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Vodacom-LCA fight spills into the courts

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… as mobile giant warns decision to revoke its licence could spark a serious economic, social and security crisis in the country.

Mohalenyane Phakela

THE High Court has issued a temporary interdict barring the Lesotho Communications Authority (LCA) from revoking Vodacom Lesotho’s operating licence amid revelations that the LCA’s decision could spark a serious economic, social and security crisis in the country.

The order is valid until 22 October 2020 when the court will hear Vodacom Lesotho’s application for a final order nullifying the revocation of its licence and the staggering M134 million fine imposed on it for various offences allegedly committed from 2015 to date.

Justice Thamsanqa Nomngcongo granted the interim interdict on Thursday evening. This after Vodacom Lesotho approached the court to challenge the LCA’s decision to revoke the mobile communications giant’s licence earlier that day.

The LCA had revoked the licence on the grounds that Vodacom had failed to comply with its directive to pay a M40, 2 million fine by 7 October 2020.

The LCA had initially fined Vodacom M134 million for what the authority’s chief executive officer, ‘Mamarame Matela, said were serious infractions since 2015 including “submitting audited financial statements that were unaccompanied by a certification issued by an independent external auditor”.

Vodacom was ordered to immediately pay M40, 2 million which is 30 percent of the entire fine imposed on it. The remaining M93, 8 million (70 percent) of the fine was suspended for five years on condition that Vodacom does not commit further offences in contravention of its regulatory obligations within that period.

The fine ought to have been paid on Wednesday and when it was not paid, the LCA decided to revoke Vodacom’s operating licence the following day.

In a statement on Thursday, the LCA said it revoked the licence due to Vodacom’s “failure to comply with the directive to pay a penalty of M40 200 000 by 7 October 2020”.

This prompted Vodacom to file an urgent High Court application for an interim order nullifying the revocation of its licence. The interim order was duly granted by Justice Nomngcongo paving the way for Vodacom to continue providing services until its application for a final order against the decision is heard on 22 October.

The chairman of the board of LCA, the LCA chief executive officer and the LCA are first to third respondents respectively.

Vodacom’s court papers point to the likelihood of serious economic, social and security repercussions for the country if the LCA decision is not reversed.

“The inevitable impact on service availability throughout the country would affect the performance of essential government services such as policing, healthcare and infrastructure provisioning,” Vodacom’s lawyer, Advocate Motiea Teele argues on behalf of the mobile communications company.

From an economic perspective, Adv Teele and Vodacom Managing Director, Phillip Amoateng, argue that the deleterious effects of the revocation will range from the loss of international investor confidence in Lesotho to the loss of billions in direct and indirect tax revenues as well as the loss of 23 000 jobs.

With 1, 2 million subscribers, Vodacom is by far the largest of the two mobile communications in Lesotho which has a 2,1 million population. (Econet Telecom Lesotho is the other mobile services provider. Econet was slapped with a much smaller M1, 5 million fine by the LCA for the late submission of its licence renewal application).

In his court papers, Adv Teele says that Vodacom’s direct and indirect tax contributions exceeded M1 billion from 2016 to 2019.

In the 2019/20 financial year, Vodacom’s direct tax contribution amounted to M194 million, he states.

Adv Teele argues that the banking industry would also unravel and most of the country’s unbanked population, who had found financial inclusion through Vodacom’s Mpesa mobile money platform, would have nowhere to go.

“About 661 000 (more than a quarter of the population) customers use and transact on our Mpesa (mobile money) platform and this platform holds an amount of about M209 million which is held in a trust account with two commercial banks.

“A panic withdrawal of funds from Mpesa (due to the revocation of the licence) could create a serious commercial crisis leading to a bank run on the institutions which hold the funds in trust…

“Mpesa handles an average of M1 billion worth of transactions per month. It also promotes financial inclusion for the unbanked masses of this country…and this (revocation of Vodacom’s licence) will also affect the masses of this country including those who receive social grants.

“Vodacom’s Mpesa specifically allows for inclusive access to financial services. If operations were to be discontinued, this would not only affect 80 percent of Lesotho’s mobile subscribers but also disproportionately impact the poorest poor who would cease to have access to low-cost financial services.”

Adv Teele further argues that the withdrawal of Vodacom’s licence “will create mayhem in the employment market” through the loss of approximately 23 000 jobs “directly and indirectly” provided by Vodacom. If these figures are correct, it means Vodacom is third largest employer in the country after the government and the textile sector.

Mr Amoateng petitions the court to revoke the M134 million fine on the grounds that LCA allegedly violated its own rules by immediately demanding payment of 30 percent of the fine (M40,2 million).

He says in terms of the LCA (Administrative) Rules, the authority must allow for a window period of 14 days after imposing a fine on a licensee to enable the courts to review any adverse finding made by the authority against a licensee.

