African telecommunications provider Vodacom has been charged M134 million (little more than 8 million USD) fine in Lesotho by the LCA (Lesotho Communications Authority). Based on information gathered from the press release it seems that the two sides had a misunderstanding about the classification of several income sources, mainly the MPesa revenue that Vodacom was generating in the country.
The disagreement has been going on for nearly 5 years now. The LCA believes that revenue gathered from MPesa should be classified as a financial service provision rather than telecommunications, but Vodacom insisted on the latter.
Now the company is facing a little over $8 million as a fine. This is absolutely destructive for Vodacom considering that this fine is roughly 10% of what the company generated in pure revenue in 2019.
Conditions of payment
The LCA understands that paying $8 million just like that is a very large hit to a company’s performance and overall future in the country. Considering the number of employees it would be extra cruel if the regulator pursued immediate payment after the announcement. Therefore, a compromise has been made.
Vodacom will be forced to pay 30% of the fine now, but the 70% will be put on hold for about 5 years so that the company can prepare. However, if there is any evidence of any violation from Vodacom, the company will immediately become liable for paying the remaining 70%.
This is probably the second most horrible situation for Vodacom. It may seem like it’s a compromise well worth taking, but in all honesty, it is not.
You see, the regulatory landscape of telecommunications is one of the hardest to navigate through. The guidelines prevent the majority of revenue channels that companies can utilize, which is nothing too serious, those can be followed easily. However, some guidelines are so strict that just by existing and following the status quo, Vodacom could potentially violate dozens if not hundreds before reaching the 5-year deadline. The nature of telecommunications regulations makes it so that it’s impossible not to violate something, thus making Vodacom’s situation not much better.
Is MPesa a financial service?
It’s actually quite hard arguing with the LCA’s logic here. MPesa is indeed primarily used for providing the unbanked population in Africa with an easy-to-use financial system that does not require an internet connection or anything too complicated. It’s a system designed to send and receive funds via SMS, thus making it a very in-demand service in remote locations of African countries as well as large urban areas.
By saying that it’s a telecommunication service is pushing it a bit. Yes, it works through SMS transactions, but in all honesty, it’s made for banking and is used for banking.
In fact, MPesa is the biggest payment method used by financial service companies in Lesotho and surrounding South Africa. It’s the most advantageous payment channel for both brokers and users as it usually doesn’t request too much in commissions.
MPesa is so widely used in this particular field that even the fundamentals of broker comparison in African countries boil down to whether one has or doesn’t have MPesa support. If it doesn’t then it can expect three times as fewer customers as their competitors who do.
Will Vodacom survive the next 5 years?
Many local politicians have already commented that this is not an ordinary fine from the LCA. Many think that these are political machinations to somehow squeeze Vodacome outside of Lesotho and invite other telecommunications companies that have much deeper connections to the local government.
However, these are just allegations that have almost no basis to them and belong to just local political speculations. However, it’s still useful to entertain the thought that this may actually be the case.
If it is indeed the case then there’s no telling what Vodacom will have to go through in the country and whether it will be allowed to continue its operations in the future.
But considering that the company was already fined around M8 million in August, but tried to somehow disregard it through a private meeting with the chairman of the LCA, it may be the case that the regulator is now absolutely furious with the company and wants it gone as soon as possible.
Many speculate that the 5-year compromise is just a ruse and time for the LCA to find a better telecommunications company to license and help set up in the country so that de-listing Vodacom ends up with as few loose ends as possible.
It’s food for through for many people in Lesotho, especially if they are using MPesa services for their banking needs.