Johannesburg - South African mobile operator Cell C could be next on the cards for local fixed-line operator Telkom after talks with mobile operator MTN terminated in November.
Growth in the telecommunications sector has been skewed towards mobile operators in the last couple of years.
To compete in this market and deliver growth for shareholders, the fixed-line operator would need to have a piece of the mobile pie. Telkom currently owns 50% of mobile operating giant Vodacom, while Vodafone owns the other half. In March, Telkom revealed that it was reviewing its mobile strategy and in the past said that it plans to roll out its services into Africa.
Its first target was MTN, which already has a footprint in the continent, and has a focus of developing further into Africa and the Middle East. This structural change led to market speculation that Telkom could be selling mobile operator Vodacom.
Talks started on 3 September between Telkom, MTN and Vodafone, relating to some of Telkom's assets. Four days later, the market was swamped by speculation that MTN could be interested in purchasing some of Telkom's fixed-line business after it said it was planning to build a fixed-line network of its own in SA.
But when the talks terminated on 28 November, the SA fixed-line operator's shares plummeted more than 10% two hours after the market opened, but MTN's share price rallied to a new all time high on the news. A local analyst said that Cell C could be an option, but another option could be keeping the Vodacom stake for now. He said that he would have guessed that initially, when Telkom did its mobile strategy review, one would believe that it would be looking at all the options, including Cell C.
Failed talksBut now that talks with MTN had failed, he didn't think that Telkom would pursue the MTN option. "Is Cell C an option? Sure it is, but I don't see another MTN deal working," he said. "MTN took a view that it wouldn't work, and I don't think that management would want to take time to go through that process again," he said. Targeting Cell C as a partner would fit into Telkom's strategy toexpand its footprint, but would the red and blue mesh well together and ever reach an agreement?
Cell C as an industry player has been growing in a highly competitive market. By the half-year mark in June, Cell C had increased its total connections by 27% to 3.4m active subscribers.
Since then they have registered over 300 000 new activations and according to Cell C, this takes them to 4.2m subscribers. "Cell C has signed up commercial roaming partners with over 400 telecom operators in 167 countries worldwide, including Africa, Europe, America and Asia," said Shenanda Janse van Rensburg, the executive head of corporate communications at Cell C.
Cell C isn't Telkom's only option, according to the analyst. "Another option for Telkom would be to get a controlling stake in Vodacom. But Vodafone wouldn't want to sell a stake," he said.
"Vodafone, for example, wouldn't want to sell 5% to Telkom. It would probably tell Telkom to buy the whole of its stake," he said. But he added that that shareholders were unlikely to let Telkom overpay for Vodacom.
"So its only alternative is to sell, and they won't sell unless they find another mobile services provider," he added. "Telkom couldn't reach an agreement with MTN, which put them back a little, but I don't think we will see anything happening in a while and I think it is back to the drawing board for Telkom," he concluded.
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Growth in the telecommunications sector has been skewed towards mobile operators in the last couple of years.
To compete in this market and deliver growth for shareholders, the fixed-line operator would need to have a piece of the mobile pie. Telkom currently owns 50% of mobile operating giant Vodacom, while Vodafone owns the other half. In March, Telkom revealed that it was reviewing its mobile strategy and in the past said that it plans to roll out its services into Africa.
Its first target was MTN, which already has a footprint in the continent, and has a focus of developing further into Africa and the Middle East. This structural change led to market speculation that Telkom could be selling mobile operator Vodacom.
Talks started on 3 September between Telkom, MTN and Vodafone, relating to some of Telkom's assets. Four days later, the market was swamped by speculation that MTN could be interested in purchasing some of Telkom's fixed-line business after it said it was planning to build a fixed-line network of its own in SA.
But when the talks terminated on 28 November, the SA fixed-line operator's shares plummeted more than 10% two hours after the market opened, but MTN's share price rallied to a new all time high on the news. A local analyst said that Cell C could be an option, but another option could be keeping the Vodacom stake for now. He said that he would have guessed that initially, when Telkom did its mobile strategy review, one would believe that it would be looking at all the options, including Cell C.
Failed talksBut now that talks with MTN had failed, he didn't think that Telkom would pursue the MTN option. "Is Cell C an option? Sure it is, but I don't see another MTN deal working," he said. "MTN took a view that it wouldn't work, and I don't think that management would want to take time to go through that process again," he said. Targeting Cell C as a partner would fit into Telkom's strategy toexpand its footprint, but would the red and blue mesh well together and ever reach an agreement?
Cell C as an industry player has been growing in a highly competitive market. By the half-year mark in June, Cell C had increased its total connections by 27% to 3.4m active subscribers.
Since then they have registered over 300 000 new activations and according to Cell C, this takes them to 4.2m subscribers. "Cell C has signed up commercial roaming partners with over 400 telecom operators in 167 countries worldwide, including Africa, Europe, America and Asia," said Shenanda Janse van Rensburg, the executive head of corporate communications at Cell C.
Cell C isn't Telkom's only option, according to the analyst. "Another option for Telkom would be to get a controlling stake in Vodacom. But Vodafone wouldn't want to sell a stake," he said.
"Vodafone, for example, wouldn't want to sell 5% to Telkom. It would probably tell Telkom to buy the whole of its stake," he said. But he added that that shareholders were unlikely to let Telkom overpay for Vodacom.
"So its only alternative is to sell, and they won't sell unless they find another mobile services provider," he added. "Telkom couldn't reach an agreement with MTN, which put them back a little, but I don't think we will see anything happening in a while and I think it is back to the drawing board for Telkom," he concluded.
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