Competition Commission recommendation can stop fibre rollout to poorest South Africans

The Competition Commission’s recommendation to stop a transaction between Vumatel parent Maziv and Vodacom will hurt the poorest South Africans.

In November 2021, Vodacom signed a deal to buy a 30% stake in Maziv, which owns Vumatel and DFA.

Through a combination of assets of R4.2 billion and cash of at least R6.0 billion, Vodacom will acquire up to 40% of Maziv.

The deal has many benefits, including making Vodacom’s fibre assets open-access, in line with Vumatel and DFA’s business model.

Vodacom’s fibre assets that would be added to Maziv’s stable include its residential, business, and tower fibre infrastructure. It excludes Vodacom’s long-distance network.

The biggest benefit is that Vodacom’s money will strengthen Maziv’s balance sheet and give it the breathing room to pump money into further fibre rollouts.

Vumatel has started rolling out fibre in low-income areas like Alexandra through its Vuma Key service.

It has already covered 2 million householders with an income of over R5,000 per month with its Vuma Core and Vuma Reach services.

Vumatel’s Vuma Core investment in areas with a household income of over R30,000 per month has slowed dramatically.

For example, the number of homes passed by the Vuma Reach network increased by nearly 56.6% over the last year. Vuma Core, in comparison, grew by 0.7%.

Vumatel is now directing most of its investment towards the low end of the market through its Vuma Reach and Vuma Key services.

However, there is a problem. Rolling out fibre is expensive and requires a tremendous upfront investment.

Maziv’s debt has increased by R2.354 billion to R18.315 billion over the last year. With a debt-to-EBITDA ratio of 4.2, it has to put the breaks on incurring more debt.

Should the Vodacom deal be approved, it will provide Maziv and Vumatel with the needed capital to accelerate its fibre rollout in poorer areas.

Remgro’s head of strategic investments, Pieter Uys, said if the deal with Vodacom does not go through, it will impact their ability to connect all South African homes with fibre.

“It will take us ten years to do on our own,” he said. With Vodacom’s investment, they could reduce that timeframe to three years.

Therefore, the Competition Commission’s recommendation to the Competition Tribunal to prohibit the proposed transaction can cause tremendous damage to poor South Africans.

The good news is that Remgro and CIVH remain committed to the proposed transaction and are ready to fight to make it happen.

“We firmly believe that the transaction will deliver significant benefits to South African consumers and the broader economy,” Remgro said.

South Africa’s Competition Tribunal has set 20 May 2024 as the date for the final hearing regarding a proposed transaction.