COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 68/LM/Dec03
In the large merger between:
Vodacom Group (Pty) Ltd
and
Smartphone SP (Pty) Ltd, trading as Smartcall
Reasons for Decision
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Approval
1. On 23 February 2004 the Competition Tribunal issued a Merger Clearance
Certificate approving the merger between Vodacom Group (Pty) Ltd
(“Vodacom”) and Smartphone SP (Pty) Ltd, trading as Smartcall
(“Smartcall”) in terms of section 16(2)(a). The reasons for the approval of
the merger appear below.
The Transaction
2. This transaction is an acquisition by Vodacom of 51% of the shares in
Smartcall. The remaining shareholders will consist of the current
management of Smartcall.
The Parties
3. The primary acquiring firm is Vodacom Group (Pty) Ltd, one of the three
national cellular networks. Vodacom is also active in the downstream
service provider market, through its wholly owned subsidiary, VSP (Pty)
Ltd.
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4. The primary target firm is
Smartphone SP (Pty) Ltd,
trading as Smartcall
(“Smartcall”), which
operates as a licensed and
exclusive Vodacom service
provider. Smartcall’s
shareholders are
Globalcom Investments Ltd
and a consortium
consisting of the current
management.1
Rationale for the Transaction
5. According to the parties the service provider industry is declining. The
advent of and growth in prepaid services has led to the demise of many
service providers. On the other hand, Vodacom seeks to consolidate its
service delivery channels. This transaction will result in Vodacom
acquiring one of its licensed service providers.
Evaluating the merger
The Relevant Market
Product market
6. Vodacom is active in the upstream network market as well as in the
downstream service provider market. Its wholly owned subsidiary, VSP
(Pty) Ltd operates as a service provider by selling and distributing cellular
handsets, cellular accessories, prepaid products and cellular contracts.
7. Smartcall is also active in the service provider market. It is licensed by
Vodacom and exclusively sells and distributes Vodacom products.
8. The Commission identified four possible product market definitions. The
narrowest market definition is identified as the provision of services for the
Vodacom network.
9. However, The Commission noted that the market definition question did
1 The management consortium members are Mark Attieh, Grace Houlston, Leon Richards and Kevin
Petzer.
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not require a conclusive answer, since even the narrowest construction of
the relevant market did not give rise to competition concerns.
Geographic market
10. Cellular telephony and related services are provided throughout South
Africa. The relevant geographic market is therefore national.
Impact on competition
11. The transaction has both horizontal and vertical effects.
Horizontal effect
12. In the downstream service provider market, the merger will lead to the
amalgamation of Vodacom’s integrated service provider, VSP (Pty) Ltd
and Smartcall.
13. Since Smartcall deals exclusively in Vodacom products and services, the
merger only affects only intrabrand competition.
14. The parties submit that intrabrand competition amongst the service
providers has not been effective and that service providers have not been
able to successfully establish their brands in the market place. 2
15. In respect of contract services, the tariffs (approved by ICASA) and terms
of the contracts are set by the cellular networks. Thus service providers
have no product or pricing power. They compete primarily in terms of
convenience to the customer and the packaging of the offer (handsets and
discounted subscriptions). The service providers apply the discounts
which they receive from the networks differently, though ultimately, the
total packages offered to customers match each other.
16. In Vodacom (Pty) Ltd /GSM and Teljoy Holdings (Pty) Ltd the Tribunal
held that
“ the role of service providers is to provide the networks with a customer base. If
the networks think they can do the job more efficiently they should be allowed to
do so.” 3
17. With regard to prepaid products and services, competition takes place at
the retail level where retailers such as Game, Clicks, Pick n Pay and
others compete aggressively. The service providers are less involved in
others compete aggressively. The service providers are less involved in
2 After the hearing this matter the Tribunal requested that the parties submit further information regarding
intrabrand competition between service providers. The infomration provided forms part of the record.
3 Case no. 10/LM/Nov99 at page 4.
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the prepaid market.
18. Thus the parties submit that the transaction will not substantially lessen
intrabrand competition between service providers.
Vertical effect
19. Vertically, the transaction sees Vodacom, in the upstream network market,
consolidating further in the downstream service provider market.
20. Since Smartcall exclusively provides Vodacom services, this merger does
not further Vodacom’s ability to foreclose access to its rivals.
Public interest issues
21. The parties submit that all Smartcall’s current employees will be retained.
Accordingly, the transaction will not impact negatively on employment.
Conclusion
22. We conclude that the merger will not lead to a substantial lessening of
competition. The merger is therefore unconditionally approved.
_____________ 19 March 2004
D. Lewis Date
Concurring: N. Manoim, U. Bhoola.
For the merging parties: Hofmeyr Herbstein & Gihwala Inc.
For the Commission: Mr M. Worsley, Legal Services Division, assisted by
Ms O. Strydom, Mergers Division, Competition
Commission.
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