NEWS ANALYSIS: Questions swirl over SA’s fibre market
Tribunal’s decision to block Vodacom and Maziv’s fibre merger has shocked the industry
04 November 2024 - 05:00
by Mudiwa Gavaza
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The Competition Tribunal’s decision to block the merger of Vodacom and Maziv’s fibre business, has sent shock waves through SA’s telecommunication industry.
While many interested parties, including Vodacom, Maziv and the government are not commenting on the matter as they await the tribunal’s reasons to be published, questions are swirling about the future of the sector, which has been moving towards greater consolidation and shared infrastructure investment.
The proposed merger would have seen Vodacom take a 30% stake in Maziv, which houses Remgro’s fibre units Vumatel and Dark Fibre Africa — together worth an estimated R13bn — with the option of increasing that to 40%.
Understandably, a deal of this size raises concerns about competition.
After the Competition Commission recommended that the merger should not proceed a year ago, many had expected the tribunal would allow the transaction to proceed, but with a large contingent of conditions and remedies to quell any concerns about market dominance.
The mismatch has to do with that co-investment, or at least the pooling of resources, is the direction that the industry is moving in when it comes to capital expenditure.
New data from the Internet Service Providers’ Association of SA and 28East, a mapping specialist, shows that 27-million South Africans, or about 46% of the population, live in areas that are not yet covered by fibre.
Seeing the opportunity, SA’s banks, particularly RMB and Standard Bank, have been looking to capitalise on the opportunity. Maziv, secured a R25bn loan led by Standard Bank for a fibre expansion initiative in late 2023.
As with the R10bn spent annually by Vodacom and rival MTN in recent years to cover 99% of the country with their mobile networks, a similar effort is needed in fibre, coming at immense cost. As such, operators are increasingly finding ways to pool their resources and share the risk.
MTN boss Ralph Mupita highlighted this point in a recent interview with Business Day, saying: “Not everybody can trench or have fibre deployed everywhere. The wholesale open access network model becomes more the norm and you may have a stake in it. Fibre will evolve there as well. The issue with fibre is that it requires an enormous amount of investment and the payback, particularly in a more nascent market, might take a very long time. So, you need a kind of partnership capital.”
MTN has invested heavily in its own fibre, through the Bayobab business, and is undertaking a R6bn project between East and West Africa, in partnership with infrastructure investment outfit Africa50.
When MTN made its bid to buy Telkom in 2022, it was widely thought that the group wanted to control of SA’s largest fibre network. Such a deal would likely have been investigated by competition authorities in the same way as Vodacom and Maziv’s potential tie up.
Besides stymying Vodacom’s plans to substantially increase its fibre footprint nationwide, the tribunal also puts the brakes on Maziv gaining access to billions of rand to continue rolling out fibre infrastructure, especially into lower-income areas.
The two companies have long argued all concerns raised by the commission during its investigation can be “adequately addressed by a range of conditions and commitments proposed by the parties”.
The transaction, announced in November 2021, had already received approval from SA’s telecom regulator but hit a brick wall after an almost 22-month investigation by the commission, which recommended the proposed large merger be prohibited in August 2023.
Even rivals in the sector are not opposed to the merger.
“Where there is market consolidation, scrutiny is required to ensure that there is no substantial harm to competition. If material concerns of anticompetitive conduct arise, these should be sufficiently mitigated by conditions that are comprehensive, effective, monitorable, and enforceable,” said MTN SA CEO Charles Molapisi.
The companies have one option left — the Competition Appeal Court, which considers appeals or reviews against tribunal decisions.
Vodacom has previously said its investment will enable Maziv to extend fibre infrastructure to an estimated 1-million new households in lower-income areas, create as many as 10,000 new jobs, commit at least R10bn in capital expenditure and facilitate the creation of small to medium enterprises through a fund formed for this purpose with R300m of committed capital.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
NEWS ANALYSIS: Questions swirl over SA’s fibre market
Tribunal’s decision to block Vodacom and Maziv’s fibre merger has shocked the industry
The Competition Tribunal’s decision to block the merger of Vodacom and Maziv’s fibre business, has sent shock waves through SA’s telecommunication industry.
While many interested parties, including Vodacom, Maziv and the government are not commenting on the matter as they await the tribunal’s reasons to be published, questions are swirling about the future of the sector, which has been moving towards greater consolidation and shared infrastructure investment.
The proposed merger would have seen Vodacom take a 30% stake in Maziv, which houses Remgro’s fibre units Vumatel and Dark Fibre Africa — together worth an estimated R13bn — with the option of increasing that to 40%.
Understandably, a deal of this size raises concerns about competition.
After the Competition Commission recommended that the merger should not proceed a year ago, many had expected the tribunal would allow the transaction to proceed, but with a large contingent of conditions and remedies to quell any concerns about market dominance.
The mismatch has to do with that co-investment, or at least the pooling of resources, is the direction that the industry is moving in when it comes to capital expenditure.
New data from the Internet Service Providers’ Association of SA and 28East, a mapping specialist, shows that 27-million South Africans, or about 46% of the population, live in areas that are not yet covered by fibre.
Seeing the opportunity, SA’s banks, particularly RMB and Standard Bank, have been looking to capitalise on the opportunity. Maziv, secured a R25bn loan led by Standard Bank for a fibre expansion initiative in late 2023.
As with the R10bn spent annually by Vodacom and rival MTN in recent years to cover 99% of the country with their mobile networks, a similar effort is needed in fibre, coming at immense cost. As such, operators are increasingly finding ways to pool their resources and share the risk.
MTN boss Ralph Mupita highlighted this point in a recent interview with Business Day, saying: “Not everybody can trench or have fibre deployed everywhere. The wholesale open access network model becomes more the norm and you may have a stake in it. Fibre will evolve there as well. The issue with fibre is that it requires an enormous amount of investment and the payback, particularly in a more nascent market, might take a very long time. So, you need a kind of partnership capital.”
MTN has invested heavily in its own fibre, through the Bayobab business, and is undertaking a R6bn project between East and West Africa, in partnership with infrastructure investment outfit Africa50.
When MTN made its bid to buy Telkom in 2022, it was widely thought that the group wanted to control of SA’s largest fibre network. Such a deal would likely have been investigated by competition authorities in the same way as Vodacom and Maziv’s potential tie up.
Besides stymying Vodacom’s plans to substantially increase its fibre footprint nationwide, the tribunal also puts the brakes on Maziv gaining access to billions of rand to continue rolling out fibre infrastructure, especially into lower-income areas.
The two companies have long argued all concerns raised by the commission during its investigation can be “adequately addressed by a range of conditions and commitments proposed by the parties”.
The transaction, announced in November 2021, had already received approval from SA’s telecom regulator but hit a brick wall after an almost 22-month investigation by the commission, which recommended the proposed large merger be prohibited in August 2023.
Even rivals in the sector are not opposed to the merger.
“Where there is market consolidation, scrutiny is required to ensure that there is no substantial harm to competition. If material concerns of anticompetitive conduct arise, these should be sufficiently mitigated by conditions that are comprehensive, effective, monitorable, and enforceable,” said MTN SA CEO Charles Molapisi.
The companies have one option left — the Competition Appeal Court, which considers appeals or reviews against tribunal decisions.
Vodacom has previously said its investment will enable Maziv to extend fibre infrastructure to an estimated 1-million new households in lower-income areas, create as many as 10,000 new jobs, commit at least R10bn in capital expenditure and facilitate the creation of small to medium enterprises through a fund formed for this purpose with R300m of committed capital.
gavazam@businesslive.co.za
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