COMPETITION TRIBUNAL SOUTH AFRICA
Case NO: 113/LM/Oct08
In the matter between:
Vodacom (Pty) Ltd Acquiring Firm
And
Storage Technology Services (Pty) Ltd Target Firm
Panel : Y Carrim (Presiding Member), N Manoim (Tribunal Member) and U
Bhoola (Tribunal Member)
Heard on : 21 January 2009
Decided on : 21 January 2009
Reasons Issued on : 04 March 2009
Reasons for Decision
Approval
[1] On 21 January 2009 the Competition Tribunal issued a Merger Clearance Certificate
unconditionally approving the merger between Vodacom (Pty)Ltd and Storage technology
Services (Pty)Ltd. The reasons appear below.
Parties
[2] The acquiring firm is Vodacom (Pty) Limited (“Vodacom”), an operating subsidiary of
Vodacom Group (Pty) Ltd (“Vodacom Group”). At the time when this transaction was
approved Vodacom was owned 50-50 by Vodafone Group (“Vodafone”) and Telkom SA Ltd
(“Telkom”).1
[3] The primary target firm is Storage Technology Services (Pty) Ltd (“StorTech”), a
private company currently controlled by Storhold (Pty) Ltd (“Storhold”); Arbez Storage
Technologies (Pty) Ltd (“Arbez”); and Pyramid Trading (Fourteen) (Pty) Ltd (“Pyramid”).
Storhold is a wholly owned and controlled subsidiary of StorTech Holdings (Pty) Ltd
1 The parties submitted in their filing that Telkom announced on 9 October 2008 that its board is supportive of a
transaction proposed by Vodafone in which Vodafone would purchase an additional 15% interest in Vodacom
from Telkom and, as a condition of the transaction; Telkom would distribute its remaining 35% interest to its
shareholders. If this transaction goes forward Telkom would no longer have an interest in Vodacom. Vodafone
would own 65% of Vodacom and public investors would own the remaining 35%. This transaction has since been
approved by the Tribunal on 25 February 2009.
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(“StorTech Holdings”). Storhold controls StorTech Employment Holdings (Pty) Ltd. In
addition to Storhold, StorTech Holdings controls the following firms: Orcom Trading 169 (Pty)
Ltd; ID4 Mobility (Pty) ltd, Adaptive Information Solutions (Pty) Ltd and StorTech Secretarial
Services (Pty) Ltd. Stortech does not own or control any subsidiaries.
Transaction
[4] In terms of the proposed transaction, Vodacom intends to acquire, from Storhold,
51% of the issued share capital in StorTech. The pre-merger shareholders in StorTech and
their respective shareholdings are as follows: Storhold (68.68%); Arbez (26.32%) and
Pyramid (5%). The post-merger shareholders and their respective shareholding in StorTech
will be as follows: Vodacom (51%); Storhold (17.68%); Arbez (26.32%); and Pyramid (5%). If
the transaction is approved StorTech will continue to trade under its own name for at least
the next two years (at which point Vodacom will have the option to increase its interest to
100%). The parties also submit that StorTech might also operate as a reseller of other
services offered by Vodacom Business such as MNS and various hosted services including
but not limited to off site data storage and security.
Rationale for the Transaction
[5] Vodacom submits that acquiring control over StorTech will enhance its Vodacom
Business operations. Vodacom Business is looking to enter the broader IT services market
and offer hosting, security, storage and applications services from its data centre to
corporate and business customers. Because Vodacom has been a mobile phone operator
and has not been active in IT services, it does not have in-house staff with the skills
necessary to design, develop and operate an off-site data centre. Vodacom therefore is of
the view that this acquisition will help Vodacom with the development of its off-site data
centre. Furthermore, Vodacom believes that the acquisition will help ensure that Vodacom
centre. Furthermore, Vodacom believes that the acquisition will help ensure that Vodacom
will have the supply of skilled IT workers that it needs to operate and expand its off-site data
centre business.
[6] Storhold’s thought the price that Vodacom was willing to pay exceeded the value it
believed StorTech could otherwise generate in an environment in which the ICT industry
seems to be moving to convergence solutions and in which Stortech lacked the network
capabilities to become a full-line supplier of these solutions.
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Parties Activities
[7] Vodacom’s core business in South Africa has been the provision of cellular
telecommunications services. Vodacom has recently launched Vodacom Business.
Vodacom Business has developed its own multi-protocol layer switching internet
protocol (“ MPLS-based IP”) network based primarily on lines that it has leased from
Telkom and fibre that it is in the process of laying in major cities across Gauteng and other
metro areas in the country.2 Vodacom Business has already been launched and has
customers signed up for a number of services including access services via fibre and
WiMax, managed network services.
[8] StorTech is a firm in the information technology services industry. According to the
parties StorTech’s business is split about 50-50 between sale of computer hardware
(primarily Sun servers and storage devices) and software (primarily Symantec data
protection and security software), and provision of maintenance and support services for this
hardware and software.
Horizontal Overlap
[9] There is no overlap between Vodacom and StorTech services provided to customers.
