Micropower Makate vs megaplayer Vodacom whose Please Call Me misery continues

This is The Rational Perspective. I'm Alec Hogg. In this episode Vodacom's Please Call Me misery doesn't seem to be ending..In his brilliant book, The End of Power, Venezuelan author Moisés Naím wrote that the likes of innovative start-ups loosely organised activists, upstart citizen media, and charismatic individuals who came from nowhere are shaking up the old order. These are the micro powers, he wrote, small, unknown or once negligible actors that have found ways to undermine fencing or thwart the mega players. Naim's treatise is hugely respected on the money. In 2015, the end of power was Facebook founder Mark Zuckerberg's inaugural pick in his Year of the Book's challenge, where he got the Facebook community to join him in reading one book every two weeks for an entire year. It was also listed as The Financial Times book of the year in 2013. The powerful message embedded in Naim's book is being felt all around the world, including in SA where mobile phone giant, Vodacom, continues in a battle against a now 42-year-old former employee over an idea that he gave the company and which it applied 18 years ago. Kenneth Nkosana Makate fits the bill of this unknown activist. He wears the cloak to perfection of the micropower..For context, while in his early 20's he had the bright idea of a 'call me back SMS service.' Makate shared the concept with his ultimate boss, then Vodacom CEO Alan Knott-Craig, who later claimed to have come up with the idea himself. Makate has steadfastly refused to be fobbed off. He laid a charge against his former employer and took the matter to court, winning a judgement in 2014 that found that he was indeed the inventor of the concept. In the process, destroying a reputation that Vodacom's founder, Knott-Craig had built over decades..___STEADY_PAYWALL___.When that judgement refused to sanction a payment to Makate on the grounds of prescription, that's where debts expire of three-years old, he took his plea to the highest court in SA, in a landmarked judgement there in 2016, the Constitutional Court found in Makate's favour. Ruling that Vodacom should indeed pay a reasonable compensation to him for the invention..For the past two years the parties have been wrangling about the quantum, i.e., how much Makate should be paid. Vodacom admits to having made an initial offer of R10m, which Makate rejected. Media reports say the company upped that to R49m. Again, Makate apparently says, 'it's not enough.' But the anti was up this week when a group of activists calling themselves the 'Please Call Me Movement' named after the concept itself, picketed outside Vodacom's head office. Their protest well covered by the media focuses on the demand that the company pay Makate R70bn. That's the equivalent of Vodacom's last six-years of profits..From Arab Spring to France's Yellow Jackets; Brexiteers to the Catholic Church in the DRC, everywhere we see evidence of the changing power equation that was written about so eloquently by Moises Naim. Vodacom's rear guard action against an activist portrayed as a folk hero carries lessons for every business and indeed, for those of us who invest in them. The company called a press conference this morning to address the latest developments..The first question comes from Kevin Lancaster of MyBroadband..My question is, if Makate did not put forward his 'Please Call Me' idea, and he was removed completely from the equation, would Vodacom still have launched the 'Please Call Me' Service?.I think it certainly would have because Makate brought the idea and the concept per say, but it wasn't unique as it became apparent to us later that MTN was working on a similar concept, which was subsequently patented and in the nature of how this industry works if a service or a product is launched typically, the benefit of the company that conceptualises it is the first mover advantage but what would then ensue is that the rest of the industry would follow. If we didn't get the idea from him, someone else in the market would possibly have come with a similar idea and over time, would have copied it..So, my point is I think, as the market was evolving the concept of a 'Please Call Me' or a similar concept was apparently being investigated by a number of operators in the market and eventually we would have been there. That's not to suggest though that Makate didn't come with the idea, he did bring it to us. He did bring it to us in time. We did check it or test it for technical and commercial viability, and as we were doing that, MTN was first to market and eventually we followed MTN..Our conception and understanding of what the Constitutional Court entailed. Essentially, the Court said there was an agreement between Vodacom and Kenneth Makate but equally, there was a recognition that the agreement was incomplete and therefore, that the parties needed to enter into negotiations in good faith to agree the amount of compensation that ought to be paid to Mr Makate..The third most important point was in the event of a deadlock between the parties, the Vodacom Group CEO, seen as a deadlock breaker. Now, our conception and understanding of a notion of deadlock breaking is that the decision of the deadlock breaker is a fine..R2k that's what our Chief Officer for legal regulatory affairs said – next question please..Okay, I know you're not disclosing any figures here because you have confidentiality