Vodacom fined M134 million

Vodacom fined M134 million

MASERU-VODACOM Lesotho has been fined a staggering M134 million for allegedly violating licensing regulations.
The Lesotho Communications Authority (LCA) imposed the fine on Monday, citing a battery of transgressions it said Vodacom violated since 2016.

The fine, whose quantum is unprecedented in Lesotho, will send chills in a telecommunications sector already grappling with the adverse effects of the Covid-19 pandemic.
It is a massive blow that could affect Vodacom’s profitability for the next few years.

The penalty is nearly 10 percent of the company’s M1.38 billion revenue in the last financial year. That is not small change even for a behemoth worth nearly M3.5 billion.
It instantly wipes off about a quarter of the telecommunication giant’s M619 million profit before tax.

In a September 28 letter ‘Mamarame Matela, the LCA’s chief executive, instructed Vodacom Lesotho to immediately pay M40.2 million or 30 percent of the fine.
Matela however said the other M93.8 million (70 percent) of the fine is suspended for five years on condition that Vodacom “does not commit any further contraventions of its regulatory obligations during the said period”.

Although this comes across as leniency, it amounts to leaving an axe hanging over Vodacom because Matela implies that the company is just a single violation away from losing its operating licence.

“In the event that Vodacom fails to comply, the Authority shall proceed to revoke the unified license,” said Matela in the letter to Philip Amoateng, Vodacom’s managing director.
The suspension of 70 percent of the fine on condition that Vodacom doesn’t violate regulations for the next five years also puts the company in a tight spot.

This is because telecommunications is a tightly regulated sector in which companies can easily fall foul of the law. It is nearly impossible for any company to go for five years without a violation, no matter how minor it is.
In Vodacom’s case the LCA’s condition is not specific on the magnitude of the violation that might be considered enough to make the company pay the M92.8 million. The company thus has to walk a tight and treacherous line to avoid either losing its licence, pay the whole fine or both.

thepost can reveal that while Vodacom’s management was discussing a response to the letter, the LCA was pushing for the M40.2 million to be paid by lunchtime yesterday.
The fine is a culmination of the intense battles between Vodacom and the LCA over a year.

Along the way there has been an unconfirmed allegation that some politicians want to push out Vodacom and bring a new mobile network operator linked to their cronies.
The LCA has however insisted that its only motive is to ensure compliance.
The government has denied this allegation, dismissing it as malicious mischief. Still that accusation has persisted and is now likely to be spurred on by the latest decision.

In her nine-page letter, Matela accused Vodacom of flagrantly violating regulations since 2015 and then denying wrongdoing when the LCA raised the allegations.

She said instead of showing remorse Vodacom either rejected the allegations or refused to comply with the regulator’s directive.
Although Matela mentioned several transgressions, she seems to have been particularly infuriated by what she saw as repeated and deliberate flouting of corporate governance rules by the country’s biggest mobile network company.

The LCA took issue with the fact that Vodacom’s chairman is related to a partner in the company’s external audit firm. The allegation is that a partner at the audit firm is sister-in-law to the chairman of Vodacom. This, to the LCA, meant the audit firm was not independent enough and its assessment of the company’s financials was likely compromised.

“The decision to appoint a relative of the Chairman is a material violation of principles governing combined assurance functions designed to build trust in the accuracy of financial reporting by the licensee (Vodacom),” Matela said.

She claimed that between 2015 and 2019 Vodacom contravened its licence conditions by “submitting audited financial statements that were unaccompanied by a certification issued by an independent external auditor.”

This, she added, is a serious breach of the licence because the certification was signed by the chairman’s sister-in-law.
In February this year the LCA asked Vodacom to explain why its licence could not be revoked because of this alleged violation.

Matela said Vodacom responded in March, insisting that it had not “contravened the condition, despite compelling factual admissions to the contrary”.
The denial “indicated that the contraventions were intentional”, she said.
To support her allegations that the violation was intentional, Matela said the Vodacom board of directors foresaw this during meetings held in September or November 2015.

“They applied their minds and elected to put up a façade of contrived processes aimed at managing the conflict of interest by excluding the Chairman of the Board from proceedings.”
“They deliberately contravened statutory prohibitions and licence conditions under the laws of Lesotho.”

The LCA also accused Vodacom of refusing to amend the format of its trial balance to comply with the rules.
In 2019 the LCA and Vodacom disagreed over how the revenue from the company’s Mpesa mobile money business should be treated in the financial statements.

Although that had been a sore issue for months, matters came to a head when Vodacom wanted to pay its annual fees to the LCA. The annual fee is four percent of the mobile network company’s net operating income and is based on the annual audited financial statements mobile networks companies submit to the regulator.

The LCA based the fee on the net operating income generated from the core telecommunications (voice and data) service business and Mpesa, its money transfer service.
Vodacom disputed the figure, saying it was based on wrong calculations.

Their reasoning was that income from Mpesa services should be discounted because it was not earned from core network operations. The company said Mpesa was a financial product, not a telecommunications one. The correct calculation, the company argued, should be based only on what the company earned from voice and data services.

The LCA however insisted that additional services like Mpesa formed part of the company’s income because they are driven by its network operations.
As the wrangling continued Vodacom missed the deadline to pay the fees. And when it eventually did, the regulator slapped it with an M8.2 million penalty for non-compliance. Vodacom Lesotho sued to challenge the penalty. It however later dropped the case and paid the fine but Matela’s letter lists this alleged violation as if it’s part of the current charges.

She further accused Vodacom of being dishonest in its financial and contractual obligations to provide telecommunications services to the unserved and underserved areas in Lesotho.
She alleged that Vodacom refused to implement the directive to stop out-of-bundle charges. Matela said Vodacom “was insincere about not being aware of the scope of the directive”.

She said the company launched media campaigns to discredit the Authority.
Matela further alleged that the company also “applied political pressure on the Authority to withdraw the enforcement proceedings”.
What seemed to have sealed Vodacom’s fate is what Matela saw as “aggravating factors” that included noncompliance, lack of remorse, dishonesty and unethical behaviour.

She said Vodacom denied all the charges and refused to comply despite the LCA’s compelling evidence against it. She alleged that in August, after being slapped with the initial M8.2 million fine, Vodacom arranged a “surprise meeting” with Communications Minister Thesele ‘Maseribane “to coerce the authority to retract the penalty”.

“When that intervention failed, Vodacom took the Authority to court to have the penalty reversed. Vodacom later withdrew the court case and paid the penalty.”
In February representatives of Vodacom’s majority shareholders met the regulator to discuss the alleged violations and the notice to revoke the licence. Matela alleged that one of the representatives left the meeting to attend another with the Prime Minister (Thomas Thabane).

This, she said, was meant to “escalate the matter and exert further political pressure on the Authority to avoid dealing with noncompliance issues”.

Shakeman Mugari

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