SA’s digital connectivity expansion plans have been dealt a blow by the Competition Tribunal’s move to block Vodacom’s proposed acquisition of a stake in Maziv, the parent company of Vumatel and Dark Fibre Africa (DFA).
The tribunal’s move to prohibit the proposed acquisition puts the brakes on anticipated industry consolidation, which many industry experts believe is vital for driving digital infrastructure development in underserved areas.
This raises the question: how does the tribunal’s move assist in bridging SA’s digital divide? Did its obsession with market competition unwittingly stifle digital expansion progress?
The blocked R14bn deal wasn’t just another merger. Vodacom and Maziv had committed to a transformative investment plan, pledging to invest at least R10bn over five years primarily in low-income areas, connecting more than 1-million homes, creating 10,000 jobs and providing high-speed internet to more than 600 schools and police stations.
For Vodacom group CEO Shameel Joosub, the tribunal’s decision represents a missed opportunity. “SA desperately needs additional significant investment, especially in digital infrastructure in lower-income areas,” Joosub lamented. “Our investment of up to R14bn would have changed millions of lives and created thousands of jobs.”
So, what went wrong? The tribunal appears wary of the market power that Vodacom might wield with this deal, fearing that consolidation could lead to monopolistic behaviour that prices smaller players out of the market.
Advocates against the merger, including the Competition Commission’s Daniel Berger, argued that Vodacom’s acquisition would lead to “self-preferencing behaviour” and potentially stifle competition by making it difficult for smaller internet service providers (ISPs) to operate.
While concerns about market dominance and anticompetitive practices remain valid, it’s worth questioning whether blocking consolidation entirely serves the public interest. The move also raises eyebrows because experts suggest that prohibiting the Vodacom-Maziv deal might delay or even prevent critical infrastructure investments in communities that need it most.
SA has, unfortunately, been no stranger to the negative consequences of limited competition in telecommunications. Historically, major mobile networks charged exorbitant data prices that disadvantaged and, in some cases, excluded low-income consumers, thereby widening the country’s economic divide.
That painful lesson could be the reason for the tribunal’s inflexible approach. However, with so much at stake in terms of potential connectivity gains, rigid opposition to consolidation may yet prove to be short-sighted.
Consolidation has its merits. Industry giants in countries such as the US and South Korea have successfully leveraged scale to build essential infrastructure that smaller companies simply couldn’t achieve alone.
In contrast, Europe has witnessed a telecommunications sector stunted by excessive regulatory hurdles and slow-to-approve mergers. Now, European operators are urging policymakers to prioritise broadband cost recovery and consolidation as essential steps to rejuvenate their sector.
If SA’s telecom industry doesn’t allow its fibre network operators (FNOs) to consolidate for greater efficiency, will they have the capacity to expand and sustain the infrastructure required for nationwide digital inclusion?
The rollout of fibre infrastructure, particularly in low-income communities, has stagnated, with companies like Vumatel facing huge debt. Without capital from strategic investors, maintaining and expanding infrastructure in these areas becomes a daunting, if not impossible, task.
In terms of the broader effect, the tribunal’s decision also sends ripples beyond Vodacom and Maziv that hint at regulatory challenges, which could influence outcomes of potential deals, like a possible merger of MTN SA’s fibre business with Telkom’s Openserve and Rain. A merger would equip them with a combined fibre business and more resources to serve the market competitively, benefiting both corporate clients and consumers.
But if such deals continue to be stymied, smaller FNOs may be left without the resources to compete against bigger players or global newcomers, such as Starlink. And without large, consolidated FNOs with significant access to capital, SA risks missing the very foundation it needs to unlock connectivity for underserved regions.
Detractors of the Maziv deal argue that consolidation could limit consumer choice, offering fewer products or services and ultimately reducing the incentive for innovation. But how does this square with the reality that digital infrastructure is costly and requires scale to be affordable and sustainable?
Rather than a proliferation of small, fragmented FNOs offering limited reach, would it not be more advantageous for consumers to have fewer, stronger entities capable of substantial investments and service expansion?
The tribunal’s verdict leaves South Africans pondering whether fragmentation, rather than consolidation, truly represents a “panacea to digital inclusion”.
For SA’s telecom sector to keep pace with the demands of the digital era, policymakers should carefully evaluate the role of scale, capital and investment incentives.
Denying companies the ability to consolidate in pursuit of enhanced economies of scale may seem protective of market plurality in the short term, but the long-term impact could yield a telecom space lacking the robustness to meet its connectivity goals.
As Vodacom and its partners weigh their options for appeal, the reality remains that sustainable digital inclusion in SA requires more than just a patchwork of small players.
It requires scale, significant investment and policies that promote both. If the tribunal’s decision isn’t reassessed, SA risks not just blocking a merger, but blocking its path to a truly connected future.
• Lourie is founder and editor of TechFinancials.
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