Let the deal happen
Government recently gave its blessing to talks taking place between MTN and Telkom. The mobile operator appears keen to buy Telkom’s fixed-line assets to create a telecommunications powerhouse. Here’s why the deal should be allowed to go ahead.
The story is well-known by now: Telkom is engaged in a strategic review of its mobile interests and is considering selling a portion of its 50% stake in cellphone group Vodacom to the UK’s Vodafone, with the rest being made available to black investors. The deal would give Vodafone, the world’s largest cellphone group by revenue, management control of Vodacom and allow it to compete more aggressively with Telkom in providing fixed-line communications.
Then there are the talks between MTN and Telkom — both companies are trading under cautionary on the JSE — which could see MTN buying up a portion, if not all, of what remains in Telkom after it has disposed of its stake in Vodacom. This second deal, if it were to happen, would create a converged telecom powerhouse in emerging markets in Africa and the Middle East.
The deals would transform the communications landscape in SA. The hurdles are high, though: any deals would require the blessing of government, which has a controlling 39% stake in Telkom, and of the competition authorities. The competition tribunal has already barred (an error, in my view) a much smaller deal, the acquisition by Telkom of IT group Business Connexion.
But if the deals gain government support — and indications are that President Thabo Mbeki will support them — then the competition regulator may feel compelled to allow them to proceed.
Some industry commentators have already expressed concern that the proposed deals, particularly a Telkom-MTN marriage, would harm consumers. They argue that the three large telecom players in SA have not meaningfully reduced prices, so reducing the number of competitors to two would only serve to worsen the situation.
I’m not sure they’re right.
Though it is true that there will be only two big infrastructure providers — initially, at least — the nature of the industry is changing, with smaller players now able to provide their own infrastructure and the big mobile companies able to build fixed-line networks.
Those concerned that power in the industry will be concentrated in too few hands should look to the US, a highly competitive telecom market, which has only two big telephone companies, both of which provide the full ambit of telecom services to a market dozens of times larger than SA’s.
Both MTN and Vodacom have begun laying fibre-optic cables to compete with Telkom. If MTN buys Telkom, Vodacom is sure to step up its investment in fixed-line infrastructure. There’s no love lost between MTN and Vodacom. Executives at the two firms can’t even bring themselves to mention their rival’s name. MTN Group CEO Phuthuma Nhleko, for example, simply refers to Vodacom in press interviews as “the other operator”.
The two companies are spoiling for a fight — a price war has begun in mobile broadband and technology and regulatory changes could soon precipitate a reduction in voice prices, too. Consumers will be the ultimate beneficiaries of the two telecom giants brawling for their attention regarding both mobile and fixed lines.
One should also not discount Neotel. The company, which has been pilloried for its slow pace in getting started, is nevertheless spending billions of rand on infrastructure – which could help keep the bigger players in check. Ultimately, though, Neotel also needs to become a full-service, converged communications operator if it is to compete with the big boys. Perhaps a merger with Cell C is on the cards down the line.
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