COMPETITION TRIBUNAL OF SOUTH AFRICA
Case NO: 14/LM/Jan08
In the matter between:
Neotel (Pty) Ltd Acquiring firm
And
Transtel Telecoms Business Target firm
Panel : N Manoim (Presiding Member); M Holden (Tribunal Member) and Y
Carrim (Tribunal Member)
Heard on : 19 March 2008
Decided on : 19 March 2008
Reasons Issued : 14 May 2008
Reasons
Approval
[1] On 19 March 2008 the Competition Tribunal issued a Merger Clearance Certificate
approving the merger between Neotel (Pty) Ltd and Transtel Telecoms Business
unconditionally. The reasons appear below.
Parties
[2] The acquiring firm is Amsbury Trading (Pty) Ltd (“Amsbury”), a wholly owned
subsidiary of Neotel (Pty) Ltd (“Neotel). 1 Neotel is jointly controlled by Sepco
Communication (Pty) (Ltd) (“Sepco”) 2 with 51% and Transpoint (“Transpoint) 3 with 30%
while the balances of shares are owned by Nexus Connexions (“Nexus”).
[3] The target firm is Transtel Business a division of Transnet Ltd (Transnet”). Transnet
1 Neotel also wholly owns Airview Trading (Pty) Ltd.
2 VSNL SNOSPV Pte Ltd (“VSNL”) controls 40% of Sepco, VSNL is a company registered in Singapore but
wholly owned by an Indian Company: Videsh Sanchar Nigram Ltd (“Videsh Sanchar”). CommuniTel
Telecommunications (Pty) (Ltd (“CommuniTel”) holds 24% and Two Telecom Consortium (Pty) (Ltd (“Two
Telecom Consortium”) holds 24% and the balance of the shares (8%) are held by Tata Africa (“Tata Africa”).
Sepco does not control any other firms.
3 Eskom Holdings Ltd (“Eskom”) and Transtel each hold 50% of Transpoint.
1
is wholly owned by the South African government and is controlled by the Ministry of Public
Enterprises.
Transaction
[4] In terms of the proposed transaction, Armsbury will acquire from Transnet the
business of Transtel Telecoms as a going concern. The Transtel Business is presently
conducted as a division of Transnet for the provision of voice, data and network
telecommunications services.
Parties Activities
[5] Amsbury is a special purpose vehicle to be utilised for the purposes of this
transaction and as such it has no activities. Neotel has been licensed as the second national
fixed line telecommunications operator in South Africa with the specific purpose of creating
competition to Telkom SA Ltd (“Telkom”) in the fixed line business. Neotel is currently
offering wholesale international voice, IP Transit Services and has recently launched a suite
enterprise voice and data services.
[6] The Transtel Business is the telecommunications business division of Transnet Ltd.
Transnet Ltd was set up by legislation. In terms of the South African Transport Services Act
9 of 1989, Transnet Ltd was granted a statutory dispensation to own and operate
telecommunications both nationally and internationally both for its own and related
telecommunications requirements. 4 In addition Transnet, together with Eskom was granted
a shareholding in the second national operator 5 by s32B (2) of the Telecommunications Act
103 of 1996 as amended (“Telecommunications Act”).
Rationale
[7] For Neotel the acquisition presents an opportunity to expedite its entry into the
telecommunications market and expand its broader enterprise service.
[8] For Transnet, the sale represents a restructuring process whereby all non core
business units, divisions or subsidiaries are closed down, sold or transferred back to the
business units, divisions or subsidiaries are closed down, sold or transferred back to the
relevant Government Department. The transaction is also the result of the Government
policy, which envisaged that some or all of Transtel’s assets may be made available to the
newly licensed competitor to Telkom. 6
4 Through this statutory dispensation the Transtel Business was formed within Transnet. Transtel has developed
an extensive integrated infrastructure on national level, which supports the provision of electronic communication
services to the aviation, Port, Rail and Logistics divisions within the Transnet Group.
5 Neotel prior to it being granted a licence from ICASA.
6 See section 32B of the Telecommunications Act as amended and Ministerial Policy Directives dated 26 July
2001.
2
Market Definition
[9] According to the Commission there is an overlap in the activities of the merging
parties in the provision of Electronic Communications Network Services (“ECNS”) 7 and
Electronic Communications Services (“ECS”) 8 as both services are offered by Neotel and
Transtel. The merging parties identified the following distinct markets: wholesale versus
retail markets; markets for fixed line services versus markets for mobile services; markets for
voice services versus markets for data, and lastly at customer level residential customers
versus business customers. According to the parties there is no overlap in the activities of
the merging parties as neither of the merging parties offer mobile services, nor does either
presently offer services to residential customers. However there was an overlap between the
parties in the ECNS and ECS markets. ECNS and ECS are licence categories found in the
ECA and do not necessarily correspond to relevant markets for competition law analysis.
Each of the two categories could also conceivably contain more than one possible relevant
market or segment of a market.
[10] In its analysis the Commission found that there are at least nine relevant markets
implicated in this transaction namely: the operation of national trunk network; the provision of
national leased line services; the provision of international fixed leased line services; voice
connectivity; interconnection services; international wireless/satellite links; national wireless
links(such as microwave); local access links such as (Metro Ethernet); enterprise solutions
(managed network services) including VPN and other Value Added Network services
(VANS). With regard to local access (Metro Ethernet) market the Commission’s analysis
revealed that the merging parties have Metro Ethernet networks in many cities around the
country, although Transtel’s infrastructure is more limited than Neotel’s outside
country, although Transtel’s infrastructure is more limited than Neotel’s outside
Johannesburg. In the wireless long distance market, the Commission’s investigation found
that Neotel does not have any satellite connectivity capability currently.
