The Competition Commission on Monday informed Telkom and MTN South Africa that it has recommended the approval of the proposed transaction between the two companies to the Competition Tribunal to be blocked.
Telkom and MTN South Africa signed a heads of agreement in 2014 to extend their existing roaming agreement to include bilateral roaming and outsourcing of the operation of Telkom’s radio access network.
“While the Commission’s decision is disappointing, Telkom and MTN have agreed not to proceed with the transaction, as we wish to avoid a protracted Tribunal hearing,” Telkom Group CEO, Sipho Maseko said.
“Over the past 18 months, our focused efforts to de-risk our mobile business have delivered a mobile division that is viable and sustainable. The mobile business will break even in this financial year and we are most encouraged by the stability that has been brought into our mobile environment. As previously communicated we will continue to explore all avenues to further strengthen our mobile business.”
The commission said effectively MTN through this deal will be able to access additional spectrum capacity from Telkom to rollout a Long Term Evolution (LTE) network.
“Although the transaction does not involve the combination of MTN’s and Telkom’s mobile retail businesses, the Commission found that the proposed transaction is likely to substantially prevent or lessen competition in the mobile services market. The access to additional spectrum capacity by MTN will confer first mover advantages to it relating to network speed, capacity and mobile offerings. MTN would be able to gain a significant competitive and time advantage, offering network and services that cannot be significantly constrained by rivals, particularly given the market position of Cell C and Telkom Mobile,” the commission added.
The Commission found that the merger would effectively limit the ability of Telkom Mobile to grow and independently compete against MTN and other mobile operators.
“This is particularly so in the mobile data markets where future competition is likely to take place. This outcome of this merger transaction is likely to entrench a duopolistic market structure dominated by Vodacom and MTN. Such a resultant duopoly market structure is unlikely to serve customers well, particularly when considering that it is the smaller mobile operators that lower prices before the larger operators, MTN and Vodacom.”
Commissioner Tembinkosi Bonakele said this merger will change the South African mobile industry significantly.
“We’ve taken due care in our analysis and the recommendation seeks to protect and preserve competition now and in the future. The resultant market structure, especially the limitations imposed upon Telkom Mobile, are not good for competition in the industry as it has been the smaller operators like Telkom Mobile that have been aggressive in disciplining the larger mobile companies. There has not been any workable solution to the concerns raised by the merger which has left us with no option but to recommend prohibition of the proposed transaction.”
MTN was also disappointed with the commission’s decision.
“MTN notes with disappointment the decision of the Competition Commission to recommend a prohibition of the proposed transaction between MTN and Telkom. As a result of an agreement between MTN and Telkom, MTN cannot pursue this transaction any further.
“MTN will of course continue to explore other innovative ways of creating value through efficient network consolidation as is happening in other parts of the world.” Graham de Vries, MTN Executive for Corporate Services.