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Defiant VCL survives revocation

Oct. 9, 2020 5 min read

5 min read

MASERU - Vodacom Lesotho (VCL) has been accused of deliberate non-compliance, dishonesty and lack of remorse towards the laws by the Lesotho Communications Authority (LCA), the resolution which prompted the authority to slap the telecommunication giant with a whooping M134 million in penalties.

This was revealed on Monday during a media briefing that was held by the LCA. The authority’s administrative rules clearly state that it may suspend or revoke a license if it concludes that the licensee is in breach of regulatory obligations including the license conditions, the Act or rules, or any subsidiary legislation.

The license may also be revoked if the licensee is not able to comply with regulatory requirements, or has failed to comply with the directives of the authority.

After due consideration of any representations by the licensee, the authority may, among other things impose a financial penalty on the licensee, payable within a stipulated period.

In a detailed letter directed to VCL earlier, LCA revealed that on February 11, it determined that the former had contravened condition 15.5 of the License Conditions and requested the company to show cause why the authority shall not revoke its unified license.

The company is accused of non-compliance in that it appointed a close relative of the board chairman as its external auditor and subsequently failed to submit certifications from independent auditors, in contravention of condition 15.5 of License Conditions during the period ranging from 2015 to 2019.

“Vodacom has failed to pay its regulatory fees when they fell due and payable on or by June 30 2019 and has further shown no remorse for deliberately appointing a relative of the chairman as its external auditor,” LCA Chief Executive Officer, ’Mamarame Matela said in a letter.

Fast forward to August 12, VCL independently arranged a surprise meeting with the Minister of Communication, Science and Technology, aimed at coercing the authority to retract the penalty. “When that intervention failed, VCL took the authority to court to have the penalty reversed but later withdrew the court case and paid the penalty,” Mrs. Matela said.

VCL’s level of dishonesty was further seen when it failed to allow LCA access to view the original records of the relevant transactions relating to the appointment of the external auditors and elected to provide print outs from their systems.

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The company also omitted to acknowledge that the relative of the chairman had signed the certifications accompanying the audited financial statements for the years 2017/18 and 2018/19. Historically, LCA says VCL has refused to amend its trial balance to reflect Mpesa revenue as other revenue on the basis that, it was a VCL group template that they were not prepared to amend.

The authority requested VCL to provide confirmation of the proprietorship of Mpesa and provide a copy of the license issued by the regulator where the Mpesa payments system was first approved. VCL did not provide a copy of the license issued in favor of the proprietor of Mpesa. Instead, the company submitted a copy of the license issued by the Central Bank of Lesotho (CBL) when it knew that the request did not relate to the local license but the license issued by the regulator where Mpesa was originally approved for use in the first marked where it was launched.

Furthermore, VCL and its shareholder representatives are also being accused of launching several media campaigns to discredit LCA when seeking to enforce compliance and applied political pressure on the authority to withdraw the enforcement proceedings. “On February 28, the majority shareholder representatives held a meeting with the authority to discuss the series of contraventions and the notice of revocation.

During the meeting, the chairman of the board of directors of the majority shareholder left the meeting to attend another one with the  Prime Minister to escalate the matter and exert further political pressure on the authority to avoid dealing with non-compliance issues raised by the authority,” Mrs. Matela further added.

She said the company initially failed to comply with the directive on out of bundle charging and claimed a lack of awareness that the directive related to all bundles including short message service (SMS) and voice calls.

In its response to the LCA claims, the leading telecommunication giant insists that it had not contravened the laws, despite the compelling factual admissions to the contrary, according to the LCA, which indicated that the contraventions were intentional.

The company stated that its interpretation of section 97(2) of the companies act, 2011 did not reveal any contravention since it had applied superficial processes to legitimize the selection of a relative of the chairman as the external auditor.

As a result, the company regarded the proposed sanction of revocation as extreme and inappropriate based on the impact of Lesotho and the SADC region.

LCA said during the Monday media briefing that a decision has been made not to revoke the license but instead, impose a penalty.

This, after consultations with other regulatory bodies such as the Lesotho Electricity and Water Authority (LEWA), Lesotho Revenue Authority (LRA) as well as the CBL.

While LEWA admitted that there would be minimal impact on the implementation of its mandate should revocation take place, the LRA indicated that revocation would affect its operations.

According to the LCA, LRA stated that it utilizes VCL for online systems such as dedicated leased lines of its primary and secondary data centers where various online systems are hosted.

LRA uses VCL for local and international telephone services.

The CBL on the other hand submitted that the impact of the revocation would be significant since the entire financial system relied heavily on VCL network connectivity services for back up of national payment systems in the country to maintain monetary and financial stability as well as to fulfill its core function as a banker of the government of Lesotho.

In light of the submissions made by the regulatory bodies that oversee key sectors and functions of the economy, the LCA decided to reconsider the revocation.

Instead, VCL was issued a penalty of M134 million covering the three counts of contravention during the financial year 2016/17, 2017/18 as well as 2018/19.

Thirty percent of the penalty is payable immediately, with the remaining 70 percent suspended for five years provided that VCL does not commit any further contraventions of its regulatory obligations during the said period. If the company fails to comply, the LCA shall proceed to revoke the unified license.

Accordingly, VCL is directed to pay M40 200 000 upfront, with the remaining M93 800 000 suspended for five years.

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