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)

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 (NON­CONFIDENTIAL)
Approval
  [1].  On the 16 th 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   (“VSP”)   and   Vodacom   Properties   No.2   (Pty)   Ltd   (“Vodacom  
Properties”). The Vodacom Group (Pty) Ltd (“Vodacom Group”) controls VSP  
and Vodacom Properties. Telkom (SA) (“Telkom”) and Vodafone Holding SA  
(Pty) Ltd (“Vodafone”) jointly control the Vodacom Group. No firm directly or  
indirectly controls Vodafone.
[3]. The primary target firm is Africell Cellular Services (Pty) Ltd (“Africell”).  
Africell is a wholly owned subsidiary of the Teljoy Group (Pty) Ltd “Teljoy”
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  
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purchase   Africell’s   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 firm’s 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   Vodacom’s   overall   strategy   to   consolidate   and   own   more   of   its  
subscribers. 
Parties’ 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, pre­paid 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. Africell’s retail distribution  
network   competes   with   dealership   and   franchise   stores   owned   by   VSP.  
According to the parties Africell’s retail outlets sell Vodacom network’s airtime  
exclusively and therefore the merger will only affect intra­brand competition, to  
an extent that it can be said that VSP will acquire a measure of greater control

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  
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operators   and   other  retailers  of   Vodacom.   The   Commission   found  that   the  
proposed transaction would not result in any foreclosure. We agree with the  
Commission’s   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)
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