Cell C and MTN seek legal help to block Vodacom’s Neotel acquisition

Two leading South African operators have appealed to the country’s high court to prevent Vodacom from acquiring local ISP Neotel.

Although the ZAR7 billion ($576 million) deal received approval from regulator ICASA in June, Cell C and MTN are attempting to block the deal on the grounds that it will be bad for consumers. Fixed incumbent Telkom had previously called for the regulator to rule against the deal, calling ICASA’s procedures “unlawful”.

The case is being reviewed by South Africa’s Competition Tribunal in November. It was initially greenlit in July by the Competition Commission following ICASA’s approval, with the stipulation that Vodacom invest ZAR10 billion into Neotel over the next 5 years without cutting any jobs. In addition, Vodacom may not use Neotel’s spectrum for at least 2 years.

Cell C has argued that these conditions did not form a part of ICASA’s approval, adding that the regulator had not considered the negative effects that spectrum consolidation could have on competition. The operator’s chief legal officer Graham Mackinnon noted that control of Neotel’s spectrum would give Vodacom “a 90MHz spectrum advantage over MTN and Cell C, its direct competitors”.

“Critically, Vodacom will control twice the amount of 1.8 GHz band spectrum as the rest of the market and, uniquely, would get access to spectrum in the 800MHz band, which it did not have before,” he said. The 800MHz band is particularly sought after, as it allows operators to deliver expanded mobile broadband at lower costs.

Mackinnon observed that Vodacom’s potential spectrum advantage would allow it to “attract sufficient subscriber revenues away from other operators to prevent them from reinvesting significant profits into such improvements,” adding that it would hamper competitors’ ability to stand against Vodacom “even to the limited extent that they are able to now.”

“Consumers will be the ultimate losers as Vodacom will have no incentive to lower its prices and rivals will be forced to raise theirs to meet their increased costs,” he said.

Meanwhile, ICASA and the Competition Commission are locked in an ongoing dispute regarding each body’s authorities and jurisdiction. Currently the Commission is an investigative branch that refers its investigations to the Competition Tribunal for judgement; however ICASA disapproves of the Commission’s ability to enforce conditions on sales, as it has with Vodacom’s acquisition of Neotel.

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