'Please Call Me' mega-payout is unreasonable, says Vodacom

Sibahle Malinga
By Sibahle Malinga, ITWeb senior news journalist.
Johannesburg, 05 Mar 2024
Sitho Mdlalose, CEO of Vodacom South Africa.
Sitho Mdlalose, CEO of Vodacom South Africa.

Vodacom says it may not be financially prepared for a worst-case scenario in the outcome of the ‘Please Call Me’ legal battle, noting that a payout of billions in compensation to Nkosana Makate would be unreasonable.

This, after the telecoms operator last week lodged an application with the Constitutional Court of South Africa for leave to appeal the Supreme Court of Appeal (SCA) ruling that last month ordered Vodacom to determine new compensation for 'Please Call Me' inventor Makate – within 30 days of the order.

According to the ruling, Vodacom must pay Makate between 5% and 7.5% of the total voice revenue generated by the Please Call Me service, derived from prepaid or contract offerings from March 2001 to March 2021 (18 years), including interest.

Over the last few years, several numbers have been thrown around in media reports, ranging between R29 billion and R55 billion, which was said to be fair compensation owed to the 'Please Call Me' inventor.

During a media and stakeholder virtual briefing last week, Vodacom South Africa CEO Sitho Mdlalose noted that if the SCA judgement should be upheld, the magnitude of the order will have a devastating impact on Vodacom South Africa, Vodacom Group and millions of South Africans.

Responding to a question from ITWeb about Vodacom’s preparedness for a worst-case scenario, Mdlalose explained: “It’s difficult to forecast the future, so we will forecast on what we know now, which is the appeal to the Constitutional Court. Any compensation in the magnitude of billions would not be a reasonable compensation.

“The impact would, of course, be far-reaching. One could look towards the type of impact it would add on the equity value of Vodacom and ultimately millions of people. If I considered the PIC [Public Investment Corporation], which holds an 11% stake in the group – this could impact over 1.3 million people whose pensions are held under the asset manager.”

Last week, Vodacom warned of the dire financial implications that could arise from a large compensation payout in the legal matter.

According to the operator, the SCA’s order impinges on the Rule of Law in terms of section one of the Constitution of the Republic of South Africa 1996 and deprives the operator of its right to a fair trial under section 34 of the Constitution;

“As much as we are appealing against the judgement and we are continuing with the necessary legal steps, we remain open to dialogue with Mr Makate on a good faith basis in order to agree to a fair and reasonable amount as compensation,” continued Mdlalose.

Makate and Vodacom have been embroiled in litigation over the Please Call Me product for almost 16 years. The former Vodacom employee reportedly came up with the idea in 2000.

Also speaking during the event, Vodacom Group CFO Raisibe Morathi said there is no certainty around what a “fair compensation amount” really is.

“One of the key points around our appeal is the vagueness of the majority judgement [SCA judgement]. What exactly is a fair amount? The computation of all of that. One can say they are prepared, but they need to say what amount exactly are they prepared for?

“The indications based on the calculation models show there is no certainly around what that amount is. We would get to a point of preparing ourselves if we knew what the outcome is, but at this stage we don’t know how much exactly that would be.”

Makate previously claimed Vodacom owes him a settlement of R10.2 billion, which excludes accrued interest and all the legal fees incurred.

He previously rejected a R47 million offer and brought an application to the Gauteng Division of the High Court of South Africa to have the Vodacom Group CEO’s determination judicially reviewed and set aside.

ITWeb approached Makate and his legal representatives from law firm Stemela & Lubbe for comment, but was told they are not in a position to respond at present, as they are focusing on the reply to the Constitutional Court.