Smaller ISPs feel threatened by Vodacom-Maziv merger

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 11 Aug 2023
Maziv was created last year by CIVH, after it folded Vumatel and DFA into one giant fibre infrastructure company.
Maziv was created last year by CIVH, after it folded Vumatel and DFA into one giant fibre infrastructure company.

Smaller internet service providers (ISPs) are concerned the proposed merger between Vodacom and Maziv, the company that owns fibre firms Vumatel and Dark Fibre Africa (DFA), will elbow them out of the market.

ITWeb interviewed Simon Swanepoel, CEO of ISP RocketNet, and Paul Butschi, co-founder of ISP Cool Ideas, for their take after the Competition Commission this week recommended the proposed R10 billion merger be prohibited.

While other ISPs felt strongly about the deal, they did not wish to comment on the record, because they did not want to tarnish their relationships with the merging parties.

According to the competition watchdog, the proposed deal will likely substantially prevent or lessen competition in several markets and the conditions offered do not fully address the resultant harm to competition.

Vodacom and Remgro-owned Community Investment Ventures Holdings (CIVH), the company behind Maziv, are looking forward to a favourable decision when the case is heard by the Competition Tribunal.

Maziv was created last year by CIVH after it folded Vumatel and DFA into one giant fibre infrastructure company.

CIVH and Vodacom argue the transaction will be beneficial to the market, in that Vodacom fibre assets will become commercially available on an open access, transparent and non-discriminatory basis.

In addition, they note, the investment will enable Maziv to extend fibre infrastructure to an estimated one million new households in lower income areas, create up to 10 000 new jobs, commit at least R10 billion to capital expenditure, and facilitate the creation of small to medium enterprises through a fund formed specifically for this purpose, with R300 million of committed capital.

Power dynamics

While the smaller ISPs say the deal will be beneficial in connecting millions of South Africans, they are sceptical that the deal will benefit them.

“Looking at the Vodacom and Maziv situation, it becomes evident that with this merger, Maziv would hold a significant share of network assets. This spans the gamut from fibre networks, to mobile telephone towers, and quite a bit more,” says Swanepoel.

“Yet, it’s essential to think beyond the confines of fibre and see the broader impact. Internet consumption is, after all, the end-game here, right? Thinking along these lines, we ought to consider the potential authority Maziv would command in such a scenario.”

According to Swanepoel, this isn’tjust about competitive advantage in one field, but the power dynamics at playin the larger scope of internet services.

“As history shows, mergers that seem to promise public benefit often alter market dynamics, pushing incumbents to adapt only when faced with competition. It’s essential we stay vigilant on the potential influence of this merger and its impact on our telecommunications landscape, balancing both public interests and market diversity,” he notes.

Swanepoel points out that in a more balanced market, Vodacom and smaller ISPs would co-exist as mutually-beneficial entities.

“But, setting the owner of the network up as a direct competitor to its ISPs paints a concerning picture. If the deal were to go through, it’d be fair to restrict Vodacom from undercutting. As a friend to many small ISPs, I’ve seen the struggles they face with large FNOs [fibre network operators] – left with the option to either ‘take it or leave it’.

“In my humble opinion, the proposed merger does bring certain looming dangers to the surface. One predominant concern is the potential squeezing out of smaller internet service providers by the telecoms giant, Vodacom. As someone who has keenly observed and participated in the evolution of our industry, I feel obliged to express my concern over this.

“However, it is essential to remember that, at the end of the day, it is internet access that we're consuming. This brings us to a juncture where we need to zoom out and view the scenario holistically. Beyond the immediate implications for ISPs, we also need to question what potential disadvantages this deal could gift Vodacom with, and ultimately, how that impacts the end consumer.

“Balancing interests and fairness in our dynamic sector is a daunting task, but it’s one we must undertake with due diligence, open discussions and thoughtfulness. Only by thorough scrutiny of the depth and breadth of the deal can we understand and navigate this complex situation,” comments Swanepoel.

Inevitable consolidation

Butschi from Cool Ideas is of the view that industry consolidation is a normal occurrence over time, “but at this sort of scale, there is obviously risk of threatening the smaller players. That being said, this has been the realistic case with Openserve and Telkom for years, yet competition is still thriving.”

He says the merger can benefit South Africans if it triggers additional investment in infrastructure, especially for the less fortunate, who have had to pay exorbitant mobile data rates.

But this is ironic considering the same mobile providers are now providing this infrastructure, he adds.

“They state it will make Vodacom’s fibre assets open access for smaller players, but from what I understand, this is already the case. It only really speaks to the larger investment and additional deployment that would provide more business for all ISPs,” Butschi concludes.