By Corrie Kruger
The handling of the MTN Telkom merger by the Competition Commission will be closely watched by ordinary citizens/voters, labour unions and business people.
From a policy point of view it is very difficult to see how they can allow such concentration to take place. The government will express its opinion on the deal and, therefore, the suspicion of undue influence is understandable. Twitter has responded with some of the worst comments, alleging that President Cyril Ramaphosa has stashed MTN money in Mauritius. Clearly, currently the trust in government is at a very low level.
The merits or is it demerits of the deal.
The mobile market remains stubbornly concentrated, with high levels of concentration persisting over time.
While Cell C and Telkom have had some increases in their relative market shares (particularly for Telkom), the combined shares of Vodacom and MTN have consistently covered more than 70 percent of the market.
For the year 2019, Vodacom had a 45.5 percent share of the mobile market in terms of service revenue. MTN has the second-largest revenue share with a market share of 31.4 percent, while Cell C and Telkom have significantly less revenue share at 12.3 percent and 10.9 percent, respectively.
This current view of the mobile market appears to confirm the general view of a concentrated mobile market in South Africa This corresponds to the finding of the Data Market Inquiry that the dominant operators price independently of smaller players and that certain market features, including first-mover advantage and high barriers to entry, have perpetuated their dominance in the mobile market.
Later market entrants, (eg, mobile virtual network owners (MVNOs) and Rain) still play a peripheral role in the market, with consistently low subscriber shares of under 3 percent. Whereas historically, Telkom was the only firm with interests in undersea.
Telkom is making good progress in certain aspects.
Based on aggregated data received from the Independent Communications Authority of South Africa (Icasa) for 2019, the largest four ISPs accounted for 79.4 percent of all FTTH ( fiber-optic access solutions) subscriptions
Two, namely Vodacom and MTN, are dominant players with major market penetration which has contributed to poor competitive outcomes in the mobile market. The features of the mobile market structure are often described as resembling an oligopoly market due to a few large firms controlling the industry. This does not bode well for a further concentration merger. However, mobile markets are generally concentrated due to, amongst other factors, first-mover advantages, vertically integrated firms and high barriers to entry and expansion.
The surge in fibre deployment in South Africa happened in 2016 when Vumatel entered the market. Prior to that, fixed-line was provided via ADSL.
Based on an article by MyBroadband, there were about 35 fibre providers in South Africa based on the IPS offerings in 2018. There are however just three large FTTH providers measured by home passed as well as homes connected; Openserve (Telkom), Vumatel and Frogfoot who together accounted for 74.7 percent in 2019.
MTN:
Market capitalisation as on 23/07/2022: R254 billion.
MTN Group is a mobile telecommunications provider operating across South Africa, Nigeria, Ghana, Cameroon, Ivory Coast, Uganda, Syria, and Sudan. Most of the company's revenue is earned in South Africa and Nigeria.
MTN said it was establishing an international advisory board comprising “prominent persons of considerable and wide-ranging experience”
Former deputy finance minister Mcebisi Jonas has replaced Phuthuma Nhleko as chairman of the MTN Group, while former president Thabo Mbeki heads a new advisory board.
Jonas had assumed the role on December 15, 2019, after serving an interim period as chairman-designate. Nhleko had been expected to step down at MTN’s annual general meeting on 23 May. Jonas, who was already a non-executive director of MTN, was deputy finance minister for almost three years before being removed by former president Jacob Zuma in 2017. He has since been made an investment envoy for Cyril Ramaphosa, who replaced Zuma in February last year and is seeking to attract more international funds to the country.
The advisory board will be chaired by Mbeki. Other members will include former Ghanaian President John Kufuor; former African Union commissioner for political affairs Aisha Abdullahi; former International Atomic Energy Agency director-general Mohammed ElBaradei; Total president of marketing and services Momar Nguer; and Nhleko
According to an article in Tech Central in 2019; the purpose of this board will be to “guide and support MTN from time to time in fulfilling its vision and objective of being one of the premier African corporations with a global footprint in telecommunications, contributing to increased digital inclusion in Africa and the Middle East, a pivotal aspect of the fourth Industrial Revolution”.
Telkom:
Market capitalisation: R20.53bn
Telkom is a South Africa-based technology company. The company provides key components of convergence, enabling customer to offer integrated voice, data, fixed, mobile, information technology (IT) and data centre solutions. Its target is to expand and invest in e-commerce, big data, gaming and financial technology. Telkom is currently the 90th most valuable stock on the JSE
The South African government owns 40.5 percent of Telkom, while another 14.8 percent is owned by the Public Investment Corporation (PIC), which is closely linked to the government. This means that government has power over the company — and why it’s known as Telkom SA SOC (state-owned company). Telkom always had close ties with the government. It was born out of the government-owned Department of Posts and Telecommunications (DPT), which was broken into Telkom and the SA Post Office on October 1, 1991.
In June 2018 Community Investment Ventures Holding acquired 35 percent of Vumatel with an agreement to buy the remaining shares subject to regulatory approvals in 2019. CIVH owns Dark Fibre Africa and, through its parent Remgro, also holds a 30 percent stake in Seacom, the giant African communications cable operator.
In April 2019, the Competition Tribunal conditionally approved the proposed merger whereby CIVH gained control over Vumatel. The merger would result in post-merger shares (based on houses passed) of more than 50 percent in Cape Town and Johannesburg.
The Tribunal approved the transaction, subject to conditions which require that the merged entity retains an open access service provision model for some of its services post-merger, as well as increased transparency mechanisms and an obligation not to discriminate against customers who compete with Vumatel.
True to principle this deal should not be approved. The PIC and the government must show their true colours as all interested parties watch the deliberations closely. Restrictions on job losses to Telkom workers and their technology suppliers such as Amdocs will without doubt be high on the agenda.
Various investment analysts have pointed out that MTN and the whole mobile phone market is saturated/matured and entered a phase of consolidation with little growth prospects. I would, however, suggest another scenario. South Africa;s unemployment rate is approaching 40 percent. Yet I am sure that even the unemployed person has a cellphone. All we need is an economy that grows the employment numbers. That could easily double the revenue spend on data and airtime once those numbers are achieved.
Corrie Kruger is an Independent Analyst.
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