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Rain’s future is at risk if the Competition Court agrees with a recent Telkom complaint that the spectrum agreements between Vodacom and Rain constitute a merger.
The spectrum agreements Telkom is referring to relate to a 2016 network lease and roaming agreement between Vodacom and WBS, now known as Rain.
This agreement allows Rain to lease aspects of Vodacom’s sites and facilities, while Vodacom gains access to Rain’s LTE network through a non-exclusive roaming agreement.
This lease agreement with Vodacom enabled Rain to accelerate the deployment of its network and helped it finance it through roaming charges.
Telkom, however, maintains that the partnership between Vodacom and Rain goes beyond what the companies said and is actually a merger.
Now he has gone to the Competition Court, arguing that this merger should have been notifiable in terms of the Competition Law.
“The multiple agreements between Vodacom and Rain give Vodacom the use and control over the deployment of Rain’s spectrum, including the planning, deployment, maintenance and service of its radio access network,” said Telkom.
Telkom group regulatory affairs executive Siyabonga Mahlangu argues that Vodacom’s ability to control Rain’s spectrum strengthens its position as a dominant player in a concentrated market.
Telkom is now asking the Competition Court to determine that the agreements constitute a reportable merger and should be subject to scrutiny by competition authorities.
This case may crush Rain, but most likely not
If the Competition Tribunal sides with Telkom in this case, Rain could lose his biggest client and jeopardize his future.
Rain relies heavily on the network partnership and Vodacom wholesale revenue to fund its network.
Rain simply cannot afford to lose Vodacom as a customer, as it will crush their current business model.
Although it is rapidly increasing its subscriber base, which stands at over 400,000, it is not generating enough revenue from these subscribers to build a network.
Nor does it want to finance the deployment of its network through debt, a strategy that ended badly for Cell C.
While there is tremendous risk to Rain related to the Telkom Competition Court lawsuit, it is unlikely to be successful.
Rain Chief Executive Willem Roos said the agreement with Vodacom has been reviewed and approved by the Competition Commission and ICASA.
Vodacom added that the Competition Commission determined that the 2018 agreements do not constitute a merger in terms of the Competition Law.
ICASA also found that the 2018 agreements do not violate the Electronic Communications Law.
The regulator even stated that the deal has facilitated Rain’s expansion as a wholesale and retail competitor in mobile broadband, which is pro-competitive.
Telkom’s claim that Vodacom is controlling Rain’s spectrum is simply inaccurate and unlikely to remain under scrutiny.
It will also be difficult to argue that the partnership between Vodacom and Rain limits competition in the South African mobile market.
Rain competes fiercely in the 4G and 5G data retail markets in South Africa with innovative and affordable unlimited broadband products.
Questions raised about the timing of the complaint
An interesting question posed by industry players about Telkom’s approach to the Competition Tribunal is: why now?
The agreement between Vodacom and Rain has been in place for four years and has passed regulatory approvals.
Industry speculation suggests that it may be related to the recently announced spectrum auction, which will take place in 2021.
ICASA has published the Invitation to Apply (ITA) for mobile networks that want to bid for 4G and 5G spectrum earlier this month.
Vodacom and MTN, which have the deepest pockets, are probably the biggest benefactors of this spectrum auction.
Not only do they need spectrum the most, but they also have more money than their competitors to make the most of this resource.
However, it is unclear if Telkom is playing a political game around spectrum or if it is targeting Rain, which is starting to gain market share in the fixed LTE and 5G market.
Now read: Telkom files a complaint against the association of Vodacom and Rain
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