The Competition Commission has initiated an investigation against Vodacom Group for abuse of dominance, after the company secured an exclusive contract with National Treasury to be the sole provider of mobile telecommunication services to the government.
In March 2016, National Treasury issued a tender for the supply and delivery of mobile communication services to National and Provincial Government Departments for the period 15 September 2016 to 31 August 2020.
Vodacom was the preferred supplier after the other bidders were eliminated at different phases of the bidding process.
Before Vodacom entered into the exclusive four-year agreement with National Treasury, all government departments could purchase mobile telecommunication services from any mobile network operator.
The Commission said it has information that there are 20 government departments which will be subjected to the new Vodacom contract. Other departments, including state owned entities and municipalities, will be incentivised to adopt the new contract.
The Commission said it “has reasonable grounds to suspect that the exclusive contract may constitute an exclusionary abuse of dominance by Vodacom in contravention of the Competition Act”.
The Act prohibits a dominant firm from abusing its dominance by (1) requiring or inducing a supplier or customer to not deal with a competitor and (2) engaging in an exclusionary act that impedes or prevents a firm’s entry or expansion within a market, unless the firm concerned can show technological, efficiency or other pro-competitive gains which outweigh the anti-competitive effect of its act.
The Commission is of the view that the contract will:
- Further entrench Vodacom’s dominant position in the relevant market;
- Raise barriers to entry and expansion in the relevant market;
- Distort competition in the market; and
- Result in a loss of market share for other network operators.
In response, Shameel Joosub, Vodacom Group CEO, said:
“Vodacom is aware that the Competition Commission has launched an investigation into Government’s award to Vodacom to supply mobile communication solutions, premised on the alleged abuse of dominance. While we are surprised by this investigation, we are committed to fully cooperating with the commission.
“The tender process was initiated and controlled by National Treasury through its procurement officer with the award based on various elements including cost savings, quality of service, security, coverage, support and billing, quality of network and technology innovation. One of the key objectives of which was to reduce Government’s communication costs.
“We are confident that we followed due process in a fiercely contested and transparent bidding process.
“None of the pricing structures put forward to National Treasury was based on an exclusive provider award basis, or any restrictive minimum commitments.
“In our various dealings with National Treasury throughout this 18-month process, we understand they were subjected to rigorous governance processes, including consultation with the Competition Commission prior to awarding the contract.”