Vodacom and Remgro achieved a major victory on Tuesday as they reached a deal with the Competition Commission to let them proceed with their fibre merger, breathing new life into a deal that had been on the brink of collapse.
The JSE-listed firms have been fighting for almost four years to get the deal over the line, even receiving backing from trade, industry & competition minister Parks Tau.
This is likely to be good news for a number of other players in the sector that are mulling their own transactions.
The commission, which investigates matters of competition and market structures, said it had reached an agreement with Vodacom and Remgro’s fibre unit, Maziv, on revised conditions that “substantially remedy the competition concerns raised by the commission in its recommendation to the Competition Tribunal that the Vodacom/ Maziv merger be prohibited”.
The merger of the two fibre businesses was rejected by the tribunal in October.
It would have seen Vodacom take a 30% stake in Remgro’s telecom unit Community Investment Ventures Holdings (CIVH), operating as Maziv, together worth an estimated R13bn with the option of 40%.
The transaction, announced in November 2021, was approved by SA’s telecom regulator but failed to gain the backing of the Competition Commission, which conducted an investigation that took almost 22 months.
After an intense period of negotiation, the parties have reached consensus on three major points.
“This agreement follows constructive engagements between the commission and the merger parties to remedy the deficiencies in the previous conditions identified by the tribunal in its prohibition of the merger.”
Contentious
The merger has been a contentious issue, with Tau publicly supporting the deal on public interest grounds.
The trade, industry & competition minister argued that the transaction would boost investment in fibre and mobile connectivity, aligning with SA’s priorities for industrialisation and job creation.
However, his stance had divided political parties, with some arguing that the merger would undermine competition and harm consumers.
Vodacom had committed to investing R14bn in SA’s digital infrastructure, including rolling out fibre to 1-million homes in low-income areas and creating 10,000 jobs.
The tribunal found these commitments were not merger-specific and are likely to occur regardless of the transaction due to existing market dynamics and regulatory obligations.
It said the public interest benefits set by the merger parties were substantially lower than advertised and did not justify the anticompetitive risks posed by the deal.
On the concern that the merger would reduce competition between fixed wireless access and fibre to the home, Maziv has agreed to new capex commitments, extending this to a five-year period post-merger to ensure that it “remains incentivised to service third-party network operators”.
Second, the telecom operators have agreed to stronger incentives that ensure the merging parties divest of overlapping infrastructure.
Third, the revised conditions introduce changes to Maziv’s governance structure that limit the merged entity’s incentives to foreclose competitors.
In a statement, commissioner Doris Tshepe said access to reliable, high-speed internet is the cornerstone of a dynamic economy and a democratic society. “The commission is confident that the revised conditions agreed with the merger parties will ensure that SA will benefit from the continued competitive prices and product choices in this critical sector,” Tshepe said.
The two companies have agreed to a host of other concessions. The matter will now proceed to the Competition Appeal Court on an unopposed basis, and the commission will inform the court how the enhanced conditions address the concerns it previously raised about the proposed transaction.
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