Under the deal, Vodacom is looking to acquire a 30% stake in the newly-created Maziv.
Vodacom has been given a boost by local competition authorities in its bid to band together with fibre network operator Maziv.
This, after the Competition Commission (CompCom) today revealed it reached an agreement with the companies on revised conditions that substantially remedy the competition concerns raised by the commission in its recommendation to the Competition Tribunal that the merger between the two firms be prohibited.
The announcement comes ahead of the Competition Appeal Court hearing this month, where the firms are looking to challenge the blocking of the R14 billion merger deal.
The Competition Tribunal prohibited the deal in October last year, after it found the proposed deal would likely prevent or lessen competition in several markets, and that the conditions offered by the merging parties did not fully address the resultant harm to competition.
Smaller internet service providers were also concerned the proposed merger would elbow them out of the market.
Maziv is a wholly-owned subsidiary of Remgro-controlled Community Investment Ventures Holdings, which has two main operating fibre subsidiaries, Dark Fibre Africa and Vumatel.
Under the deal, Vodacom is looking to acquire a 30% stake in the newly-created Maziv, with an option to increase the stake by 10%.
In a statement today, the competition watchdog says the agreement with Vodacom and Maziv follows constructive engagements between the commission and the merger parties to remedy the deficiencies in the previous conditions identified by the tribunal in its prohibition of the merger.
According to the CompCom, there were three primary competition concerns that were not adequately addressed by the proposed conditions at the time of concluding the tribunal hearings.
The first issue relates to the horizontal reduction in competition between fixed wireless access (FWA) and fibre-to-the-home (FTTH).
The regulator says the conditions positioned to address this concern were that Vodacom would offer FWA where it rolled out 5G and that it would price it “competitively”.
However, it points out that 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.
It says the revised conditions address these shortcomings by improving the capex commitment by Maziv and extending it to a five-year period post-merger to ensure Maziv remains incentivised to service third-party network operators.
The revised conditions also promote competition between FTTH and FWA through enhanced coverage commitments coupled, importantly, with connection commitments. The parties will need to price competitively if they are to achieve the connection commitments, says the watchdog.
It states 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 second concern was on the horizontal overlap in FTTH infrastructure and potential price increases post-merger.
According to the watchdog, the previous conditions were inadequate insofar as they included a “weak” divestiture condition that 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 result in a trustee divestiture process to ensure the assets are divested and pre-merger competition is restored.
The CompCom explains that 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.
Thirdly, there were vertical foreclosure concerns. The commission says although there were fairly comprehensive conditions in place to address foreclosure, there were notable challenges with monitoring and enforcing the conditions, with the resulting concern 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 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.
This ensures that any attempt to get a first-mover advantage that will have an enduring effect in the market can be prevented through fast-track interim relief, the commission adds.
Public interest commitments
Finally, the watchdog notes that there are significant improvements to the public interest commitments which increase the substantiality of these commitments.
These include additional capex spend to roll-out new fibre-to-the-business, FTTH and fibre-to-the-site infrastructure, free access to 1GB per second fibre lines for public libraries and clinics passed by FTTH infrastructure, an increase in the number of police stations that Vodacom will provide with FWA products, an additional commitment to enterprise development and an increase in the employee share ownership plan previously agreed.
“Access to reliable, high-speed internet is the cornerstone of a dynamic economy and a democratic society. 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,” commissioner Doris Tshepe says.
The watchdog says the matter will now proceed to the Competition Appeal Court on an unopposed basis and the commission will inform the court how the enhanced conditions address the concerns it previously raised with the proposed transaction.