He says in Vodacom’s case, he was first instructed to pay the M40,2 million fine on 30 September 2020 which was only two days after its imposition. He says when the fine was not paid, he was again told on 2 October to pay it by the 7th of October.

When that did not happen, LCA then issued the notice of revocation even though the 14-day window period had not lapsed and the fine had not been reviewed in the courts of law. He says the fine is based on wrong findings and even if Vodacom had been guilty, the infractions would not have warranted such a “grossly exorbitant and unreasonable fine that no authority properly directing its mind could impose”.

He adds that the LCA decision has “negatively affected” his company’s reputation and also caused panic among its customers and other entities “that do business with the applicant.”

He reserves his venom for LCA chief executive officer, ‘Mamarame Matela, who he accuses of bias and prejudging Vodacom.

“It is a sign of bad faith that the second respondent (LCA CEO Ms Matela) should accuse the applicant of not showing remorse when it made representations. It is apparent that LCA was not acting impartially because a demonstration of remorse only becomes relevant after the finding of non-compliance or guilt.

“It is apparent that the LCA had prejudged the issue and did not approach it with the required impartiality and objectivity. Its decision may have been actuated by malice,” Mr Amoateng states in his affidavit.

He says the alleged infractions especially Vodacom’s hiring an audit firm headed by the sister-in-law to the chairperson, Matjato Moteane, were old issues that had been dealt with hence they could not be the basis of revoking the company’s licence now.

“It is worth pointing out that the alleged transgressions are historical in nature as it is alleged that the auditors signed the applicant’s audited financial statements for financial years 2015/2016, 2016/2017 and 2017/2018.

“It is also worth pointing out that it is on the basis of the audited financial statements filed in respect of each of the years abovementioned that the respondents computed and invoiced the applicant regulatory fees and the same were regarded as correct… The regulatory fees have been paid accordingly,” Mr Amoateng states.

He argues that although Ms Ada Moteane’s audit firm, Moteane-Quashie& Associates, audited Vodacom’s books, her relationship to Vodacom’s Mr Moteane did not constitute a material breach of the regulations. He says the two are in-laws and this does not violate section 97(2) of the Companies Act which defines a relative as a parent, spouse, child, sister, brother or “a nominee or trustee of any of these persons”.

He argues that the LCA did not even conduct any investigations to ascertain if at all Vodacom had failed to appoint an independent auditor and the authority should have reported to the Lesotho Institute of Accountants if it felt Vodacom had submitted inaccurate financial statements as a result of its alleged use of auditors who were not independent.

He argues that in any case, LCA did not have the powers to penalise Vodacom for its alleged failure to appoint an independent auditor in terms of the Companies Act. He argues that such power belongs only to the Registrar of Companies and the LCA’s failure to refer the issue to the registrar “constitutes a reviewable and fatal irregularity”.

“It is also important to note that the second respondent (LCA CEO Matela) is not responsible for the performance of any duties under the Companies Act and the purported finding of non-compliance based solely on the alleged contravention of the provisions of section 97(2)(g) of the Companies Act in essence bears no rational connection with the powers conferred on the second respondent by the Communications Act. To do so would be to usurp the powers of the Registrar of Companies…

“The applicant has suffered prejudice as a result of the respondents arrogating to itself the powers of the Registrar of Companies under the Companies Act. The respondents failed to conduct any investigations aimed at finding out if the audits …, about which it complains, are accurate. Neither did the respondents contact the Lesotho Institute of Accountants on the veracity and or accuracy of any of the audits complained of. However, the respondents’ findings have assumed that the audits were not accurate.

“The assumption by the second respondent (Matela) that the audits of the applicant are inaccurate because of a query raised by the respondents in relation to section 97(2)(b) of the Companies Act is irrational, unreasonable and unlawful, rendering the imposition of the penalty for the offence alleged to have been committed.

“Even assuming that applicant’ external auditors were not independent, which is still denied, this does not necessarily render the audits for the relevant years invalid. What is even more objectionable is that the second respondent made an assumption that the audits were wrong instead of commissioning a re-audit of the relevant financial periods to establish the integrity of the audits.

“This also vitiates the penalty imposed which assumes, incorrectly, that the audits for the periods in question were inaccurate and therefore invalid. The second respondent’s findings are more about form rather than the substance and accuracy of the audited financial statements, and for the second respondent to have made a decision based on form is unreasonable and irrational,” Mr Amoateng argues.

In terms of the final reliefs, Vodacom Lesotho therefore wants the High Court to nullify both the LCA’s decision to revoke their licence and to fine them M134 million.

It also wants the High Court to declare as unlawful, the LCA’s decision to include Mpesa revenues as part of telecommunications revenue when calculating the regulatory fees Vodacom is expected to pay for its mobile communications licence.

It argues that Mpesa is a financial service which is regulated by the Central Bank of Lesotho and not the LCA which is a licensing authority for telecommunications.

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