Vodacom and Maziv: a contrarian viewpoint

Since the news broke last week that Vodacom, South Africa’s largest cellular network operator, had its bid to buy fibre network operator Maziv blocked by the Competition Commission, we’ve been inundated by sob stories of how this “setback” will “widen digital exclusion” in the country’s rural and underserviced areas.

To be direct: digital exclusion isn’t an issue in rural areas. Some of these communities are well served by smaller wireless data operators – it’s just that the large cellular providers with extensive coverage and with high pricing models aren’t one of them, and have created that exclusion.

Wapa – the Wireless Access Providers’ Association – applauds the recent decision by the Competition Commission, which we believe is in the best interests of consumers getting a fair price for their broadband internet connection. The idea that blocking the Vodacom-Maziv deal is a setback for the entire industry is nonsense; it is only a setback for the companies involved in the deal.

Vodacom’s 30-year legacy and significant headstart have allowed it to dominate the market

To understand why concerns about “underserved communities” may be more about marketing than substance, let’s take a closer look at recent history.

Vodacom, launched in 1994, rose to the top of the telecommunications industry in South Africa, building a behemoth network primarily fuelled by voice traffic revenue. As data overtook voice as the primary traffic on these networks, the shift brought in increased profit margins.

Vodacom’s 30-year legacy and significant headstart have allowed it to dominate the market, and its CEO, Shameel Joosub, has been with the company from the start. A Harvard graduate with nearly a decade as CEO, Joosub has steadily pushed Vodacom towards deeper market consolidation.

Not its first rodeo

Let’s be clear: this isn’t Vodacom’s first rodeo with attempted mergers to tighten its market grip. In 2015, Vodacom’s proposed acquisition of Neotel fell apart after industry outcry and intervention from its competitors with regards to the transfer of spectrum. Despite this, Vodacom hasn’t let up on its mission to secure a stranglehold on internet infrastructure in South Africa.

Now, with Maziv – the parent of Dark Fibre Africa and Vumatel – the company set its sights on a fibre goldmine. Maziv has already invested R30-billion into its fibre network, with another R10-billion planned, positioning it as a linchpin in South Africa’s broadband future.

Read: Vodacom signs its first MVNO customer

But Maziv is also R25-billion in debt, recently refinanced by Standard Bank in one of the largest deals of its kind. And let’s not ignore that Vodacom already owns its own fibre network – one of the few in the country that remains closed access.

Vodacom has trotted out a tired promise: that buying Maziv would help them “connect the unconnected” in rural and underserved areas. This is, to put it bluntly, PR nonsense. Fibre simply doesn’t make financial sense in sparsely populated rural regions, where both the installation costs and potential subscriber pool render it unsustainable.

Vodacom Group’s head office in Midrand, Johannesburg

What’s more, the claim that Vodacom suddenly wants to provide affordable broadband for rural South Africans rings hollow. Just two years ago, the company argued against the “data must fall” movement, claiming it couldn’t cut data prices without more spectrum. When they finally secured spectrum in the 2022 auction, they not only declined to lower data costs – they increased them, funnelling the extra revenue into their 5G network. This hardly reflects a company committed to affordable, accessible broadband for the masses.

The 2022 auction even featured a unique spectrum allocation lot in sub-1GHz that required rural roll-out before it could be used in urban areas. And what did Vodacom do? Ignored it, as did the other operators. The spectrum remains unsold and there is little evidence of any rural roll-out since then.

The red and yellow rainbow

With MTN eyeing Telkom’s network, Vodacom’s acquisition of Maziv would solidify a two-giant monopoly. Together these two players could hike prices and squeeze smaller providers out of the market. Smaller operators like those represented by Wapa, which has been bringing broadband to underserved areas for years, would be shut out by Vodacom’s deep pockets and aggressive pricing.

Vodacom’s closed-access network has been a persistent thorn in the side of open-access proponents, and Maziv’s network was open access, meaning it allows other providers to use its infrastructure. Government’s open-access directive aimed at fostering competition could be undermined if Vodacom took control of Maziv and decided to tighten the gates. Why would Vodacom, which has shown zero commitment to open networks, suddenly prioritise sharing resources with competitors?

This isn’t about creating a “Rainbow Nation” of internet access for all. It’s about creating a closed-loop between Vodacom and MTN, where they could set the terms, keep prices high and lock out innovation. If Wapa and smaller providers are squeezed out, rural South Africans will feel the brunt.

The author, Wapa’s Paul Colmer

Let’s remember that South Africa’s telecoms landscape only saw real disruption when companies like Cell C and Rain entered the market. By introducing more affordable, uncapped LTE options, these smaller players shook up the status quo set by Vodacom and MTN. Without them, Vodacom and MTN might have continued with their high-priced offerings, catering mainly to higher-income, urban customers.

The Competition Commission’s decision isn’t anti-growth; it’s pro-competition. In a free market, the price should be set by competition, not monopolistic giants with inflated pricing strategies. Smaller internet service providers have already established footholds in rural areas – footholds that are sustainable, cost-effective and cater to the communities Vodacom ignores.

Read: Blocked Vodacom-Maziv deal derails telecoms M&A

Let’s face it, Vodacom’s services are already available in under-connected areas, but most rural populations simply can’t afford them. And why should they have to? Just as Wapa and its members bring access at a fair price, competition – not monopolistic dominance – will ensure underserved communities stay connected affordably.

If Vodacom had succeeded in this deal, poorer, rural South Africans would be the ones to suffer. So, let’s be thankful the Competition Commission saw through the thin veil of promises. Rural communities don’t need monopolistic giants. They need competition that drives affordable access for all, and this blocking move has ensured that, for now at least, they’ll have just that.