agreements. But Makate and his filing, and his filing also for intellectual property commission in April last year. He said that Vodacom offered him R10m as compensation. I just wonder with your latest talk was the compensation offered higher than that?.That's true that there was a number in the amount of R10m. The determination of the Vodacom Group CEO in terms of quantum is significantly higher than the R10m concerned..The next question comes from Loni Prinsloo of Bloomberg..Just going through the concerns, it seems very far removed what Makate wants and what Vodacom is offering. What's the procedure to come to some sort of middle ground if what he wants is not even close to what is being offered? .Do you want to put the number in context for us?.Yes, look there is obviously… There have been various numbers over the past few years and with a figure of R70bn most recently being quoted in the context of the 'Please Call Me' movement. Now, I would just like to comment a little bit on that and provide context, as this is obviously on the one side of the extreme, I would say. The SA net profit, after tax, for the last six-years so, taking the entire net profit for the last six-years of SA is about R70bn. So, if someone demands a figure of R70bn as a fair and reasonable compensation it would, in essence, imply that the entire profit of the SA business for the last six-years would have been due to Mr Makate. That, I think highlights that such a demand is very irrational and completely outside of what one can consider to be the outcome of a negotiation of a fair and reasonable compensation..We obviously, have gone through an extensive negotiation process between the Vodacom team and the Makate team to determine a fair and reasonable compensation. That deadlocked last year and as Makate has highlighted in that event the CEO, in line with the Constitutional Court order comes into play to break that deadlock and that is what he has done. And he has determined an amount, which I think by all accounts one can consider as a substantial amount..Just to remind you that was Till Streichert he is our Group Chief Financial Officer. Next question please. .The next question comes from Asha Speckman of Tiso Blackstar..Did it generate revenue in return calls? The other question I wanted to ask in relation to the compensation was, what factors have you considered in determining that reasonable compensation?.Let's hand that one over to Till, to respond..So, just back again, in terms of context. This buzzing option or this Please Call Me service was offered for free. It had been initially planned to be charged for and if you go back in time to 2000, respectively 2001, when this idea had been assessed and also, been financially assessed there was a clear requirement set out to charge for this message in order to cover the incurred cost because you obviously have got a platform, you've got interconnect costs, and so on. Now, that charging, in essence, never took place so there was a period of a number of months. It was meant to be a promotional period and afterwards it should have been charged..Now, it could not have been charged at that point in time, since in essence the market had moved on and MTN also, had launched such a proposition for free. So, as a free service it did enjoy, like many free services a considerable take up, and this take up and that is, I think, an important aspect that one needs to consider because we saw it substituting normal text messages, at that point in time, hence there had been a cap introduced. At that point in time, and for a number of years there was a cap of five messages per user, per day. A couple of years later that cap had then been increased, but it does tell you that if it had been a substantially profitable service or call it a substantial money maker. One would have not considered to put a cap on it. So, this is what one needs to consider in the context of fair and reasonable compensation and the assessment of what the value of this idea had been..Thanks, Asha. Any follow-ups to that answer?.How much did you generate in revenue or in terms of revenue from calls emanating from 'Please Calls me' perhaps over the initial phases or afterwards? Are you able to share that with us, what you can share?.In actual fact, there's no direct attributable revenue as part of the 'Please Call Me' message because it has never been charged for. To your question of did it actually generate incremental revenue from customers calling back with regards to that message? That is a highly speculative question because in essence, we have been seeing of course, traffic between customers evolving over the years as a normal course of business and calling behaviours. If you think of it, you know the question is of course, normal calling patterns are occurring and evolving over time and we've not been seeing any incremental revenue with regards to that proposition, and in particular, because we've never been able to charge for it and we ended up keeping the cap of a certain number of messages in place because we incur a cost per message being sent that needs to be recovered. Again, if it would have been a highly profitable proposition it had been very irrational as a company or as a commercial business unit to impose and place a cap on this service..Can I just ask one final question? In the statement you said that you acknowledge it could have been handled better. How could you have handled it better and what would