News has recently broke of MTN’s acquisition of a controlling 50% share of Internet service provider, Afrihost. This is only months after news of Vodacom claiming a 100% share of another Internet service provider (ISP), Neotel. These recent acquisitions should raise alarm bells if at least eyebrows as to the level of service competition in South Africa. A second level of competition between MTN and Vodacom should be questioned, in the eternal race for economic dominance, who comes out on top?
As the hotly debated deal between Vodacom and Neotel’s majority owner, India based Tata Communications, is finally winding up, the price for the company has been revealed. Vodacom will pay $676 million (R7 billion) for 100% of the shares of the orange-clad company, Neotel. MTN on the other hand will acquire 50% plus one Afrihost share, a deal which was the next step after the two companies joined forces in 2012. However, the amount that MTN will pay for the acquisition is still unknown.
Vodacom claimed in a statement that the spectrum that Neotel offers would improve competition due to Neotel’s fixed-line and ADSL operations. This deal gives Vodacom a chance to stand against Telkom and MTN who are respectively the only fixed-line operator and the biggest cell phone company in Africa. Vodacom’s chief financial officer, Ivan Dittrich, said that the deal bodes well for consumers and enterprise sectors. He further stated, “On the consumer side the combined entity will be a stronger fixed player and will be able to offer a wider range of services. It will also help us to accelerate the provision of services like fibre to the home.”
Both powerhouse companies will allow their new acquisitions to function as if they were independent and stand-alone companies yet still be subsidiaries of their new respective owner. MTN’s acquisition is a mere stepping stone towards a greater share of the ICT sector but in the process subsumes the independent industry shaker who was a “small fish in a big pond”. Afrihost had grown its customer base to 100 000, according to their website, but whether this small company will be able to hold its own within MTN is another question. MTN said in a recent statement, "MTN South Africa expects to leverage off Afrihost's strong customer service, value proposition and agility, thereby boosting MTN South Africa's presence in the SME, corporate/consumer and connected home segments."
Initial news of the Vodacom and Neotel deal left MTN in a precarious position of always being the bridesmaid and never the bride. Afrihost certainly does not offer the magnitude of possibility compared to that of Neotel’s existing extensive fixed-line infrastructure. Although neither acquisition has been reviewed by the regulators, Vodacom’s acquisition may offer more opportunity to South African consumers. The mobile companies are crossing over into similar albeit new territory yet Vodacom comes out far better with Neotel than MTN and Afrihost.
The deal is by no means over for either parties, the Vodacom and Neotel as well as the MTN and Afrihost deal could still go belly up if the South African regulators see that the deal contravenes the competitiveness of the two respective industry sectors. Some may see this move as a step towards consolidating the information and communications technology (ICT) sector.
According to the Competition Commission sanctioned by the government, any merger or acquisition where the combined assets and annual turnover of the acquiring and target company exceeds R560 million must be reviewed by the Competition Commission.
The commission mainly emphasises that the acquisition may not decrease or prevent competition in the markets involved. Additionally, the commission will examine the impact of the acquisition on public interest issues. These issues include the industrial sector or regions involved, employment, ensuring small businesses owned by previously disadvantaged people have the ability to be competitive and the possibility of national industries to complete in international markets.
The acquisitions by Vodacom and MTN are not final until approval by the regulatory bodies, this can take anything from 40 working days or more, according to Gresham Mutizwa, senior merger analyst at Competition Commission. Mutizwa further stated that although prices and logistics have been discussed and made public, each acquisition still face the pivotal regulatory approval. Both acquisitions are set to be approved according to the criteria listed above but you need to question the ethical implications of what may be considered as corporate imperialism across the ICT sector.
While neither deal overtly seems to contravene any of the above Competition Commission requirements, one needs to examine the ethics of a mobile corporation amassing smaller companies in an adjacent industry. Are we simply adding a new monopoly to an already monopolised market? Vodacom and MTN are not the only culprits, Telkom also made a R2.6 billion bid for Business Connexion.
The likelihood of the acquisitions being approved is high seeing as each deal seems to tick the right boxes but it remains to be seen whether they step over the ethical line of fair competition. As for which network comes out on top of the eternal fight for economic dominance, Vodacom seems to have chosen the better opportunity as Neotel provides an entry into broadband and a fixed-line infrastructure. Vodacom is still the bride but MTN, the bridesmaid, at least gets to catch the Afrihost-coloured bouquet.
By Diane Moalem for Click n Compare
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