential rights of ownership i.e. participating in the affairs of the company as shareholders. The union submitted that if the Tribunal were minded to approve the proposed transaction, such approval must be subject to a condition that an actual Employee Share Ownership Plan/Scheme (“ESOP”) must be established for all the qualifying employees of the primary target firm, including its subsidiaries. Such an ESOP must be housed in a Trust to be formed and must hold equity ownership of a certain percentage of the entire issued share capital of the target firm. The merger parties did not accede to this ESOP proposal from the union.
We found that the employee benefit scheme is a notional (phantom) scheme that does not promote a greater spread of ownership, in particular to increase the level of ownership by workers in firms as envisaged in section 12A(3)(e) of the Act. However, the phantom scheme holds benefits for a certain number of employees through dividend payments, which is a benefit arising from the proposed transaction, which we considered in the weighing-up exercise.
Balancing of the positive and negative effects
The Act requires us to do a balancing or weighing-up exercise of the anti-competitive effects of the proposed merger and the positive public interest commitments as far as they are merger-specific.
We conclude as follows:
“In our balancing of the merger-specific public interest benefits considered collectively (as summarised above), and the anti-competitive effects, we consider that the merger-specific commitments as identified end after five years (in the case of the merger-specific rollout commitments to the Key areas) and up to *[…] years (in the case of certain other merger-specific commitments). In contrast, the effects of the proposed transaction will endure and the loss of competitive rivalry at several levels as a result of the proposed transaction, and the likely foreclosure of rivals that cannot be effectively monitored and effectively enforced, is permanent in nature (i.e., for as long as Vodacom has its 30-40% shareholding in Maziv).
In terms of the collective numbers of consumers/SMMEs/HDPs/employees that will benefit from the merger-specific public interest benefits, they relate to the *[…thousand] households to be passed (not connected) with FTTH (and associated employment and SMME connectivity benefits that have not been quantified, but are related to the *[…thousand] homes in the Key areas). Furthermore, *[…] employees will benefit from the phantom scheme that is not a worker ownership scheme, but the employees will receive benefits in the form of dividends. An unquantified number of SMMEs and HDPs will benefit through the Enterprise Development Fund (in our view a trivial fund amount in the context of this transaction) and the *[…]% increase in Maziv’s local procurement. This must be balanced against the millions of South African consumers that will be adversely affected through the anti-competitive effects associated with a loss in competitive rivalry as a result of the proposed transaction. Furthermore, many thousands of South African SMMEs and HDP firms that make use of data and internet services stand to ultimately be negatively affected through the adverse competition effects brought about by the proposed transaction.
Given the duration of the adverse effects and the millions of South African consumers/SMMEs/HDPs that would be affected by this, we conclude that the nett effect of the proposed transaction on South African consumers/SMMEs/HDPs, and the sector as a whole, will be negative.”
Background: hearing and record
The Tribunal reached its decision after a lengthy hearing that took place over 26 days in the period 20 May 2024 to 27 September 2024, and the last written submission was received on 16 October 2024.
A total of 19 factual and expert witnesses provided oral evidence during the hearing.
The merger record comprises at least 21 944 pages, the trial bundle consists of some 14 307 pages (excluding other annexures and heads of argument) and the heads of argument total some 555 pages, highlighting the number of issues in dispute between the parties that the Tribunal had to consider, and the complexity of the case.
*[…] denotes figures that the merger parties have claimed as confidential information.
Issued by:
Gillian de Gouveia: Communications Manager
On behalf of the Competition Tribunal of South Africa
Cell: +27 (0) 82 410 1195
Email: GillianD@comptrib.co.za
Website: www.comptrib.co.za
Twitter: @comptrib
LinkedIn: Competition Tribunal of South Africa
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