A little too late for Vodacom?

Any notion that the amendment of the shareholder agreement that’s constrained SA cellular operator Vodacom (the 50% cellular subsidiary of fixed line operator Telkom) from investing in cellular businesses north of the equator could significantly alter Vodacom’s fortunes and see it replicate the successes of rival operator MTN, seem just but an illusion.

Cheered though by Telkom’s board chairperson Nomazizi Mtshotshisa’s announcement at Telkom’s recent AGM that she would this week meet Vodafone officials with a view to finally amend the shareholder agreement that’s blighted Vodacom’s expansion plans, analysts reckon that the imminent amendment may be too late to change Vodacom’s fortunes.

"By virtue of the fixed line operator’s 50% stake in Vodacom , Vodacom’s shareholder agreement with Vodafone has mainly been destructive to Telkom shareholders because Vodacom’s been a star revenue contributor to the Telkom group," says Khulekani Dlamini- a telecoms analyst at Renaissance asset management.

While Vodacom has been experiencing a lull in its expansion strategy-due to the binding shareholder agreement, rival operator MTN has been on aggressive acquisition trail.

MTN’s acquisition spree in recent years culminated in the $5.5bn purchase of Investcom making it the second biggest operator in Africa and the Middle East-amid booming demand for cellular services in some of the last untapped cellular markets.

The Investcom deal has significantly boosted MTN’s subscriber numbers to well over 29 million against Vodacom’s 23 million.

‘Competing interests’

"Most of the attractive assets have either been snapped up by MTN or Middle East based operators like the Kuwait based MTC group.

"But for the few opportunities left, Vodacom would have to contend with competing interests from cash flush international operators that in some cases have shown their desperation to pay overboard for attractive assets," says Dlamini adding that Angola and Oil rich Equatorial Guinea are about just some of the new markets that could soon invite interested operators to bid for network operating licences.

"Vodacom CE Alan Knott Craig has consistently maintained that he’s not prepared to pay overboard even for the most attractive assets left on the continent.

"I doubt that he would be swayed to shift from this position simply because the shareholder agreement amended," says another analyst who declined to be named.

Telkom still in the hunt

With Vodacom’s expansion track still stuck in a rut, the task of generating new revenue streams fall squarely on Telkom’s fixed line business.

Though yet to yield any positive results, Telkom’s prowl for attractive fixed line business assets beyond SA’s borders is well on track.

Speaking at the periphery of Telkom’s AGM, Telkom CE Papi Molotsane confirmed that Telkom was in the running for a stake in an East African based fixed line network operator.

"I can’t disclose much details but certainly I can tell you that we are seriously pursuing an opportunity in East Africa.

"Congo DR is also in our radar screen. In as much as there are several opportunities out there, we’ve got to look at the value-add that these businesses bring to Telkom."

Waiting on BCX verdict

Though Telkom’s bid for BCX-is the largest player in the local IT services market, with around 12,2% market share-has met stiff opposition from a number of industry players including Internet Solutions, DataPro and Verizon Business among others Internet service providers, Molotsane stressed BCX’s importance to Telkom’s growth strategy.

"We are waiting on the competition commission’s verdict on our bid for BCX because it remains integral to our growth prospects."

BCX shareholders elected to give the R9/share plus 25c dividend deal the go ahead at a gathering convened by BCX shareholders four months ago.

After a fourth consecutive postponement on the verdict, the competition commission will possibly next month pronounce on Telkom’s bid for BCX.


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A little too late for Vodacom?