Commission rules on spectrum in Vodacom/Neotel merger approval

The commission has on Tuesday (30 June) recommended to the Competition Tribunal that Vodacom’s intended purchase of Neotel be approved, with conditions.

The R7 billion deal was approved by South Africa’s communications regulator, Icasa, earlier in June.

Post-merger, Vodacom will have sole control over Neotel, and it will operate as a wholly-owned subsidiary of Vodacom.

However, Vodacom will not be allowed to retrench any of Neotel’s employees as a result of the merger, the commission said.

Vitally, on structural conditions, the commission said: “Vodacom shall not directly or indirectly use Neotel’s Spectrum for the purpose of offering wholesale or retail mobile services to any of its customers for a period of 2 (two) years from the Approval Date or 31 December 2017, whichever is earlier.

The Commission found that the proposed transaction is likely to substantially lessen or prevent competition in the mobile services market. Vodacom is the market leader in mobile services markets and the additional spectrum from Neotel will result in spectrum concentration effects that will likely consolidate Vodacom’s dominant position.

“The acquisition will confer first mover advantages to Vodacom relating to relating to network speed, capacity and mobile offerings. Vodacom will not be constrained by other competitors as they are unlikely to match its offering.”

“These factors taken together will likely lead to reduced choice and higher prices to end customers in the absence of effective constraints on Vodacom,” the commission said.

“The merger is also likely to have a significant impact on the structure of the South African mobile markets and future competitive dynamics,” it said.

To address the concerns arising from the proposed merger, the Commission recommended that some structural and Public Interest conditions be imposed, to which the merging parties have agreed to.

It said that the two year deferment period is intended to give an opportunity to policy makers to address the spectrum challenges in the industry.

“It is the Commission’s view that such a process may be concluded within 2 years as there are indications from the relevant government departments that plans are underway to introduce and implement relevant policy.”

On Future Investment:

The commission said that within Vodacom’s five financial years following the approval date of the merger by the Competition Tribunal, it will commit to R10 billion investment in fixed network, data and connectivity infrastructure.

This will include all capital investments and long-term commitments, additions and upgrades in transmission, national long distance fibre, backhaul, connectivity and in the development of value adding services.

At least half of the committed investment amount will specifically comprise investments in all fixed network elements.

“This merger will change the South African mobile network and fixed line industry significantly,” said Commissioner Tembinkosi Bonakele.

“We’ve taken due care in our analysis and recommendation to protect competition now and in the future, but the success of these conditions is predicated on the relevant government departments and Icasa promulgating necessary policies and allocating spectrum for the benefit of the whole country.”

“The conditions also contain unprecedented investment commitments that will go a long way in improving telecommunications services in South Africa.”

More on Vodacom and Neotel

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Commission rules on spectrum in Vodacom/Neotel merger approval