Small operators applaud Tribunal’s blocking of Vodacom-Vumatel merger

Small internet service providers are applauding the decision of the Competition Tribunal to block the Vodacom-Vumatel merger.

Paul Colmer, an executive committee member at the Wireless Access Provider’s Association (Wapa), says ever since the news broke that Vodacom had its bid to buy fibre network operator Maziv, which owns Vumatel blocked by the Competition Tribunal, Wapa was inundated by sob stories of how this “setback” will “widen digital exclusion” in the country’s rural and underserviced areas.

Wapa was established in 2006 and is a non-profit trade association acting as a collective voice for the wireless industry to promote the growth of the wireless industry by facilitating self-regulation, promoting best practices and educating both members and the market about new wireless technologies and business models.

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“Digital exclusion is not an issue in rural areas. Some of these communities are well served by smaller wireless data operators. It is just that the large cellular providers with extensive coverage and high pricing models are not one of them and created that exclusion.”

 Colmer says Wapa applauds the decision of the Competition Tribunal as Wapa believes it is in the interest of consumers to get a fair price for their broadband internet connection.

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‘It is nonsense that the blocking of the Vodacom deal is a setback for the industry’

“The idea that blocking the Vodacom-Maziv deal is a setback for the entire industry is complete nonsense. It is only a setback for the companies involved in the deal.”

He says concerns about “underserved communities” may be more about marketing than substance.

Vodacom, launched in 1994, rose to the top of the telecoms industry in South Africa, building a behemoth network primarily fuelled by voice traffic revenue. As data overtook voice as the primary traffic on these networks, the shift brought in increased profit margins, Colmer says.

He points out that Vodacom’s 30-year legacy and significant head start allowed it to dominate the market and its CEO, Shameel Joosub, has been with the company from the start. A Harvard grad with a near-decade-long CEO tenure, Joosub has steadily pushed Vodacom towards deeper market consolidation.

“This is not Vodacom’s first rodeo with attempted mergers to tighten its market grip. In 2015, Vodacom’s proposed acquisition of Neotel fell apart after industry outcry and intervention from its competition with regard to transfer of spectrum. Despite this, Vodacom has not let up on its mission to secure a stranglehold on internet infrastructure in South Africa.”

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‘Vodacom set its sights on fibre goldmine’

Now, with Maziv, a parent to Dark Fibre Africa (DFA) and Vumatel, the company set its sights on a fibre goldmine, Colmer says. “Maziv already invested R30 billion into its fibre network, with another R10 billion planned, positioning it as a linchpin in South Africa’s broadband future.

“But Maziv is also R25 billion in debt, recently refinanced by Standard Bank in one of the largest deals of its kind. And let’s not ignore that Vodacom already owns its own fibre network, one of the few in the country that remains closed-access.

“Fibre for underserved areas? Pull the other one!” Colmer says.

“Vodacom has trotted out a tired promise: that buying Maziv would help them “connect the unconnected” in rural and underserved areas. This is, to put it bluntly, pure PR nonsense. Fibre simply does not make financial sense in sparsely populated rural regions, where both the installation costs and potential subscriber pool render it unsustainable.

“In addition, the claim that Vodacom suddenly wants to provide affordable broadband for rural South Africans rings hollow. Just two years ago, the company argued against the “data must fall” movement, claiming it could not cut data prices without more spectrum.

“When they finally secured spectrum in the 2022 auction, they not only declined to lower data costs, they increased them, funnelling the extra revenue into their 5G network. This hardly reflects a company committed to affordable, accessible broadband for the masses.”

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2022 spectrum auction

Colmer says the 2022 auction even featured a unique spectrum allocation lot in sub 1GHz that required rural rollout before it could be used in urban areas. “And what did Vodacom do? Ignored it, as did the other operators. The spectrum remains unsold and there is little evidence of any rural rollouts since then.”

He says with MTN eyeing Telkom’s network, Vodacom’s acquisition of Maziv would solidify a two-giant monopoly. “Together, these two players could hike prices and squeeze smaller providers out of the market. Smaller operators like those represented by Wapa, which has been bringing broadband to underserved areas for years, would be shut out by Vodacom’s deep pockets and aggressive pricing.”

Vodacom’s closed-access network has been a persistent thorn in the side of open-access proponents and Maziv’s network was open-access, meaning it allows other providers to use its infrastructure, Colmer points out.

“The South African government’s open-access directive aimed at fostering competition could be undermined if Vodacom took control of Maziv and decided to tighten the gates. Why would Vodacom, which has shown zero commitment to open networks, suddenly prioritise sharing resources with competitors?

“This is not about creating a “Rainbow Nation” of internet access for all. It is about creating a closed loop between Vodacom and MTN, where they could set the terms, keep prices high and lock out innovation. If Wapa and smaller providers are squeezed out, rural South Africans will feel the brunt.”

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Telecom industry only saw disruption with Cell C and Rain

Colmer says we must remember that South Africa’s telecom landscape only saw real disruption when companies like Cell C and Rain entered the market. By introducing more affordable, uncapped LTE options, these smaller players shook up the status quo set by Vodacom and MTN, he says.

“Without them, Vodacom and MTN might have continued with their high-priced offerings, catering mainly to higher-income, urban customers.”

He says the Competition Tribunal’s decision is not anti-growth, but pro-competition. “In a free market, the price should be set by competition, not monopolistic giants with inflated pricing strategies. Smaller ISPs have already established footholds in rural areas that are sustainable, cost-effective and cater to the communities Vodacom ignores.

“Let’s face it, Vodacom’s services are already available in under-connected areas, but most rural populations simply cannot afford them. And why should they have to? Just as Wapa and its members bring access at a fair price, competition – not monopolistic dominance – will ensure underserved communities stay connected affordably.”

Colmer says if Vodacom succeeded in this deal, poorer, rural South Africans would be the ones to suffer. “We must be thankful that the Competition Tribunal saw through the thin veil of promises. Rural communities do not need monopolistic giants. They need competition that drives affordable access for all and this blocking move has ensured that.”