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M&A Africa: South African Mobile Market Fears Monopoly In Vodacom-Neotel Merger

M&A Africa: South African Mobile Market Fears Monopoly In Vodacom-Neotel Merger

South African mobile company Vodacom wants to buy Neotel, the country’s No. 2 operator for fixed line telecommunication, but the proposed acquisition is likely to prevent competition in the mobile services market, CNBCAfrica reports.

Mobile services provider Cell C has challenged the Vodacom-Neotel merger saying it poses a serious threat to its business and to other industry players.

“The move is anti-competitive. The terms are tough and harsh on us (other competitors),” said Cell C CEO Jose Dos Santos in a CNBC interview.

South Africa’s Competition Commission approved the Vodacom-Neotel merger with conditions and recommended the move to the the country’s Competition Tribunal, CNBC reports.

South African company Vodacom is a leading African mobile communication company providing mobile voice, messaging, data and converged services to over 61 million customers including 31 million in South Africa. It operates in Tanzania, DRC, Mozambique and Lesotho. Vodacom is majority owned by Vodafone (65-percent holding) one of the world’s largest mobile communications companies by revenue.

Neotel is the second South African operator for fixed line telecommunication services and the country’s first direct telecommunications competitor to the current telecommunications parastatal, Telkom. Neotel’s business services include local and international leased line services, and voice, data and Internet delivered over its next-generation network.

One of the most contentious aspects of the acquisition is that Vodacom will get access to Neotel’s valuable radio frequency spectrum — something the other players consider an unfair advantage that will reduce competition.

The commission recommended that Vodacom be prevented from using Neotel’s spectrum to offer wholesale or retail mobile services for two years, giving policy makers time to address spectrum challenges in the industry, according to a report in BusinessDayLive.

The merger will change the South African mobile network and fixed line industry significantly, said commissioner Tembinkosi Bonakele.

Terms and conditions include unprecedented investment commitments that will improve telecommunications services in South Africa, Bonakele said.

Vodacom will be expected to invest 10 billion rand ($818.4 million US) in fixed network, data and connectivity infrastructure. At least half of it should be invested in all fixed network elements needed to enhance services to homes and businesses, including the development of value-added services, BusinessDayLive reports.

The Competition Commission acknowledged that the acquisition would give first mover advantages to Vodacom relating to network speed, capacity and mobile offerings, according to CNBC.

Vodacom will not be constrained by other competitors as they are unlikely to match its offering,” the commission said in a statement. “These factors taken together will likely lead to reduced choice and higher prices to end customers in the absence of effective constraints on Vodacom. The merger is also likely to have a significant impact on the structure of the South African mobile markets and future competitive dynamics.”

The spectrum restrictions will address those issues, Competition Commission’s Hardin Ratshisusu told CNBC Africa.

The commission also recommended that Vodacom must increase the value of shares held by its black economic empowerment (BEE) shareholders increases by 1.4 billion rand ($114.5 million US) within two years.

It’s also recommended that Vodacom not lay off any Neotel employees.