StorTech is currently active in the on site provision of a range of IT services, focusing on
data centre storage and security. According to the Commission Vodacom does not offer on
site IT services currently and the merging parties also submitted that Vodacom does not
intend to offer this service in the future. The Commission further submits that Vodacom
Business has not yet started offering offsite data storage facilities, but is in the process of
constructing Vodacom Business off site data centre. StorTech does not currently own or
operate its own off site data centre. Therefore the Commission concluded that there is no
product overlap between the activities of the merging parties in relation to the provision of on
site data centre storage
The Relevant Market
site data centre storage
The Relevant Market
[10] The Commission’s examination of the relevant market revealed that there is evidence
to suggest that on-site data storage services and off-site data storage services are in
2 The parties submit that the services that Vodacom will provide can be segmented into four categories namely:
Access Services; Managed Network services; Converged Applications Services and Managed Hosting Services
(see page 93-94 of the record)
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separate markets. 3 The Commission however made no finding on whether off-site data
centres constitute a separate relevant market for purposes of competition evaluation since
the proposed transaction is unlikely to lead to a substantial prevention or lessening of
competition whether off-site data centres are in a separate market or not. We agree with the
Commission. With regard to geographic market, the Commission found that all Vodacom
and StorTech’s products and services are supplied by both throughout South Africa.
Vodacom’s core business has been the provision of mobile voice and data services primarily
in South Africa. StorTech submits that it conducts its business activities throughout South
Africa. We therefore agree with the Commission’s conclusion that the relevant geographic
market is national.
Competition Analysis
[11] The Commission is of the view that the proposed transaction is unlikely to result in
any substantial prevention or lessening of competition. The merging parties submitted in
their filing that the leading players of off-site data centre services include many of the leading
IT service providers in South Africa. According to the merging parties, off-site data services
in South Africa are offered by more than 6 firms, including Dimension Data, BCX, T-
Systems, Verizon, EDS/HP. IBM, MTN NS, Telkom, Arivia.kom, and GijimaAST. The parties
submitted the BMI-T estimates for IT outsourcing in Table 1 below.4
Table 1: Market Shares in IT Outsourcing
Competitor 2007 Revenues (R
millions0
Market Share
Dimension Data/IS 1,788.16 19.2%
BCX 1,658.05 17.8%
Arivia.kom 1,130.04 12.1%
3 According to Mr Alan Moon: Head of Business Continuity in the IS & T Directorate, City of Cape Town the
former incorporates the storage of data on disk and tape media at a customer’s data centres, and includes
services related to data protection. The latter relates to the storage of tape cartridges off site from a customer’s
premises and housed in a managed and secure manner. Please see his submission to the Commission on page
66 of the record.4 The parties submit that BMI-T includes five service sub-categories within what it defines as the IT outsourcing
market, such as (i) application management outsourcing, (ii) information system outsourcing, (iii) network and
desktop outsourcing services, (iv) hosted application management, and (v) hosting infrastructure services. The
parties added that BMI-T’s definition of IT outsourcing includes services that typically do not require the use of an
off-site data centre and therefore covers a market definition that is broader than the relevant market in the instant
transaction. They submit that only sub-categories (iv) and (v) are in table 1 below are services that are provided
through off-site data centres.
4
GijimaAST 708.41 7.6%
CSC 658.13 7.1%
Other 3,364.25 36.1%
Total 9,307.05 100.0%
Source: Roy Blume, Brian Neilson and Phuculwa Lupuwana (BMI-T), South African IT
Services: Market Sizing and Forecast , 2007-2012, August 2008. Page 254 of the record
Table 11.
[12] Although the Commission was unable to obtain the market shares for all competitors
in the market for the provision of the off-site data centre storage services, its investigation 5
revealed that Vodacom Business and StorTech are not major players in so far as off-site
data centre storage services are concerned. Again when one considers the BMI-T market
share estimates6 for IT outsourcing or StorTech’s estimates of market shares for outsourcing
of data centre storage services through off-site data centres, the conclusion remains the
same.
[13] The Commission also considered whether the proposed transaction result in the
elimination of future competition between Vodacom and StorTech. The Commission submits
that Vodacom Business is a new entrant into the off-site data centre storage market whilst
StorTech is a small player in relation to a market that has established players such as
Dimension Data, BCX, and others. The relevant market does not appear to be highly
concentrated. We therefore agree with the Commission’s view that the proposed merger is
unlikely to result in the elimination of future competition between StorTech and Vodacom.
[14] The Commission also analysed the likely effects on competition arising from the fact
that Telkom currently owns 50% of Vodacom. During its investigations the Commission
contacted Telkom for clarity regarding its widely-publicised of its share in Vodacom. The
Vodafone and Vodacom transaction was notified with the Commission and we subsequently
approved it on 25 February 2009. In light of the above, we agree with the Commission that
the elimination of Telkom’s ownership would eliminate any concerns about indirect effects.
There are no public interest issues.
There are no public interest issues.
5 According to the Commission, Dimension Data submitted during the Commission’s investigations that market
shares are unknown, but it believed that the major players in the provision of off-site data centre storage services
to be Dimension Data, BCX, DataCentrix, Bytes, T-Systems, GijimaAST, and IBM. Business Connexion alleges
that it is very difficult to determine market shares as the various ways in which companies define their services
differ considerably. It nevertheless submitted a document which reflects the revenue per service category (as
defined by BMI-T). Neither Telkom, Vodacom Business nor StorTech feature in the document. Again the
Commission submits (see page 11 table 2) that according to StorTech, the largest operators in this market are
SITA, BCX, Dimension Data and Verizon. EDS/HP, T-Systems, MTN NS and IBM are smaller players, with
significant market shares of 5% each.6 See Table 1 above.
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Conclusion
[15] Accordingly the transaction is unconditionally approved.
___________________ 04 March 2009
N Manoim Date
Tribunal Member
U Bhoola and Y Carrim concurring
Tribunal Researcher : Jabulani Ngobeni
For the merging parties : Adv Jerome Wilson instructed by Cliffe Dekker Hofmeyr
For the Commission : Thabelo Masithulela (Mergers and Acquisitions)
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