The Competition Commission has reached an agreement with Vodacom and Maziv (Business Venture Investments no 2213) 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 new agreement follows 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 and opens the way for Vodacom to acquire 30% of Maziv.
There were three primary competition concerns that were not adequately addressed by the proposed conditions at the time of concluding the Tribunal hearings:
The horizontal reduction in competition between Fixed Wireless Access (FWA) and Fibre to the Home (FTTH)
The conditions positioned to address this concern was that Vodacom would offer FWA where it rolled out 5G and that it would price it ‘competitively’. However, the commitments on rollout of 5G sites and rollout of FTTH were insufficient to incentivise the parties to encourage consumer access at competitive prices and ensure third party access to FTTH.
The revised conditions address these shortcomings by improving the capex commitment by Maziv and extending it to a five-year period post-merger to ensure that Maziv remains incentivised to service third party network operators.
The revised conditions also promote competition between FTTH and FWA through enhanced coverage commitments coupled, importantly, with connection commitments. The parties will need to price competitively if they are to achieve the connection commitments.
The merger parties have also agreed to maintain lower-cost broadband packages in the market to ensure that especially lower-income consumers have a range of competitively priced packages to choose from.
The horizontal overlap in FTTH infrastructure and potential price increases post-merger
The previous conditions were inadequate insofar as they included a ‘weak’ divestiture condition that did not adequately incentivise the merging parties to divest the overlapping infrastructure.
The revised conditions put in place a standard divestiture arrangement whereby the failure to sell the assets within a particular period result in a trustee divestiture process to ensure the assets are divested and pre-merger competition is restored.
The condition follows the standard formulation used in other merger transactions and requires that a transparent and competitive process be followed to identify a proposed purchaser.
The vertical foreclosure concerns
Although there were fairly comprehensive conditions in place to address foreclosure, there were notable challenges with monitoring and enforcing the conditions with the resulting concern that action would not be sufficiently timely to prevent foreclosure from occurring and harming competition.
The revised conditions introduce some structural changes to Maziv’s governance structure that limit the merged entity’s incentives to foreclose competitors.
The conditions now also incorporate an enhanced fast-track interim relief process that will address potential foreclosure concerns while the lengthier formal process to investigate any alleged foreclosure is underway. This ensures that any attempt to get a first- mover advantage that will have an enduring effect in the market can be prevented through fast-track interim relief.
Finally, there are significant improvements to the public interest commitments which increase the substantiality of these commitments. These include additional capex spend to roll-out new (Fibre-to-the- Business (FTTB), FTTH and Fibre-to-the-Site (FTTS) infrastructure, free access to 1Gigabit per second fibre lines for public libraries and clinics passed by FTTH infrastructure, an increase in the number of police stations that Vodacom will provide with FWA products, an additional commitment to enterprise development and an increase in the employee share ownership plan previously agreed.
“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 South Africa will benefit from the continued competitive prices and product choices in this critical sector,” Commissioner Doris Tshepe says.
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 with the proposed transaction.
Vodacom has welcomed the announcement.
Vodacom Group CEO Shameel Joosub says: “We are thrilled with the Competition Commission’s decision, as it aligns with our purpose of connecting people to a better future and our vision of bridging the digital divide through world-class connectivity – reaching more homes and businesses, including underserved communities.
“Should the transaction be approved by the Competition Appeal Court, I’m confident that it will enable us to accelerate network expansion, help address the cost to communicate and contribute meaningfully to job creation.”