Mobile operator MTN says there are two factors that shape its objection to the Vodacom acquisition of Neotel, with both centring on the issue of spectrum.
The mobile operator recently lodged objections to the R7 billion transaction with both the Competition Commission and the Independent Communications Authority of SA (ICASA), arguing that spectrum transfer - from Neotel to Vodacom in terms of the deal - is prohibited in SA.
In documents filed with the communications regulator and the competition authorities, MTN states: "The frequency spectrum currently assigned to Neotel is a public asset. The acquisition price for the Neotel share capital embeds a significant premium relating to this spectrum portfolio. This scarce, national resource has largely been left unutilised during Neotel's tenure as the SNO due to minimal investment in mobile infrastructure to leverage it.
"The South African public has, therefore, not benefited from the allocation of this scarce and highly valuable resource to Neotel over the last seven years. It seems, therefore, highly inappropriate that the Neotel shareholders should now realise a significant windfall from the sale of the assignment of a scarce public asset that they simply hoarded at the expense of the South African public over the last seven years."
Removal of competitor
MTN also objects to the assignment of the 90MHz of high-demand spectrum to Vodacom, arguing it would give the already-dominant South African player an additional and substantial cost, capacity and time-to-market advantage, while also removing Neotel - a potential mobile competitor - from the market.
"While consumers will likely benefit from the earlier and wider availability of LTE through this process, ICASA must be concerned about the competitive impact of providing an already dominant player with such a structural and timing advantage over its competitors, thus giving it the opportunity to entrench its dominance even further.
"This is especially relevant given significant uncertainty and delays surrounding the release of additional LTE spectrum in the market. Vodacom's advantage could well be measured in years, rather than months."
MTN believes the return and re-assignment of the Neotel spectrum on the basis of either "the soon-to-be-released spectrum policy", or the current frequency spectrum band plan would provide a more pro-competitive outcome.
Furthermore, MTN notes it understands that only 200 000 subscribers are served from a few hundred sites, meaning "the current use of this significant spectrum portfolio by Neotel is nothing more than an advanced market trial".
"The proposed transaction radically changes this landscape, providing Vodacom with control over a 90MHz spectrum advantage over its competitors. Critically, Vodacom would control twice the amount of prime LTE 1 800MHz spectrum as the rest of the market and, uniquely, would get access to spectrum in the 800MHz band.
"The 800MHz band provides significant advantage over 1 800MHz in providing geographic coverage and in-building penetration. This combination provides an unreplicable advantage of LTE coverage and capacity as both frequency spectrum bands can readily be applied and used today across all of Vodacom's 10 000 sites," says MTN.
Significant LTE capacity
The operator argues the Neotel WiMax spectrum (2x28MHz in the 3.5GHz band) is also capable of being used for LTE purposes. It says while this is a high-frequency band resulting in relatively small coverage, this is a very large spectrum assignment, which would provide Vodacom with a significant potential LTE capacity layer to cater for the massive data growth expected in the future.
Alluding to its own proposed deal with Telkom, MTN says even the proposed alternative radio access network (RAN) share/roaming agreements between other mobile network operators (MNOs) cannot appropriately redress the competitive imbalance that will be created.
"By sharing the capex and opex of expanding and maintaining a shared RAN, and by roaming on one another's network capacity, a number of MNOs could in theory achieve similar types of cost-efficiencies to that which would be enjoyed by Vodacom post-merger (for example, the MTN/Telkom RAN outsource and bilateral roaming proposed transaction).
"However, an important distinction is that a RAN-roaming arrangement does not reduce the number of wholesale and retail competitors in the market. As a result, competition between MNO operators party to such an arrangement would ensure the cost-efficiencies identified above are more likely to be passed-through to consumers."
Vodacom spokesperson Richard Boorman would this morning not comment on MTN's objection.
However, Vodacom CEO Shameel Joosub - speaking at the operator's Q1 results earlier this year - stated the industry is "choking" from a lack of spectrum, and described both the Vodacom-Neotel deal, as well as the MTN-Telkom agreement as the industry "making a plan" to deal with spectrum shortage.
Joosub also previously stated Neotel has been starved of investment, and that Vodacom would ramp up investment in the business, which would mean an accelerated roll-out of FTTB and FTTH services in SA.
Share