Vodacom Services Provider Company (Pty) Ltd / Vodacom Properties No.2 (Pty) Ltd and Africell Cellular Services (Pty) Ltd (48/LM/Jun06) [2006] ZACT 72 (23 August 2006)
- Citation
- [2006] ZACT 72
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- DH Lewis, Y Carrim, M Mokuena
- Case number
- 48/LM/Jun06
More details
- Court
- Competition Tribunal
- Panel
- DH Lewis, Y Carrim, M Mokuena
- Case number
- 48/LM/Jun06
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that the merger between Vodacom Service Provider Company (Pty) Ltd, Vodacom Properties No.2 (Pty) Ltd, and Africell Cellular Services (Pty) Ltd would not result in a substantial lessening of competition. The horizontal overlap was limited to intra-brand competition, as Africell's outlets sold Vodacom airtime exclusively. Vertical integration would not foreclose other network operators or retailers, since Africell was already an exclusive dealer of Vodacom. The Commission's investigation confirmed that no foreclosure would occur. Public interest concerns, particularly regarding employment, were addressed by the parties' commitment to transfer employees or offer severance packages. The Tribunal concluded that the merger posed no significant competition or public interest concerns and approved it unconditionally.
Court disposition
Merger unconditionally approved.
Orders
- The proposed merger between Vodacom Service Provider Company (Pty) Ltd, Vodacom Properties No.2 (Pty) Ltd, and Africell Cellular Services (Pty) Ltd is unconditionally approved.
02
Material facts
Parties
Vodacom Services Provider Company (Pty) Ltd
Applicant Counsel: Andries Le GrangeVodacom Properties No.2 (Pty) Ltd
Applicant Counsel: Andries Le GrangeAfricell Cellular Services (Pty) Ltd
Respondent03
Procedural history
Posture
Merger Control / Merger Approval
04
Questions and positions
Legal issues
- 01
Whether the proposed merger will result in a substantial lessening of competition in the relevant market.
- 02
Whether the transaction will negatively impact employment or other public interest factors.
- 03
Whether the merger will result in foreclosure of other network operators or retailers.
Party arguments
- Applicant
- The acquiring firms argued that the acquisition would allow Vodacom to buy back margin by reducing commission payments to Africell and consolidate ownership of its subscriber base. They contended that the transaction aligns with Vodacom's strategy to own more of its subscribers and would not negatively affect competition, as Africell's outlets sell Vodacom airtime exclusively.
- Respondent
- Africell did not oppose the merger and indicated that all employees would either transfer to the franchisee under the Labour Relations Act or receive severance packages. The Commission submitted that the transaction would not result in foreclosure of other network operators or retailers and would not negatively impact employment.
05
Court’s reasoning
Legal principles
- 01
Competition Act, No. 89 of 1998
A merger may not be approved if it is likely to substantially prevent or lessen competition, unless the parties show technological, efficiency or other pro-competitive gains outweigh the anti-competitive effects.
- 02
Labour Relations Act, No. 66 of 1995
Employees affected by a merger must be protected in accordance with the Labour Relations Act, and public interest considerations must be assessed.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that the merger between Vodacom Service Provider Company (Pty) Ltd, Vodacom Properties No.2 (Pty) Ltd, and Africell Cellular Services (Pty) Ltd would not result in a substantial lessening of competition. The horizontal overlap was limited to intra-brand competition, as Africell's outlets sold Vodacom airtime exclusively. Vertical integration would not foreclose other network operators or retailers, since Africell was already an exclusive dealer of Vodacom. The Commission's investigation confirmed that no foreclosure would occur. Public interest concerns, particularly regarding employment, were addressed by the parties' commitment to transfer employees or offer severance packages. The Tribunal concluded that the merger posed no significant competition or public interest concerns and approved it unconditionally.
Obiter and limits
- The Tribunal noted that the transaction is consistent with Vodacom's strategy to consolidate its subscriber base and reduce commission payments.
- The Commission's analysis of vertical and horizontal effects was thorough and confirmed the absence of foreclosure concerns.
- The parties' approach to employee transfers and severance packages was compliant with labour legislation.
Court disposition
Merger unconditionally approved.
- The proposed merger between Vodacom Service Provider Company (Pty) Ltd, Vodacom Properties No.2 (Pty) Ltd, and Africell Cellular Services (Pty) Ltd is unconditionally approved.
Source and reliance status
Competition Tribunal
This page organises the available record for research. Confirm quotations, current status, and subsequent treatment against the official source before relying on the case.
