The Competition Commission has blocked a proposed radio access network sharing and bilateral roaming deal between Telkom and MTN. The commission today announced it has recommended the Competition Tribunal prohibit the deal.
"Although the transaction does not involve the combination of MTN's and Telkom's mobile retail businesses, the commission found the proposed transaction is likely to substantially prevent or lessen competition in the mobile services market," says the commission.
The proposed deal would see the companies engaging in a network management services agreement and reciprocal roaming agreements which would effectively let each party roam on the other's mobile network.
According to the Competition Commission, MTN would take over financial and operational responsibility for the roll out and operation of Telkom's radio access network. This would see MTN accessing additional spectrum capacity from Telkom to roll out a long-term evolution network.
"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," says the commission.
"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," says Telkom Group CEO Sipho Maseko.
MTN reiterated Telkom's disappointment and confirmed "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," says Graham de Vries, MTN executive for corporate services.
The commission's recommendation found the transaction would significantly curtail Telkom Mobile's ability to aggressively grow and respond to competition.
"Telkom will be limited by the agreement between the merging parties, whereas MTN's capacity will not be limited. The commission found 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."
The commission says the merger would likely have a significant impact on the structure of the South African mobile market and future competitive dynamics.
"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 it is the smaller mobile operators that lower prices before the larger operators, MTN and Vodacom."
"I am satisfied with our legal and economic analysis of this proposed merger, and therefore confident that our recommendation to block it is sound. The decision protects competition in telecommunications, a very important market for our economy now and in the future," says commissioner Tembinkosi Bonakele.
The transaction was filed with the commission as a large merger on 29 April 2014. The commission says there were several objections to the merger received from third parties in the industry.
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