Vodacom 'Might Face Legal Action on Airtime Deals' in South Africa

Mergers, Acquisitions and Financial Results

Vodacom faces the possibility of legal action from the Competition Commission, which claims the company withheld information in a bid to win approval for its R206m acquisition of two companies that resell its airtime.

The cellular operator could be had up for contempt if the commission acts on a recommendation to prosecute the company to the full extent of the law. But the penalty for withholding information from the commission is a mere R2000, prompting commissioner Shan Rambaruth to say it would investigate every option before deciding whether to proceed.

The call for retribution comes from the Competition Tribunal, which believes Vodacom intentionally withheld certain documents relevant to an acquisition hearing. The tribunal took "an exceedingly dim view of the contempt that Vodacom's conduct reveals for the regulatory process", said its chairman David Lewis. That was a "flagrant contempt for the law" and the only solution was to prosecute. The power to instigate legal action lies with the commission.

While Vodacom has raised the tribunal's wrath in this particular case, Lewis said an increasing number of companies were trying to win approval for proposed mergers by presenting carefully constructed but deceitful affidavits. They should be rejected, and when the commission discovered that they were trying to camouflage the truth, it should prosecute them.

If a merger was approved on the basis of misleading or withheld information, approval should be withdrawn and the guilty parties fined, he said . Last week Rambaruth said he would look at the tribunal's rulings in the Vodacom case and carefully consider the options. The tribunal feared that if hard action was not taken against evasive or untruthful companies, such deceit would occur more frequently.

"Using our powers more is very important for the proper functioning of these institutions," he said. Vodacom SA MD Shameel Joosub said: "We unequivocally deny we deliberately withheld information from either the commission or the tribunal, or made any attempt to mislead them. Vodacom had a high regard for both those bodies and always dealt with them with the utmost respect, he said. "Whilst we must accept responsibility for submitting a document late, the document was nevertheless voluntarily submitted by Vodacom after Vodacom itself had discovered it."

Despite condemning Vodacom for its action, the tribunal has allowed the deal and gave its reasons yesterday. Even when the evidence Vodacom tried to hide was considered, the deal would not substantially erode competition in the market, the tribunal said.

Vodacom will now terminate a licence held by Global Telematics and acquire its business of signing up cellular subscribers. Global Telematics subcontracts some work to Glocell Service Provider Company, and as part of the deal Glocell will hand that business back to Global Telematics. Vodacom will therefore absorb the subscriber bases of both those service providers.

Business Day