Vodacom : Competition Commission advised Treasury against Vodacom contract

20 October 2017


The Competition Commission advised National Treasury not to sign an exclusive contract with Vodacom to be the sole provider of mobile telecommunication services to government.

This is according to Sipho Ngwema, Head of Communications at the Competition Commission, who was responding to questions from ITWeb. "Indeed, we furnished them with an opinion on the matter and our advice was that they shouldn't do it," he says.

The Competition Commission (CompCom) last week announced it was launching an abuse of dominance investigation into Vodacom, saying it "has reasonable grounds to suspect the exclusive contract may constitute an exclusionary abuse of dominance by Vodacom in contravention of the Competition Act".

The four-year contract for government's mobile and data communications was awarded late last year but the investigation was only announced last week. Ngwema says the CompCom has been "interacting with the National Treasury on our concerns in the intervening period".

He says the investigation was initiated by the commissioner and not due to an outside party issuing a complaint.

"Both [National Treasury and Vodacom] have pledged to co-operate and interactions have already started," Ngwema says.

He could not give an indication of how long the investigation would take, but says the next step is to "get down to business and start investigating". The commission said in its initial statement that the Competition Act prohibits a dominant firm from abusing its dominance "by requiring or inducing a supplier or customer to not deal with a competitor". It also prohibits "engaging in an exclusionary act that impedes or prevents a firm's entry or expansion within a market, unless the firm concerned can show technological, efficiency or other pro-competitive gains which outweigh the anti-competitive effect of its act".

The commission is also of the view that the contract between Vodacom and National Treasury will further entrench Vodacom's dominant position in the relevant market, raise barriers to entry and expansion in the relevant market, distort competition in the market, and result in a loss of market share for other network operators.

Last week Vodacom said it was "surprised by this investigation" but was committed to fully cooperating with the commission.

"We are confident that we followed due process in a fiercely contested and transparent bidding process," Vodacom Group CEO Shameel Joosub said in a statement.

"The tender process was initiated and controlled by National Treasury through its procurement officer, with the award based on various elements including cost savings, quality of service, security, coverage, support and billing, quality of network and technology innovation. One of the key objectives of which was to reduce government's communication costs," he said.

Joosub said none of the pricing structures put forward to National Treasury was based on an exclusive provider award basis, or any restrictive minimum commitments.

Responding to questions from ITWeb, National Treasury said "the appointment process followed a proper due diligence and governance process, and the matter was also consulted with the Competition Commission".

"The procurement process to appoint a service provider took approximately 18 months, and it included various consultations with key stakeholders, being government departments and the mobile network operators themselves, to look at leveraging government spend from buying individual packages, to rather buying an enterprise solution.

"The specification was developed by the National Treasury and the top 20 government departments with the highest spend; in addition, it was agreed to by suppliers when the tender was put out. Ultimately, the contract was awarded to Vodacom, which was negotiated to reduce costs by 40%," National Treasury said.

In March 2016, National Treasury issued a tender for the supply and delivery of mobile communication services to national and provincial government departments for the period of 15 September 2016 to 31 August 2020.

The contract was made public in September 2016, when then Chief Officer of Vodacom's enterprise business unit, Vuyani Jarana, confirmed with ITWeb that Vodacom had secured the contract for a period of four years.

Source: 4Traders