Good news about Vodacom-Maziv deal

As a result of its concerns, the Commission had recommended to the Competition Tribunal in August 2023 that Vodacom’s proposed acquisition of a stake in Vumatel parent Maziv be prohibited.

That came nearly two years after Vodacom and Maziv’s parent company, Community Investment Ventures Holdings (CIVH), announced the proposed transaction.

Under the terms of the transaction, Vodacom wanted to acquire a 30% stake in Maziv, which was established as a holding company for the fibre assets of Vumatel and Dark Fibre Africa. Vodacom also had the option to increase its stake to 40%.

It would pay at least R6 billion cash and contribute its own fibre assets, valued at R4 billion at the time, as well as an additional cash amount depending on Maziv’s valuation when the deal closed.

When the deal was conceived three years ago, its estimated value was R13.2 billion. However, Maziv’s majority owner, Remgro, recently revealed that the whole structure of the deal would have to be revised.

Following the Commission’s recommendation, the Competition Tribunal conducted extensive public hearings and ordered that the deal be prohibited on 29 October 2024.

Vodacom, Maziv, and Trade and Industry Minister Parks Tau announced shortly thereafter that they would take the decision on review in the Competition Appeals Court.

However, just over a week after the Competition Tribunal published its full reasons for prohibiting the transaction, the Commission announced a stunning reversal.

The Commission said its new agreement with Vodacom and Maziv follows constructive engagements with them to remedy the deficiencies in the previous conditions identified by the Tribunal in its prohibition of the deal.

Revised deal conditions

It explained that the proposed conditions presented to the Tribunal did not adequately address three primary competition concerns.

These included reduced competition between fixed wireless access (FWA) and fibre-to-the-home (FTTH), overlap in FTTH infrastructure and potential price increases post-merger, and vertical foreclosure concerns.

“The conditions positioned to address the concerns of reduced competition between FWA and FTTH were that Vodacom would offer FWA where it rolled out 5G and would price it ‘competitively,’” the Commission stated.

“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 Maziv’s capital expenditure commitment and extending it to five years after the merger.

The Commission said this will ensure Maziv remains incentivised to service third-party network operators. Additionally, the revised conditions promote competition between FTTH and FWA through enhanced coverage commitments.

Importantly, these are with connection commitments. The parties will need to price competitively 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 Commission said.

Regarding the horizontal overlap in FTTH infrastructure and potential price increases post-merger, it explained that the previous conditions were inadequate as they included a “weak” divestiture condition.

According to the Commission, the initially proposed condition 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 results in a trustee divestiture process to ensure the assets are divested and pre-merger competition is restored,” it said.

“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.”

Addressing foreclosure concerns

Regarding vertical foreclosure concerns, the Commission said that although fairly comprehensive conditions were in place to address this, there were notable challenges with monitoring and enforcing them.

This resulted in concerns 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 Commission stated.

“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.”

The Commission said this ensures that any attempt to gain a first-mover advantage that will have an enduring effect on the market can be prevented through fast-track interim relief.

It also said there were significant improvements to the public interest commitments, including additional capex spend to roll out new fibre-to-the-business, FTTH, and fibre-to-the-site infrastructure.

Other public interest commitments include free access to gigabit-per-second fibre lines for public libraries and clinics passed by FTTH infrastructure, and an increase in the number of police stations that Vodacom will provide with FWA.

Additionally, the parties agreed to a commitment to enterprise development and an increase in the previously agreed-upon employee share ownership plan.

“Access to reliable, high-speed internet is the cornerstone of a dynamic economy and a democratic society,” said Competition Commissioner Doris Tshepe.

“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.”

The matter will now proceed to the Competition Appeal Court unopposed, and the Commission will inform the Court how the enhanced conditions address the concerns it previously raised about the proposed transaction.

Issued on MyBroadband by Jan Vermeulen | https://mybroadband.co.za/news/telecoms/601690-huge-turnaround-as-vodacom-maziv-deal-gets-green-light.html