Vodacom shares slump on probe of Treasury contract

Vodacom Group slumped the most in more than seven years after South Africa’s antitrust regulator started a probe into a contract with the National Treasury that may constitute an abuse of market dominance.

The September 2016 deal to provide mobile-phone services to the finance ministry prevents other operators from selling to state departments, the Competition Commission said in an emailed statement on Wednesday.

The Vodacom contract has since been adopted by other parts of the government and some state-owned entities and municipalities will be incentivised to use it, the regulator said.

Vodacom shares plunged as much as 8.5%, the most since May 2010, and traded 3.2% lower at R151.36 at the close in Johannesburg.

Newbury, England-based Vodafone Group, the owner of a majority 65% stake, reversed gains to trade 0.6% lower.

“We are confident that we followed due process in a fiercely contested and transparent bidding process,” Vodacom chief executive officer Shameel Joosub said in an emailed response to questions. The tender process was initiated and controlled by the Treasury with the aim of reducing government communication costs, he said.

Vodacom is South Africa’s market leader with more than 39 million subscribers as of end-June. The Treasury deal, which runs until 2020, was worth about R5 billion ($368 million), Joosub told Johannesburg-based 702 radio station on Wednesday.

Wireless operators across sub-Saharan Africa have become the subject of government and regulatory scrutiny in recent years for dominant market positions, including Kenya’s Safaricom, in which Vodacom owns a 35% stake. MTN Group, No. 2 to Vodacom in South Africa, has had services suspended in Nigeria, where it leads the market.

“The commission 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 regulator said.


Read: Commission launches abuse of dominance investigation against Vodacom

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Vodacom shares slump on probe of Treasury contract