[11] The Commission defined the geographic market as national.
Market Shares
[12] In the market for the operation of national trunk network Telkom has approximately
99% estimated market share, Transtel has 1% and Neotel has less than 1% market share.
In the market for the provision of national leased line services Telkom has approximately
99% estimated market share, Transtel less than 1% and Neotel also has less than 1%
market share. In the provision of international leased line services Telkom has plus or minus
7 ECNS involves the selfprovision of an electronic communications network for one’s own purpose and/or the
making of that service available to third parties whether by sale or otherwise
8 ECS is the conveyance of signals on a network.
3
99% estimated market share, Transtel has less than 1% and Neotel also has less than 1%
mark share.
[13] The merging parties submit that in the enterprise solutions market Telkom has 20%
estimated market share, Internet Solutions has 20% market share, Business Connexion
Group has 15% market share, MTN Network Solutions has 10% market share, Verizon has
10% market share and Neotel has less than 1% market share. In the narrow VPN segment
of the enterprise solutions market, Telkom has an estimated 30%, Transtel 1% and Neotel
less than 1%. These figures were provided to the Commission by the merging parties. We
make no conclusive findings on the accuracy of the figures provided to us but for purposes
of this decision concern ourselves with only the relative market shares of Neotel and
Transtel. Both Neotel and Transtel are relatively new entrants in the VPN segment. Until the
deregulation of the VANS (ECS) segment of the industry, Transtel, as a private
telecommunications network (PTN) was precluded from selling its services to third parties.
Since the deregulation it has established a small presence in the VPN market. 9
Competition analysis
[14] As can be seen from above the merging parties combined market share post merger
will be not be more than 3% in any of the relevant markets identified by the Commission.
The Commission was of the view that despite the fact that the barriers to entry were high in
the telecommunications industry, this transaction was unlikely to impact adversely on
competition any significant way and was likely to be procompetitive.
Third Party Concerns
[15] Some concerns were raised by third parties. These third parties were invited to
amplify their submissions at the hearing, but declined, choosing to rely on their written
submissions. Sentech Ltd (“Sentech”) expressed a concern that the acquisition of Transtel
submissions. Sentech Ltd (“Sentech”) expressed a concern that the acquisition of Transtel
enables Neotel to access existing corporate customers within the Transnet group. According
to Sentech, Transtel has rolled out a reliable network on which to provide VSAT services.
Sentech was of the view that it would have been better if the State had allowed State Owned
Enterprises to compete for the acquisition of Transtel business. They argue that the
acquisition will drastically stifle Sentech’s ability to compete. 10
[16] Verizon Business raised a concern that with Neotel entering the Value
Added Network Services (“VANS”) markets, its non-vertically integrated
managed network services or VANS competitors, such as Verizon, will not be
9 In this regard see our decision in Telkom SA Ltd and Business Connexion Group Ltd Tribunal Case No: 51/LM/
Jun06
10 See Sentech’s submissions on page 827 of the record.
4
able to compete on equal footing. They would like an assurance that the
upstream and downstream operations of Neotel be separated in order to ensure
a level playing field for competition.11
[17] The merging parties countered the Verizon concern by asserting that their licence
permits them to be in the VANS market. Neotel’s strategy was to enter the VANS market
irrespective of this transaction and it was already present in it. 12 The Commission analysed
these concerns and found that the vertical integration by Neotel was inevitable, and would
have taken place with or without the transaction. Neotel is a new entrant is licensed to
provide all of the services that Telkom can, including infrastructure, wholesale and retail,
voice, data and managed network services. It is in the process of rolling out its network.
Neotel was already present in the downstream vertical markets such as VANS to a small
extent at the time of this merger and this transaction would merely increase its presence in
these segments. Furthermore the transaction would enable Neotel to access existing
corporate customers within the Transnet group and will allow Neotel to build economies of
scale more quickly. In this sense, and contrary to Sentech’s contention, the transaction was
procompetitive and would increase its ability to compete with Telkom, which was what was
intended by ICASA and government when it granted it the license to Neotel.
[18] The Commission submitted that Sentech’s concern about Transtel’s long distance
wireless links is also unfounded since the assets that are being acquired by Neotel from
Transtel and which were used to service Transtel pre merger, are still going to be used to
service Transtel post merger. 13 The Commission also submitted that Neotel is not currently
in the international links market because it does not have international links.
[19] Sentech’s concern about whether or not stateowned enterprises ought to have been
[19] Sentech’s concern about whether or not stateowned enterprises ought to have been
permitted to bid for Transtel’s assets is a matter of government policy and not relevant to
these proceedings. In light of the above, we agree with the Commission that the proposed
transaction is unlikely to substantially lessen or prevent competition in any market.
Conclusion
[20] Based on the above the transaction will not result in a substantial lessening or
prevention of competition in the identified markets and is accordingly approved
unconditionally. There are no public interest issues
11 See Verizon Business’s submissions on page 1198 of the record.
12 See page pages 910 of the transcript. See also Neotel’s submissions at the hearing.
13 According to the Commission, Neotel is not allowed by regulation to use these assets to render services to
customers other than Transtel. The Commission however submitted that some of the assets, such as
international satellite connectivity, have been used to service customers other than Transtel. See page 5 lines
1618.
5
___________________ 14 May 2008
Y Carrim Date
Tribunal Member
N Manoim and M Holden concurring
Tribunal Researcher : J Ngobeni.
For the merging parties : Routledge Modise Attorneys
For the Commission : Grashum Mutizwa
6