Huge vows to fight MTN

By Alex Kayle, Senior portals journalist

Johannesburg, 20 Nov 2008

Huge Group has expressed its contempt for the Competition Commission's recommendation that MTN be allowed to purchase the remaining 59% of iTalk Cellular that it does not already own.

Anton Potgieter, executive chairman of the Huge Group, says the announcement is purely the commission's recommendation to the Competition Tribunal and does not imply a done deal for MTN.

“We certainly plan to vehemently oppose this transaction and we can now apply to take our arguments before the Competition Tribunal and, if we have to, the Competition Appeal Court.”

AltX-listed Huge Group last year bid to purchase 59% of iTalk from Bebinchand Seevnarayan Trust. Shortly after, MTN decided to act on its pre-emptive rights to purchase the iTalk stake. The dispute was taken before the Competition Commission, which last week ruled in favour of MTN and sent its recommendation to the Competition Tribunal.

The tribunal, the highest competition authority in the country, has already started processing the case. It is not known yet when the case will be heard; however, the process is expected to start within the first quarter of next year.

The Competition Commission took more than 85 days to make the decision and Huge Group believes this is an indication there may be factors that could prevent MTN from being successful in its bid for iTalk.

Monkey business

“Over the past months, we have accumulated and prepared extensive evidence supporting the fact that MTN's bid is highly anti-competitive, and will substantially lessen competition by removing an effective competitor from the market,” says Potgieter.

“It is clear that our opposing argument has been given careful consideration and perhaps the Competition Commission is unsure how it should rule, which is why it has left it up to the tribunal to decide.”

Potgieter believes this is a typical example of “the 800lb gorilla” trying to assume control of the market by force.

“MTN has clearly come to the realisation that, as a competitor, Huge could lower prices for the consumer, forcing the rest of the market to follow suit. Our involvement means we would be moving value away from MTN and into the hands of the consumer, which is why they are now looking to prevent this, regardless of the cost.”

Potgieter says MTN originally waived its pre-emptive rights and then did a U-turn on that decision. He believes MTN realised that control of iTalk could strengthen its hold on the GSM market. “MTN has already delayed the transaction by 15 months and we believe they will continue to try and delay it even further in a bid to prejudice the business.”

According to Potgieter, MTN is paying more than double the price of any other transaction of this nature - an amount of around R363 million cash, which pushes iTalk's enterprise value to about R615 million.

He says that, considering the number of current subscribers in the iTalk database, this equates to around R4 700 per subscriber.

“MTN is paying more than 100% premium over past transactions to purportedly gain the iTalk subscriber base. Taking into account its growth rates in places like Iran, and the organic cost of that growth, it seems implausible that they are purchasing iTalk for any other reason than to prevent the introduction of a potential competitor, in the form of Huge Group, by removing one of only three remaining service provider licences from the market,” says Potgieter.

At any cost

“Paying this price for an acquisition in an economic downturn certainly casts reasonable doubt on their published reason for wanting control of iTalk,” he adds.

Potgieter points out that if the tribunal rules in MTN's favour, there would only be two independent cellular service providers left in the local market - Nashua Mobile and Altech Autopage Cellular.

MTN owns 40% of the mobile market and acquiring iTalk will increase this market share and its dominance, he adds. “MTN's strategy has been to purchase companies with 3% and 4% market shares over a period of time. However, if you buy this market share repeatedly, you will end up with a majority market share, without ever having concluded any significant transactions under current competition analysis,” explains Potgieter.

“If MTN is allowed to continue with this strategy, it will ultimately substantially reduce competition and allow them [MTN] to continue to take advantage of the consumer - and, in fact, iTalk is very possibly the last hurdle to them gaining an unstoppable monopoly,” he says.

Bridget Bhengu, head of communications and public relations for MTN SA, says: “The closing of the transaction was subject to regulatory clearances, including inter-alia, approval by the competition authorities. The Competition Commission recommended the transaction be approved without conditions, and referred the matter to the Competition Tribunal.

“MTN welcomes the Competition Commission's recommendation for an unconditional approval. The next steps include a public hearing before the Competition Tribunal. MTN will continue to keep its stakeholders informed of the outcomes of the processes as they become available.”