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Competition up in arms about Neotel buyout

Competition up in arms about Neotel buyout

Fellow South African telecommunications operators are doing their upmost to block Vodacom’s R7bn bid converge with communications network operator Neotel.

Rival business argued that should Vodacom gain control of the assets Neotel, it would become a “super dominant” player.

At the Independent Communications Authority of South Africa (Icasa) public hearing (regarding the deal,) Cell C chief legal officer Graham MacKinnon said the proposed merger “would not be to the benefit of competition or the consumer.”

Engineering News stated that Icasa was holding the hearing to gather stakeholder input into Vodacom’s application for transfer of control of Neotel’s electronic communication network services and the electronic communication services licences, as well as the radio frequency spectrum licences, as part of the acquisition process.

Vodacom CEO Shameel Joosub defended the company by saying that obstructing the deal would be “detrimental to competition” and “hamper the growth of the financially constrained Neotel and spectrum-deficient Vodacom’s long-term evolution (LTE) ambitions.”

However, MacKinnon argued that the deal was not in the public interest as it would further skew the playing field, eliminate a competitor, reduce Vodacom’s incentive to compete and inhibit Cell C’s ability to compete.

Vodacom had a 52% market share by revenue, while rivals MTN, Cell C and Telkom Mobile had market share by revenue of 35%, 11% and 2% respectively.

MacKinnon also stressed that the transaction was "a veil" that avoided the Electronic Communications Act (ECA) restrictions surrounding licences, suggesting that the high-demand spectrum should be equitably reallocated.

Neotel had been assigned spectrum of 2 X 12 MHz of 1800 MHz, 2 X 5 MHz of 800 MHz and 2 X 28 MHz of 3.5 GHz, which Neotel needed extensive funds to leverage further.

Kennedy commented that Vodacom was only applying for a transfer of control of the licences as part of the merger and was not eyeing the transfer of the actual licences.

Neotel would operate as a separate entity, albeit wholly owned and guided by Vodacom, while still holding control over how its spectrum would be used.

Vodacom would have to enter commercial agreements in line with the ECA to benefit from Neotel’s spectrum.

 “The transaction does not enable us to offer a fundamentally different level of LTE services but it does enable us to maintain a competitive offering,” he said during a presentation at the hearings.

The mobile operator would also gain access to Neotel’s fibre assets, which included over 15 000 km of fibre-optic cable nationwide, including 8 000 km of metropolitan fibre in Johannesburg, Cape Town and Durban.

Neotel MD Sunil Joshi said significant capital injection from Vodacom would give it the scale and backing needed to effectively use its assets, including the high-demand spectrum and fibre, and would be critical to progress the converged operator’s mandate, while pursuing government’s ambitions of broadband for all.

Neotel needed to invest more aggressively than its current R500-million a year to expand its footprint and fibre reach and rise to a level where it could effectively compete and be more relevant to its clients.

Joshi explained that Vodacom’s scale to invest would be the shot in the arm Neotel needed, particularly as the cash-strapped entity required in excess of R2-billion in investment over the next two years to further leverage the gains made since its establishment in 2007.

“After the deal, Vodacom, together with Neotel, will become a more powerful competitor in the fixed space. Vodacom will plan for a level of investment several times higher than Neotel’s current level of investment in fibre. We will accelerate investment in fibre-to-the-home and fibre-to-the-business to create a wider footprint and better services,” Joosub explained.

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