State nod may help MTN woo Telkom
As the majority shareholder, the government's vote is crucial to the merger. It owns 54 percent of Telkom: 38 percent held by the department of communications and 15.27 percent by the Public Investment Corporation.
The government's blessing for the deal was unexpected, but it may be logical considering that Telkom's cellphone ambitions have been frustrated by its rocky relationship with Vodacom, in which it owns a 50 percent stake.
But the deal with MTN would complement the African expansion strategies of both Telkom and MTN, said Richard Hurst, a telecoms analyst at BMI-TechKnowledge.
The department of communications said the government was in "principle" supportive of the discussions.
But Harry Mathabathe, a deputy director-general at the department insists that the government has not yet decided whether to sell its entire stake in Telkom or to retain a portion.
One reason the government is supporting the deal may be that its repeated calls to lower tariffs might finally be heeded, depending on how the deal is structured.
The government has repeatedly taken swipes at Telkom, accusing it of "profiteering".
If the operator's prices are cut, it will boost the accelerated shared growth initiative for South Africa, including the goal of making the country a destination for business process outsourcing, which includes call centres.
Dobek Pater, a telecoms analyst at research and consultancy firm Africa Analysis, said: "I don't think MTN will want to agree to any onerous imposition by the government.
"Prices will come down gradually; for government to come and try to regulate the prices will be distorting the market."
If MTN acquired management control, or 50 percent plus one share, the government's power to influence operations would decline.
If the merger goes through, the companies would form a superpower African telecoms firm on the back of MTN's 21 country operations and Telkom's lucrative fixed-line assets.
MTN has been on an acquisition drive since its launch 14 years ago.
Its major acquisition was a $5.5 billion (R37.5 billion) takeover of Investcom, which gave it operations in 10 countries in Africa and the Middle East.
It is building a 5 000km fibreoptic cable network worth R1.3 billion throughout South Africa's major cities.
MTN aims to take over Telkom assets, which would give it the quickest entry into the fixed-line telecoms market.
Analysts say the government is unlikely to sell all its shares in its cash cow, as its holdings in the strategic telecoms sector, including 30 percent in Neotel, and 100 percent of both broadband infrastructure company Infraco and signal distributor Sentech, indicate a desire to retain continuing influence.
Although the deal may have received the government's blessing, this may not translate into an automatic approval by the competition commission.
Pater said Vodacom might challenge the deal as the Telkom network that it uses to transmit call traffic would then be owned by its rival. Other companies that might oppose it included Neotel and value-added network service providers such as Internet Solutions.
The government has formed a task team made up of the departments of communications, trade and industry and public enterprise, and the treasury, to formulate a strategy that will ensure that the interests of the country, workers and shareholders are protected. The team will hold its first meeting on Friday next week.
Business Report
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