The Competition Tribunal’s decision last week to block a R13bn deal in the telecom industry is a painful reminder of the missed opportunities that arise from a rigid regulatory stance.
The Tribunal scuppered the transaction under which Vodacom would have pumped in R9bn plus its won fibre-to-the-home assets worth R4bn into Maziv, a Remgro-controlled entity that owns Vumatel and Dark Fibre Africa.
The decision, ostensibly rooted in the principles of maintaining competition, overlooks the broader benefits that such mergers could bring to the industry and the economy, which ranks among the least competitive in emerging markets in terms of the cost of communication.
The industry isn't just about the number of operators; it’s about service quality and deep pockets. Blocking the Vodacom-Maziv tie-up stifles a chance to boost SA’s digital infrastructure. For starters, the deal promised substantial investments, including sinking billions of rand into digging up the streets of Soweto or Mamelodi to lay fibreoptic cables, creating up to 10,000 jobs and establishing a R300m enterprise and supplier development fund.
These are more than just figures in a media release; they represent tangible opportunities for economic growth and social upliftment. Sure, such statements are often used as public relations tactics to gain public backing, and the actual implementation might fall short. Critics would also point out that had the deal gone through, Masiv, as a rational commercial enterprise, would have failed to convince shareholders of decent returns in focusing on underserved areas.
There’s merit in these arguments. But the townships, ignored by big businesses for a long time as squalid slums, and as places to be feared, have emerged as the next bright growth for the likes of Capitec and Shoprite — investor darlings that owe their stratospheric ascent to the vast informal economy.
In fairness, the Tribunal has yet to detail the reasons for giving the deal the thumbs down. There’s a chance it would argue that promised deal benefits would materialise even without the tie-up. The Tribunal wouldn’t be wrong in saying individual entities, driven by market forces and competitive pressures, would still pursue investments in the townships, where there’s an eclectic mix of shacks, government-subsided RDP houses and mansions.
But let’s be real — does anyone truly believe that the combined resources, expertise and infrastructure of the merging entities wouldn’t lead to more efficient and widespread street excavation to lay fibreoptic cables? The merger ensures a more robust and comprehensive realisation of these benefits, so why settle for less?
The notion that fewer operators automatically leads to higher phone bills and less choice is an oversimplification. SA’s telecom industry remains highly concentrated. MTN and Vodacom dominate, spending anything between R20bn and R25bn annually on their network, and are miles more profitable than their closest rivals.
“The retail mobile market has remained stubbornly concentrated despite the entry of two challenger networks over time,” the Competition Commission said in a 2020 report inquiry into the reasons behind South Africans paying some of the highest prices for internet data. Put differently: MTN and Vodacom are the headlining acts with the biggest stage and loudest speakers at a big concert, setting ticket prices and relegating the less influential bands to the margins.
Take Cell C, for instance. It almost collapsed trying to break into the upper echelon of the industry. It had looked like Cell C's aggressive pricing strategy was bearing fruit as attracted millions of new users with cut-price data and voice offerings. However, the growing user base started putting strain on its network, prompting one irate user in 2014 to erect a large billboard berating Cell C as “the most useless service provider in SA.”
The Cell C saga is a cautionary tale for regulators: without sinking billions of rand into digital infrastructure, aggressive pricing strategies and growth are just a house of cards waiting to collapse.
The Vodacom-Masiv tie-up was a test case for whether SA competition authorities were willing to adopt and more open-minded approach — an approach that recognises the need for consolidation in certain cases to achieve scale and ultimately benefit consumers. Former European Central Bank president Mario Draghi’s recent report on European competitiveness underscores this point, emphasising the need for market concentration to incentivise investment and support European growth.
Europe's aversion to dominant players has led to fragmented markets and a lack of industrial giants capable of competing with their US and Asian counterparts, the report found.
The decision to block the Vodacom-Masiv merger is a missed opportunity for SA. It reflects a regulatory approach that is out of step with the realities of the telecom industry and the broader economic needs of the country. It’s time for competition authorities to adopt a more nuanced and flexible approach, one that balances the need for competition and President Cyril Ramaphosa’s noble goal of driving investment and economic growth.
• Motsoeneng is Business Day deputy editor
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.