05/10/2017 06:22 SAST | Updated 05/10/2017 06:22 SAST

Vodacom Investigated By Competition Commission for R5bn Contract

But National Treasury insists the contract is above board.

Siphiwe Sibeko / Reuters

Vodacom is under investigation by the Competition Commission for abuse of dominance after being awarded a R5-billion contract by National Treasury to supply voice and data services to various government departments, Business Day reported on Thursday.

Treasury has defended the contract, saying it was surprised by news of the investigation as it had consulted the Commission before awarding the contract.

The contract was reportedly awarded in September 2016 and will continue until 2020. Previously, government departments could purchase telecommunications services from any provider.

Treasury reportedly wrote to the commission to ask if there would be potential competition issues.

But according to Independent Online (IOL), the commission advised Treasury that the contract could be in breach of the Competition Act.

Commission spokesperson Sipho Ngwema told IOL that Treasury had only sought advice on the duration of the contract, while the commission said it would assess the whole contract.

Ngwema told Business Day that the commission had information that 20 government departments would have to make use of the new Vodacom contract. Others would be incentivised to use it.

Treasury maintained that the contract was above board, and told Business Day: "An opinion was received. Based on the value proposition, the award was made to a single bidder in the absence of other solid value propositions that met the tender requirements."

Vodacom told Business Day that it was awarded the contract based on various criteria, including quality of service, coverage and cost savings.

"One of the key objectives... was to reduce government's communication costs," Vodacom spokesperson Byron Kennedy reportedly said.

According to Moneyweb, the commission said the contract would "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".