In the morning session, shares in Telkom lifted 3.53% or 67 cents to R19.67, having closed 5.56% or R1 higher on the JSE on Monday (15 October). The trading action saw Telkom’s market cap move to R10.24 billion.
A dealer told MyBroadband BusinessTech that investors were buying into speculation regarding a possible merger deal. “Telkom is gathering momentum again this morning on speculation of a deal between Cell C and Telkom,” he said.
Business Day reported Monday, that Telkom and Cell C were currently “working on the finer details of a potential merger”.
According to the newspaper, quoting an industry source, “meetings have begun between both parties, but at the moment they are still very secretive”.
The source said that Cell C CEO, Alan Knott-Craig “needs the Telkom infrastructure to successfully achieve his plans with Cell C”.
Knott-Craig told BusinessTech that market consolidation is inevitable. “Margins are thinning and smaller operators’ ability to compete is being hampered by lack of scale,” he said.
“Consolidation will help smaller operators compete more effectively with larger players and it is only then that customers will benefit from tariff reductions, network availability and quality of service.”
“In my view, there will be some form of consolidation or partnership in the industry in the near future. However, any decisions on consolidation or future partnerships involving Cell C would be for our shareholders to decide upon,” Knott-Craig said.
The industry veteran would not speculate on what likely mergers or acquisitions are expected in South Africa, but he did highlight that Telkom would need a stronger retail presence to boost its operations.
The most logical option for Telkom to rapidly grow its retail presence by millions of subscribers in South Africa would be a deal with Cell C.
Cell C currently has 9.4 million customers, and is signing up 700,000 new subscribers each month, the group said last month.
When Knott-Craig took over as CEO in April 2012 he said he wanted to grow the mobile operator’s market share in South Africa to 25% within the next three years.
In annual results for the year ended March 2012, Telkom reported that its mobile arm had attracted in excess of 3.05 million total subscribers, and 1.48 million active subscribers.
A merger would also remove the need for Telkom to invest billions in its mobile network and to try to grow its subscriber base.
A potential deal between Telkom and Cell C is, however, nothing new. As far back as 2008 the potential benefits of a tie-up between the two companies was discussed.
At the time, some industry players suggested that if Cell C shareholder, Oger Telecom, bid for a controlling interest in Telkom, it could positively impact both companies’ outlooks.
Oger Telecom later bid for a stake in Telkom, without success.