The Competition Commission said on Wednesday it has started an investigation into cellphone giant Vodacom for “abuse of dominance”.
This comes after Vodacom [VOD] secured an “exclusive exclusive four-year agreement” with National Treasury to be the sole provider of mobile telecommunication services to the government.
After news of the investigation broke, the cell phone giant’s share price dived 5% on the JSE.
The commission said in a statement that the contract would entrench Vodacom’s dominant position in the market, raise barriers to entry and expansion, distort competition in the market; and result in a loss of market share for other network operators.
Vodacom and National Treasury did not immediately reply to a request for comment.
The commission said that, before Vodacom entered into the agreement, all government departments could purchase mobile telecommunication services from “any mobile network operator”.
“In March 2016, Treasury issued a tender for the supply and delivery of mobile communication services to national and provincial government departments for the period 15 September 2016 to 31 August 2020,” it said.
“Vodacom was the preferred supplier after the other bidders were eliminated at different phases of the bidding process.”
“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,” it said.
The 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 stops firms from engaging in “exclusionary acts” that impedes the entry of other firms into the market.