MTN's Reported Verizon Deal Faces Headwind in South Africa

Internet

An uncomfirmed deal for MTN to pay R1,4bn for networking firm Verizon Business is heading for the Competition Commission -- if the deal takes place -- as rival internet companies try to block the move.

MTN and Altech were short-listed buyers for Verizon, one of SA's largest internet service providers (ISPs) for corporate clients.

A report on the FMTech website this week cites two unnamed sources confirming that cellular operator MTN had beaten Altech to win the bid, after negotiating with Verizon's New York-listed parent company.

FMTech reports that MTN will acquire 100% of the local operations for R1,4bn, including 25% owned by empowerment partners J&J. Verizon's country manager, Angela Gahagan, refused to confirm the news yesterday, saying she had nothing new to report.

But the deal is already heading for trouble. "There's no way the Competition Commission can approve this," said a source at a rival ISP.

"You have one of the top corporate ISPs buying another top corporate ISP, and with MTN's voice infrastructure they can cross-subsidise and use unfair cutthroat pricing."

Verizon is believed to have annual revenue of about R400m in Africa, supplying voice and data services to businesses and governments in SA, Zambia, Namibia, Kenya and Botswana.

Internet Solutions CEO Angus MacRobert said he was waiting for confirmation of MTN's victory, but his company had prepared much of the evidence they would need to fight the takeover at the Competition Commission. Internet Solutions accuses MTN of anti-competitive conduct in deals with ISPs.

"We have seen how MTN operates around interconnection and mobile data and it is anti-competitive. This is going to intensify it," he said. One MTN practice was to sell data capacity on its wireless network to its retail users for far less than the wholesale rate it charged other ISPs, MacRobert said. Evidence of that would be put to the commission.

Altech had been optimistic about winning the bid precisely because of the potentially long and abortive hurdle MTN would face in winning Competition Commission approval. Altech CEO Craig Venter has acknowledged MTN could pay more, but he said the decision would be based on more than money. Altech did not have a huge presence in the data market so it would not pose anti-competitive challenges.

Neither Jay nor Jayendra Naidoo of Verizon's empowerment partner J&J would confirm the deal yesterday, or say if J&J was relinquishing its shares to the new owner. If MTN takes over Verizon, that probably knocks it out of the next upheaval facing the internet arena when MWEB goes up for auction.

MacRobert said MTN would be unable to bid for MWEB as "they can't buy two of the largest ISPs in the space of a few months".

Internet Solutions would bid, probably with Altech and Vox Telecom. MWEB has more than 320,000 home users, or more than 25% of the market. It operates in 25 other countries, and has a business division to help companies integrate their business processes with the internet.

Business Day