The Competition Commission has recommended that the proposed transaction by MTN to purchase the remaining 59% of iTalk Cellular be approved, opening up a new debate about the deal and its competitiveness.
The Huge Group has released a statement announcing that it will "vehemently oppose" the proposed transaction and will present arguments before the Competitions Tribunal on why it believes that the bid is "highly anti-competitive, and will have the effect of a substantial lessening of competition by removing an effective competitor from the market".
Frost & Sullivan ICT industry analyst Lindsey Mc Donald comments: "The South African telecommunicatons market has only just begun to enjoy the benefits of competition," she says.
"Huge is concerned that competition will be hindered by MTN's purchase of iTalk Cellular, as they believe this would leave only Autopage and Nashua as alternative players in the market. While the company's concerns regarding reduced competition should indeed be examined, Frost & Sullivan does not believe that the purchase of iTalk will result in only two players remaining in the market.
"There are others that are also operating effectively in South Africa, although definitely not on the same scale. MTN's purchase of iTalk might not necessarily result in a situation that places the consumer at a disadvantage. It's to be expected that other operators will take this move into consideration and adjust their
prices accordingly (if they feel that there is sufficient threat from the transaction)."
Frost & Sullivan believes that while Huge Group does have grounds for concern, this is perhaps the first sign that there is definitely room for new players and Huge Group seems very well placed to take advantage of this. The acquisition of smaller service providers is one way in which the company could make headway.
In its statement, Huge Group executive chairman Anton Potgieter, states: "This announcement is purely the Commission's recommendation to the tribunal. It by no means implies a done deal for MTN.
"The legal processes and decisions that follow are of far greater interest and importance to us. We certainly plan to vehemently oppose this transaction and we can now apply to take our arguments before the Competition Tribunal and, if we have to, the Competition Appeal Court.
"Over the past months we have accumulated and prepared extensive evidence supporting the fact that MTN's bid is highly anti-competitive, and will have the effect of a substantial lessening of competition by removing an effective competitor from the market."
Potgieter says the move is an attempt by MTN to control the market by force.
"MTN has clearly come to the realisation that as a competitor Huge could lower prices to the consumer, forcing the rest of the market to follow suit. Our involvement means we would be moving value away from MTN and into the hands of the consumer, which is why they are now looking to prevent this regardless of the cost."
According to Potgieter, the fact that the Competition Commission took more than 85 days to come to this recommendation is a good indication that there is substantial evidence that may prevent MTN being successful in its bid for iTalk.
"It is clear that our opposing argument has been given careful consideration and perhaps the Competition Commission is unsure on how it should rule which is why it has left it up to the Tribunal to decide."
Huge Group submitted an application to the Competition Commission earlier this year to purchase the 59% of iTalk under dispute. Huge's application was approved unconditionally. Shortly after this approval was given, MTN decided to act on its right to purchase these shares.
"The fact that MTN originally waived their pre-emptive rights and then did a U-turn on that decision, shows that they subsequently realised the impact a new, customer-orientated competitor with control of iTalk could make in the currently, highly inert and oligopolistic GSM handset market," he says.
"MTN have already delayed the transaction by 15 months and we believe that they will continue to try and delay it even further in a bid to prejudice the business."
According to Potgieter, MTN is paying more than double the price of any other transaction of this nature – an amount of around R363-million cash, which pushes iTalk's enterprise value to roughly R615-million.