Vodacom Slumps on South Africa Probe of Treasury Contract

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OCTOBER 5, 2017 – Vodacom Group Ltd. slumped the most in more than seven years after South Africa’s antitrust regulator started a probe into a contract with the National Treasury that may constitute an abuse of market dominance.

The September 2016 deal to provide mobile-phone services to the finance ministry prevents other operators from selling to state departments, the Competition Commission said in an emailed statement on Wednesday. The Vodacom contract has since been adopted by other parts of the government and some state-owned entities and municipalities will be incentivized to use it, the regulator said.

Vodacom shares plunged as much as 8.5 percent, the most on an intraday basis since May 2010, before paring losses to close 3.2 percent lower at 151.36 rand in Johannesburg. Newbury, England-based Vodafone Group Plc, the owner of a 65 percent stake, reversed earlier gains to close 0.7 percent down in London.

“We are confident that we followed due process in a fiercely contested and transparent bidding process,” Vodacom Chief Executive Officer Shameel Joosub said in an emailed response to questions. The tender process was initiated and controlled by the Treasury with the aim of reducing government communication costs, he said.

Vodacom is South Africa’s market leader with more than 39 million subscribers as of end-June. The Treasury deal, which runs until 2020, was worth about 5 billion rand ($368 million), Joosub told Johannesburg-based 702 radio station on Wednesday.

‘Exclusionary Abuse’

Wireless operators across sub-Saharan Africa have become the subject of government and regulatory scrutiny in recent years for dominant market positions, including Kenya’s Safaricom Ltd., in which Vodacom owns a 35 percent stake. MTN Group Ltd., No. 2 to Vodacom in South Africa, has had services suspended in Nigeria, where it leads the market.

Before Vodacom entered into the exclusive four-year agreement with National Treasury, all government departments could purchase mobile services from any mobile network operator, the Competition Commission said. Now, 20 will be subjected to the new contract, while state-owned entities and municipalities will be incentivized to use Vodacom, it said.

“The commission has reasonable grounds to suspect that the exclusive contract may constitute an exclusionary abuse of dominance by Vodacom in contravention of the Competition Act,” the regulator said.

The Treasury is surprised by the investigation because it had consulted the commission prior to awarding the contract to Vodacom, Johannesburg-based daily newspaper Business Day said, citing the department.

DCSL 90X780

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