you have done differently? But also, do you have the ability or is there a recourse that you can take perhaps to be addressed retrospectively, the predecessors that have put Vodacom in this uncomfortable position? Are you able to…? Is that something that you are considering?.Sakkie, do you want to take that one?.Yes, thank you. This challenge that we have about this matter is that it started at the inset of our democracy when the country and the corporates, in particular. We were still battling with the interpretation of our Constitution and our Bill of Rights and it matures now, in 2016, and now in January, when our CEO is ready to make a determination, which is a different era. An era of social media, social justice and civil society activism and therefore, for us, it's like there's nowhere to hide and that is why in all our engagements that we have we say, we could have handled it better..But where we are now the Constitutional Court has ruled against us and therefore, what guides us to ensure that we implement the order of the Constitutional Court by the letter. We went to the High Court to defend the case because we believed that we had a case to prevent and we won that round. Then when the matter went to the Constitutional Court and the Constitutional Court ruled against us, we had nothing else to do except to ensure that we adhere to that ruling. So, for us, the pre-occupation is to focus on the past because if we go back, we cannot undo the past. Where we have had, as a company, we've always said we apologise but apologising cannot undo that..Thank you. The next question comes from Tiiseetso Motsoeneng of Reuters News..Good morning, from where I stand, Shameel Joosub shouldn't have dealt with the deadlock breaker because he's conflicted, by no means independent. Any comment on that, Kateko?.His starting point is that Shameel Joosub of Vodacom arrogated with the role of Mr Joseph, become a deadlock breaking mechanism. That was the order of the Constitutional Court. So, order 3 of the Constitutional Court essentially says that, "In the event of a deadlock in the negotiation between Vodacom and Mr Makate, the Vodacom Group CEO will be a deadlock breaking mechanism and what Vodacom has done over the last couple of years has been to give effect to the Constitutional Court Judgement and its order..Yes, and let's not forget that Mr Joosub was excused from any and all discussions on the matter, particularly at an Exco and Board level. Tiiseetso, any follow-ups from your side?.Yes, I just wanted to hear, it's a ruling I understand but I just wanted to get Mr Kateko's view on the fact that he is part of Vodacom and Vodacom is going to be the one who is going to be dolling out the money. His interest is in Vodacom and not in Mr Makate. I just wanted to get his view, personally, that he's conflicted, is he?.I don't believe he is conflicted. He isn't conflicted because the decisions that were made around the amount. In this instance I'm talking about the negotiating team representing Vodacom were made at the level of the Vodacom Exco and Board, as is the next plan, and Mr Joosub was excused from all of those meetings..The second element is that the number R10m that we spoke about earlier was a number that eventually was approved by the Board. And, as I explained, the determination of the Vodacom Group CEO of the quantum of reasonable compensation that has to be paid to Mr Makate, is significantly higher than the R10m number, which from my perspective, suggests that he was sensitive about his role as a deadlock breaker and in many ways, he acted in a bold manner and with courage. I would like to say that a number of people in Vodacom, specifically the negotiating team, would probably say he was exceedingly generous..Thanks, Mr Makate. Let's move onto the next question please. .The next question comes from Mia Lindeque of Eyewitness News. .Thank you for the opportunity. My question is just about Vodacom, who sent a Cease and Desist Letter to Panyaza Lesufi and the 'Please Call Me' Movement. We have subsequently received that letter and it was widely spread on his Twitter page saying that the 'Please Call Me' Movement must stop incitement and distributing false information about the deal and what was going on behind closed doors. They, in fact, refused to back down and they are now actually, leading a massive campaign and they're intensifying their campaign. Now boycotting and calling on all South Africans to boycott Vodacom products and they are also saying that they're going to lobby government officials to cancel contracts with Vodacom. They are also threatening to take it internationally. If someone can just respond – will you take any further legal action against this 'Please Call Me' Movement?.Makate, that's one definitely for you..So, I guess the starting point is the footprint of the 'Please Call Me' Movement. They don't have a national footprint by any stretch of imagination. If anything, they are Katlehong strong, Natal spread movement. On the issue of mobilising international support. Well, our experience over the last couple of weeks is that when we present the facts, with all the constraints that we have with the confidentiality arrangement that we've entered into with Mr Makate, reasons prevail. Now, to the extent that they plan to mobilising the international community – we believe we'll have the opportunity to also tell our side of the story..I'd equally, argue that the threat to approach