Judgment reading view
Judgment text
The complete available source text.
Competition Tribunal
Judgment
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case No: 48/LM/Jun06
In the matter between:
Vodacom Services Provider Company (Pty) Ltd and
Vodacom Properties No.2 (Pty) Ltd Acquiring Firm
And
Africell Cellular Services (Pty) Ltd Target Firm
______________
Panel : DH Lewis (Presiding Member), Y Carrim (Tribunal
Member), and M Mokuena (Tribunal Member)
Heard on : 16 August 2006
Decided on : 16 August 2006
Reasons issued: 23 August 2006
REASONS FOR DECISION (NON-CONFIDENTIAL)
Approval
[1]. On the 16th of August 2006, the Tribunal unconditionally approved the proposed merger between the abovementioned parties. The reasons for the decision follow.
Parties
[2]. The primary acquiring firm are Vodacom Service Provider Company (Pty) Ltd (âVSPâ) and Vodacom Properties No.2 (Pty) Ltd (âVodacom Propertiesâ). The Vodacom Group (Pty) Ltd (âVodacom Groupâ) controls VSP and Vodacom Properties. Telkom (SA) (âTelkomâ) and Vodafone Holding SA (Pty) Ltd (âVodafoneâ) jointly control the Vodacom Group. No firm directly or indirectly controls Vodafone.
[3]. The primary target firm is Africell Cellular Services (Pty) Ltd (âAfricellâ). Africell is a wholly owned subsidiary of the Teljoy Group (Pty) Ltd âTeljoyâ
Transaction
[4]. VSP and Vodacom Properties intend to acquire the franchise business of Africell. In terms of the offer letter VSP and Vodacom Properties will purchase Africellâs franchise business once Africell has converted its retail stores into franchise operations. The merger will result in the termination of the Dealer Agreement entered into between Africell and VSP.
Rationale for the Transaction
[5]. From the primary acquiring firmâs perspective, the acquisition of Africell business presents an opportunity of buying back margin by reducing the total commission payments that Vodacom would have had to make to Africell on the existing Africell base. According to the parties, the transaction is also in line with Vodacomâs overall strategy to consolidate and own more of its subscribers.
Partiesâ Activities
[6]. Africell currently conducts a retail cellular business, which comprises of selling cellular airtime and accessories through seventeen retail outlets that it currently leases. VSP is involved in the business of selling and distributing cellular handsets and accessories, as well as prepaid starter packs, vouchers and airtime to distribution channels and directly to customers. VSP also acts as a franchiser of franchised businesses.
Relevant market
[7]. VSP and Africell are involved in the selling and distribution of cellular handsets, cellular accessories, pre-paid contracts and cellular contracts. We agree with the Commission that the relevant geographic market is national.
Competition Analysis
[8]. The transaction has both horizontal and vertical effects. The horizontal overlap occurs in respect of prepaid and contract airtime sale, cellular telephones, accessories and mobile data products. Africellâs retail distribution network competes with dealership and franchise stores owned by VSP. According to the parties Africellâs retail outlets sell Vodacom networkâs airtime exclusively and therefore the merger will only affect intra-brand competition, to an extent that it can be said that VSP will acquire a measure of greater control over the franchised dealerships.
[9]. The vertical integration between the activities of the merging firms occurs in that Africell is a dealer of VSP, and it operates a retail distribution network of Vodacom branded retail outlets. Vertical integration will occur to the extent that VSP will acquire greater influence over Africell retail distribution network. The Commission examined the possibility of whether or not the proposed transaction would result in foreclosure of other network operators and other retailers of Vodacom. The Commission found that the proposed transaction would not result in any foreclosure. We agree with the Commissionâs conclusion on this aspect because the target firm is an exclusive dealer of the acquiring firm.
Public interest issues
[11]. The parties submit that all employees of Africell will either transfer to the franchisee in terms of the Labour Relations Act or they will take advantage of the severance packages that Africell will offer to them. Accordingly, the transaction will not impact negatively on employment.
Conclusion
[12]. We conclude that the merger will not lead to a substantial lessening of competition. The merger is therefore unconditionally approved.
_______ 23 August 2006
Date
D. Lewis
Tribunal Member
Y Carrim and M Mokuena Concurring
Tribunal Researcher : J Ngobeni
For the Merging Parties : Andries Le Grange (Hofmeyr Herbstein & Gihwala Inc
For the Commission : Leornard Lamola (Mergers and Acquisition)
4
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