Blocked Vodacom merger derails South African telcos M&A push, analysts say

The Competition Tribunal’s decision to block a merger between Vodacom and a major fibre operator will likely derail a push by South African telecoms firms to use big M&A deals as a shortcut to digital infrastructure expansion, analysts said.

The ruling, which blocked South Africa’s top telco from taking a 30% stake in major fibre operator Maziv, could force companies to build their own networks or pursue smaller, less controversial tie-ups, delaying much-needed investment by years.

For Andrew Bahlmann of M&A advisory firm Deal Leaders International, it is a setback for the entire industry.

“For telcos and fibre network operators contemplating future mergers, this prohibition of a merger for which the business case was clearly positive indicates that the path to consolidation is fraught with challenges,” he said.

The communications sector in Africa’s most advanced economy needs significant capital injections to ramp up infrastructure development, particularly if connectivity is to be improved in low income and rural areas.

Dominant companies like Vodacom and MTN say mergers would allow them to leverage existing networks as a springboard to extending and improving coverage. And some smaller firms, including fibre operators, say tie-ups would provide the funding they need to grow.

But regulators fear that consolidation could lead to higher prices, less choice and lower quality for consumers.

The tribunal has yet to detail the grounds for Tuesday’s ruling, and Vodacom, which is majority-owned by Britain’s Vodafone, said it was considering an appeal.

The South African Competition Commission, which testified before the tribunal that the deal would open the door to further consolidation and harm consumers, welcomed the decision.

But Old Mutual Wealth Private Client research analyst Tasneem Samodien said it would likely lead to stagnation.

“What it does is delay investment by current market participants until they determine a commercially viable path to scale,” Samodien said.
“For consumers, particularly those in outlying areas where network connection is relatively poor, the roll out of infrastructure could be delayed.”