A South African antitrust watchdog has recommended blocking Vodacom Group Ltd’s $696 million acquisition of two fiber operators, disrupting the company's expansion plans.

Vodacom - South Africa's largest wireless provider - had planned to buy Vumatel, the country's largest fibre-to-the-home network operator, and Dark Fibre Africa, which provides fibre services in the country’s cities. 

The firms are owned by Maziv, a unit of South African conglomerate Remgro.    

The proposed deal had been opposed by internet service providers (ISPs) on the grounds that it would result in unfair competition.

The Competition Commission said in a statement late on Tuesday that it had found no major benefits from the proposed transaction that were not already in existence and recommended that it be prohibited. 

"The merger is likely to further reinforce the incentives for self-preferencing and discriminatory behaviour," it said.

"The proposed merger will result in the loss of direct competition between Vodacom and Maziv in the areas where both Vodacom and Maziv have deployed fibre," it said.

The commission said its investigations had shown that fibre companies tend to reduce prices in areas where more than one fibre network provider has deployed fibre. 

"This price competition is lost with the merger," it said.

Vodacom and other mobile companies in the country are in a race to expand their wireless infrastructure to capitalise on the growing popularity of smartphone usage for entertainment, banking and online shopping.

Vodacom said in a statement in response that it was "surprised and disappointed" with the Competition Commission’s recommendation.hough we are disappointed, it is important to note that the Competition Commission’s recommendation is not the end of the process. Instead, the next step is for the proposed transaction to be presented to the Competition Tribunal," it said.

Vodacom said it would showcase the strong public interest and pro-competitive advantages that the proposed transaction would have on the fibre market, and the country as a whole.  

The Competition Tribunal - a sister watchdog to the commission but with final decision-making powers - will issue a final decision on whether the proposed acquisition can go ahead.

(Editing by Seban Scaria seban.scaria@lseg.com)