Competition Commission killing high-speed Internet for poor households
The Competition Commission’s recommendation to block a deal between Vodacom and Remgro’s CIVH has done tremendous damage to Vumatel’s fibre rollouts – especially in poor areas.
Remgro released its results for the six months to 31 December 2023, which revealed that CIVH’s earnings plummeted by 97%.
Remgro owns 57% of CIVH, which in turn owns 100% of Maziv, which houses its Vumatel and Dark Fibre Africa (DFA).
CIVH’s contribution to Remgro’s headline earnings over the last six months of 2023 was R6 million, down from R184 million over the same period in 2022.
The big decline in CIVH’s earnings was mainly due to higher finance costs resulting from increased interest rates, muted revenue, and slow EBITDA growth.
CIVH’s interest payments for the six-month reporting period increased from R664 million in 2022 to R896 million in 2023.
Higher interest payments and declining earnings forced CIVH to cut its capital expenditure (capex) and put a freeze on debt.
CIVH cut capex for the reporting period from R1.908 billion in 2022 to R1.176 billion in 2023.
The impact of the reduction in capex is clearly seen in Vumatel’s fibre rollouts, especially in low-income areas.
In the six months to 30 September 2022, Vumatel passed 234,000 new homes. A year later, the number of new homes passed plummeted to 109,240.
The biggest casualty is its Vuma Key project, which provides low-cost, uncapped Internet connectivity to low-income families.
There are 9.7 million households in South Africa with an income of under R5,000 per month. These households do not have access to affordable fibre access.
The Vuma Key project aims to change the situation by providing this sector with affordable uncapped fibre access.
However, this is impossible – or will take very long – without a cash injection to reduce CIVH’s debt and strengthen its balance sheet.
Competition Commission’s misguided recommendation
The problem can easily be solved if Vodacom is allowed to buy a stake in CIVH’s wholly-owned subsidiary, Maziv.
Vodacom and Remgro penned a deal where the mobile operator will acquire up to 40% of Maziv through a combination of assets of R4.2 billion and cash of at least R6.0 billion.
This deal will reduce debt and strengthen CIVH’s balance sheet. It will also bolster Vumatel’s capex to rapidly roll out fibre to all households in South Africa.
However, in August 2023, the Competition Commission recommended that the Competition Tribunal prohibit the proposed transaction.
Remgro and CIVH remain committed to the proposed transaction and will argue their case before the Competition Tribunal on 24 May 2024.
CIVH chairman Pieter Uys said the deal would result in a commitment from Maziv to invest at least R10 billion over five years.
The investment will result in Vumatel passing at least one million new homes in lower-income areas over the five-year period.
It will facilitate the creation of up to 10,000 new jobs and facilitate SMME development by establishing a R300 million development fund.
Another benefit is that the deal will open access to Vodacom’s fibre infrastructure, increasing competition in the Internet market.
The reality is that the Competition Commission’s recommendation to the Tribunal to block the Vodacom and CIVH deal is misguided.
The Competition Commission argued that the deal would substantially prevent or lessen competition in several markets.
“The public interest commitments provided by the merger parties do not outweigh the competition concerns,” it said.
However, it is not a question of whether Vumatel or another fibre network operator will provide the 9.7 million poor households with affordable Internet access.
It is a question of whether these households will receive affordable fibre access – or not.
No other fibre network operators have the expertise, scale, money, or expertise to roll out fibre to this sector.
The Competition Commission is, therefore, not advancing competition in the fibre market. Instead, it is preventing the rapid rollout of fibre in many underserved areas.
CIVH financial performance
CIVH cashflow profile
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