government even with government, when we tell our side of the story, reason will ultimately prevail. I think the challenge is that there's emotions that comes with Vodacom as a big brand in SA, dealing with an individual who presented an idea to Vodacom and I think the message out there that this idea is worth billions, when it's not worth that much. So, in that context I think we'll deal with those issues as they arrive. Do we plan to take the individual movement concerned to court? Look, we're keeping all our options open and if it becomes necessary at some point that we must accept our rights through the courts in SA. We're not going to hesitate to do that. After all, we believe that SA is a government of law and that the rule of law, to all intents and purposes, should trump anything that seeks to undermine it..What we have said, consistently to this process is that we respect the rights of all South Africans to protest in a peaceful manner. Any follow-ups Mia?.No, that's all. Thank you so much. .Thank you..Thank you, the next question comes from Duncan McLeod of TechCentral..I guess for clarification – is there any possibility that Vodacom will consider amending its settlement offer to Mr Makate to make this issue go away? Or is this the absolute final settlement offer on the table from Vodacom?.Well, the possibility of amending the offer doesn't exist. The processes mapped out by the Constitutional Court. There had to be negotiations. Negotiations took place between Vodacom and Mr Makate, and they deadlocked. If a possibility existed of changing the number that should have played out in the negotiations. Once there was a deadlock and the deadlock breaking mechanism was invoked. The number that is determined by the deadlock breaker is final and legally binding until overturned by the court..Okay, thanks for that. My second question relates to, well what I really want to ask you is how concerned you are about Communications Minister, Stella Ndabeni-Abrahams, telling Vodacom on Twitter to just shut up on this matter. Are you, as Vodacom, concerned about the language used by a minister that sets policy for this sector as well as a course from politicians like Panyaza Lesufi?.That's definitely a question for Takalani Netshitenzhe, our Chief Officer for Corporate Affairs..I think it is important to point out here that the Minister of Communications and the MEC, Panyaza Lesufi, are our chief stakeholders, and we have a very good relationship with both of them. We understand that the comments that they have made were made at the heat of the moment and are in the spirit of continuing our good relationship. We are continuing to engage with them. We have engaged with Mr Panyaza Lesufi very thoroughly and he, himself, are in one of the interviews – Power FM. He mentioned that he's been engaging with the Vodacom executives. The Minister of Communications – I can put it on record that we will be meeting her next week during the SONA week to discuss policy issues and if this issue is put on the table, we'll be able to respond in the manner that we are engaging all the stakeholders..https://twitter.com/Lesufi/status/1090153566164209664.Thank you..Thank you, we have a follow up question from Loni Prinsloo from Bloomberg..Hi guys, do you know where the figure came from, the R70bn, because when I spoke to the 'Please Call Me' Movement they said basically, Makate said on some radio interview that there was a whistle blower within Vodacom that gave him some numbers so, how would he get hold of those type of numbers? Where is the number coming from, and is that really what he asked for, during the negotiations?.So, look, we've got no insights or knowledge where the R70bn figure might have come from or arisen, or who has made it up, in the end. All I can say is, over the past two or three years in the process you have been in the space of the public domain, recognised a lot of numbers and having being quoted – most of them in the billions so, all I can say is it is a highly irrational number that has been quoted there with no substance to support this or any other number that had been quoted so far out in the public domain..Loni, are you happy with that?.I just want to know, is that what he asked for? How far apart is what he's asking for, from what Vodacom is offering?.Look, throughout the negotiation process again, there have been various numbers tabled by the Makate party and, as a matter of fact there have been… The positions between the Makate negotiation team and the Vodacom negotiation team have been way apart to reach a meeting of minds. I think there were moments when both parties progressed and made steps towards each other in trying to reach common ground. However, again, that deadlocked in the end, and led to the next stage of the process coming into play. So, I won't be able to comment on specific numbers that had been negotiated or tabled throughout the process since it is covered by the confidentiality agreements..Those were the highlights of the Vodacom press conference held this morning in response to growing media coverage again of activist Kenneth Makate's 18-year-old arm wrestle with the company over the 'Please Call Me' saga. You have to wonder how much this has cost Vodacom in management time alone..This has been The Rational Perspective. Until the next time, cheerio.

Micropower Makate vs megaplayer Vodacom whose Please Call Me misery continues

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