Paying out Please Call Me inventor Nkosana Makate's demand of R9.4bn will not cause the demise of Vodacom as it already paid out more than that in dividends to shareholders each year, with its majority shareholder being international company Vodafone, said his legal representative.
Makate’s legal counsel submitted their written arguments to the Constitutional Court ahead of Vodacom’s leave to appeal application which will be heard on November 21.
The cellphone network giant was contesting the Supreme Court of Appeal’s decision which ordered that Makate be paid out between 5% and 7.5% of the total voice revenue generated by the Please Call Me service over 18 years since March 2001, including interest.
This could amount to between R29bn and R63bn. This was after the high court had ordered that Vodacom CEO Shameel Joosub could determine the compensation amount, and Makate was offered R47m for his invention.
Vodacom stated that compensation of R40bn, as estimated by the SCA ruling, would negatively impact the cellphone giant.
“But the quantum, as Mr Makate stated on oath before this court in his answering affidavit, while still substantial, is an order of less magnitude — at R9.4bn,” his counsel said
This means that it was “extremely unlikely” that the payment of R9.4bn would “lead to Vodacom’s demise”.
“[Vodacom] pays dividends annually to shareholders in the amount of R13bn-R14bn and, separate from that, Vodacom has sufficient funds available to spend a further R12bn per year (R60bn over five years) in network investment. The payment of Mr Makate’s claim would plainly not be the demise of Vodacom or its partners. At best, it might mean that Vodacom delays its ‘commitment’ to improving its network for one year,” his counsel said.
It was also argued that Vodacom is worth R200bn and is financially backed by an “even larger” giant from the UK, Vodafone, which had a 65% share in Vodacom.
“Vodafone has had no difficulty in settling prior disputes for amounts equal or beyond what Mr Makate is owed under the SCA’s order. In truth, Vodacom’s complaint is that the contract, as proven, may amount to a bad bargain for it. But Vodacom received an excellent bargain.”
Makate demanded revenue for every call received due to a Please Call Me and only for a call back in the first hour.
In his own data-mining process led by independent auditors SNG, which was accepted as evidence and agreed upon by the Vodacom CEO, 27% of Please Call Mes received a call back within the first hour and 38% received a callback within 24 hours.
This payment would only be for 18 years since the inception of the Please Call Me service, while Vodacom has already been using it for 23 years and will continue to do so for as long as it generates income. In addition, Makate requested compensation of just 5% of the 27% of callbacks from a Please Call Me.
Vodacom will then pocket 100% of the revenue made by any callback for the remaining 23 hours.
“It is common cause that Vodacom has earned billions of rand from Mr Makate's invention. Mr Makate does not suggest that his claim does not involve a large sum of money. Whatever adverse description Vodacom ascribes to Mr Makate's share of revenue — it must be kept in mind that his share is just 5% — and all parties accept that 5% is a fair share. Vodacom has already made and kept 95% of the money generated. Mr Makate's entitlement flows from a proven contract,” said his counsel.
Vodacom had argued that it could not determine the revenue it earned from the Please Call Me service as it kept no record of the number of Please Call Me messages sent and the calls it managed to return, but Makate’s legal counsel presented data from sources.
According to their arguments, Makate was able to populate the volume of Please Call Mes based on information made public by Vodacom.
The first day of the Please Call Me launch saw 140,000 customers use the service, implying a minimum of 140,000 Please Call Mes were sent.
Seven years later, the 2008 autobiography by Vodacom CEO Alan Knott-Craig said 20-million Please Call Mes were sent per day in 2008. By February 2015, Vodacom statistics found that 40-million Please Call Mes were sent per day, but this dropped to 23.6-million in 2016 as reported by SNG auditors, who were granted permission by Vodacom to gather such data on behalf of Makate.
“The CEO used a formula [to determine compensation] which considered the number of customers multiplied by a so-called ‘Please Call Me base’. But the CEO’s formula is obviously incorrect and unreasonable and leads to a patently inequitable result. That is easily demonstrated by relying on the data reported by SNG auditors and confirmed by Vodacom.”
As for the average call duration, it could only be calculated by taking the total minutes and dividing it by the number of calls. Makate’s counsel said such information was continuously requested and the answer remained the same.
“Vodacom has never recorded the volume of calls and average call duration. This cannot be a credible answer from a company that sells ‘telephone calls’ and can send a client an itemised bill reflecting calls and duration to the second. The fact that Vodacom failed to retain this information — even though it knew it was obliged to do so following the court’s 2016 judgment — is through no fault of Mr Makate.”
Vodacom had argued that the Please Call Me service no longer had commercial value and lost its novelty as it had planned to charge 15c per message. MTN beat them to it by a few weeks as it introduced a similar but free ‘Call Me’ service to all networks on January 23 2001. Vodacom was therefore forced to also implement free Please Call Me messages which it launched on February 11 2001.
“That is incorrect ... [Vodacom] was only able to do so, not because it began to examine MTN’s entirely distinct service from January 23 2001. Mr Makate’s idea — presented on November 21 2000 — was (Vodacom accepts) ‘novel at the time’ and ‘Vodacom used it to develop its Please Call Me service’. Vodacom’s Product Description Document demonstrates the level of thought and consideration that had already been given in relation to implementing Mr Makate’s idea by January 22 2001.”
“The terms were the following: Mr Makate disclosed his Please Call Me idea to Vodacom in return for a share of the revenue generated by Vodacom through the service. Vodacom would take and test the idea. If it were successful, Vodacom would compensate Mr Makate. The compensation, which represented a share of the revenue generated by the product that was to be developed based on the idea, would be negotiated between them,” Makate’s counsel said.
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