Competition Commission approves R7bn Vodacom-Neotel deal

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Vodacom is one step closer to a Neotel tie-up. (Duncan Alfreds, Fin24)
Vodacom is one step closer to a Neotel tie-up. (Duncan Alfreds, Fin24)

Johannesburg - The Competition Commission has given the green light for Vodacom to buy Neotel for R7bn.

The approval from the Competition Commission comes after the Independent Communications Authority of South Africa (Icasa) also gave Vodacom the nod to buy Neotel. The Competition Commission took about a year to make a decision on the proposed deal.

Vodacom’s bid to buy Neotel is expected to boost the mobile network’s fixed line capabilities as well as its frequency spectrum for faster mobile broadband services.

The Competition Commission in a statement on Tuesday said that it has recommended to the Competition Tribunal that the Vodacom-Neotel merger be approved with conditions.

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

“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,” Bonakele said.

Conditions

The Commission raised concerns that the transaction could harm competition in the mobile services market and even consolidate Vodacom’s dominant position in the market.

Vodacom is already South Africa’s biggest mobile network with 30 million subscribers.

Subsequently, the Commission has recommended the following conditions.

“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,” said the Competition Commission.

“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,” said the Commission.

In addition, the Commission stipulated that Vodacom should within five financial years following the approval date of the merger commit to a R10bn investment in fixed network, data and connectivity infrastructure.

This commitment “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”.

The Commission added that “at least 50% of the committed investment amount will specifically comprise investments in all fixed network elements required to enhance services to homes and enterprises in South Africa, including the development of value adding services”.

Meanwhile, within 24 months of the approval date, Vodacom is also tasked with ensuring that its share capital held by Black Economic Empowerment (BEE) shareholders will increase by an amount of R1.4bn.

Vodacom may also not retrench any of Neotel’s employees as a result of the merger, the Commission said.

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