Memo exposes Vodacom/LCA rift

Kananelo Boeletse

MASERU – An explosive communique to shareholders of Sekhametsi Investment Consortium, a local company which owns 20 percent of Vodacom Lesotho (VCL), has exposed a widening rift between VCL and the Lesotho Communications Authority (LCA).

Vodacom Lesotho is a subsidiary of the Vodacom Group Limited, a South African mobile communications company, providing voice, messaging, data and converged services to over 55 million customers.

Vodacom Group Limited’s integrated report for the year ended 31 March 2019, showed that Vodacom Lesotho’s earnings before interest and tax for 2018 was M491 million, a M17 million increase from 2017’s M475 million.

The rift between Vodacom and the LCA, according to the communique, has triggered conjecture on social media that “there is a hidden agenda to seek means to revoke and/or encumber Vodacom’s licence, as retribution to Sekhametsi”.

“Some sections of the society, especially in political circles, have repeatedly raised concerns about Sekhametsi’s stake in Vodacom,” read the communique.

The LCA is a statutory body established in June 2000, to regulate the communications sector in Lesotho.

This mandate entails, among others, promoting fair competition, approving tariffs and granting licences to operators.

“Recent developments, concerning the relationship between Vodacom and the LCA” were brought to the attention of Sekhametsi shareholders by a communique, a copy of which Public Eye has seen, that was distributed by the consortium’s board of directors.

“The Board of Directors of Sekhametsi Investment Consortium would like to issue the attached self-explanatory Note to all SMIC Shareholders to highlight on recent developments on VCL regulatory issues,” ’Mamolise Mojaje said in an email to shareholders.

According to the communique, in August 2019, the LCA issued a non-compliance order against Vodacom alleging that the company had not complied with the payment of regulatory fees for the financial year 2018/2019.

For this alleged breach, Vodacom was fined M8.2 million.

“It should be noted that this was the first time in 24 years that a penalty was issued to Vodacom Lesotho for noncompliance,” Sekhametsi directors said in the communique.

The directors complained that the penalty, coupled with the fact that LCA had overcharged Vodacom by some M8 million in regulatory fees by disallowing the deduction of Mobile Money revenue from chargeable income, has a net effect of reducing Vodacom’s net profit.

They said a M14 million net profit for Vodacom “equates to a potential dividend income of over M2.8 million to Sekhametsi”.

Furthermore, they added, the penalty deprived the Lesotho Revenue Authority (LRA) “an equivalent of over M2 million in corporate taxes”.

LCA public affairs manager, Tšiu Tšiu on Wednesday told Public Eye regulatory fines for non-compliance are “not done in Lesotho only but in many countries”.

Tšiu said: “Basically the Authority is dealing with issues of compliance in all issues mentioned (in the communique) which is its duty to do according to the Communications Act of 2012, rules, licence conditions and other laws of Lesotho.”

He also referred this paper to the amended LCA administrative regulations and licensing classification and fees regulations.

The 2018 regulations state that where a licensee fails to pay the required licensing fees, “the penalties shall be applied by the authority against the licensee”.

They state further that fees for licences and permits “shall be paid on the date determined by the authority”.

“All individual licences shall be due on April1, every year and payable on or before the July 1, each year,” reads the regulations.

Where license fees are paid within three months after the date determined by the authority, the regulations state that a licensee shall be charged a 20 percent penalty of the outstanding amount, 50 percent if the payment is made between three and six months and 75 percent when payment is done after six to 12 months.

After 12 months without payment, the licence automatically expires.

Tšiu also denied that there was a hidden agenda aiming to revoke Vodacom Lesotho’s licence.

“The licence that Vodacom has was issued by LCA having met the criteria for licence renewal in 2015. Ours in relation to our licensees is sector regulation and compliance, nothing more,” he said.

On November 15, last year, the LCA announced it had fined Vodacom for defaulting on regulatory fees “as they fell due and payable on or by July 1, 2019”.

In the statement, the LCA said the Licensing Classification and Fees Rules 2018, “prescribe on clear terms that the Authority shall impose penalties for non-payment of regulatory fees and prescribes how these penalties shall be imposed”.

“It is the mandate of the Authority to regulate the communications sector and it is duty-bound to take all necessary action to achieve this mandate… Where licensees deliberately ignore or are not prepared to comply with laws of Lesotho, the necessary action will be taken to ensure compliance,” it said.

Tšiu on Wednesday told this publication the LCA issued this statement “following a court action by Vodacom after it was issued with a penalty by the authority”.

However, in their communique, the directors of Sekhametsi charged that between August and December 2019, the LCA had targeted Vodacom in various press releases.

“The net effect of this unusual step by the LCA, which did not accord Vodacom Lesotho the right of a hearing, has resulted in the following; reputational damage and further deterioration of relations between the regulator and Vodacom Lesotho,” the directors said.

They further revealed to the shareholders that in December 2019, LCA issued two enforcement letters against Vodacom, one alleging the company had breached universal access fund obligations while the other complained about Vodacom’s use of partial auditors.

The mandate of the universal service fund seeks to ensure that all citizens in the country have access to voice telephony services, internet access, broadcasting services and basic postal services.

They said the “crux of the matter” in the first letter was that Vodacom failed to submit performance reports to LCA “in relation to a contract between it (LCA) and Vodacom to supply data connectivity to some 60 schools throughout the country”.

“In its defence, Vodacom alleges that the contract between it and LCA is not explicit on type of the reports to be submitted. However, Vodacom has now submitted a comprehensive response of its performance in terms of this contract, and we are hopeful the regulator will not impose another penalty,” they said.

In the second letter, the LCA indicated that it was worried by the partnership between Vodacom’s auditors and a local audit firm, Moteane Quashie & Associates, which allegedly has links with the chairman of the board of Sekahametsi.

According to the communique, the LCA Chief Executive Officer (CEO) ’Mamarame Matela raised this matter in a meeting “with the board chairman and the representative of Vodacom group” and was assured that concerns would be reviewed.

“It is believed that it is the view of Vodacom Lesotho that the appointment of the auditor firm in question does not breach independence. Vodacom Lesotho has responded to the regulator on this matter,” read the communique.

The directors said on January 17, this year, LCA issued an additional letter of enforcement against Vodacom alleging that the company had run a customer incentivisation programme outside the approved promotion modalities.

“It is noted that Vodacom Lesotho has responded to LCA, disputing the infringement,” they said.

Sekhametsi claims it has “a far-reaching shareholder profile of about 2,000 which includes; women’s societies, church groups, public companies, burial societies, encompassing a broad range of Basotho in all their demographic dispositions”.

Based on the consortium’s shareholder profile, the directors stated in the communique that Sekhametsi “is not aligned to any political party and has a broad and diverse membership, united for the sole purpose of providing Basotho with opportunities for direct investment in their national economy”.

They added the “current impasse between Vodacom and LCA requires multi-prolonged approach” entailing engagement with the LCA and the minister of communications, science and technology Thesele ’Maseribane.

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