Vodacom and iBurst start divorce proceedings

It is common knowledge that Vodacom is planning to sell its stake in WBS/iBurst, partly because the cellular operator wants to give itself the best possible chance of being allocated valuable 2.6 GHz spectrum.

ICASA is planning to hand out four new licenses for 30MHz of 2.6GHz spectrum, but as it currently stands any company with a shareholding of 5% or more in another applicant in the same band is automatically disqualified.

Vodacom’s 24.9% shareholding in iBurst/WBS – which currently has 15 MHz of 2.6 GHz spectrum – is therefore an obstacle to the company’s bid for 2.6 GHz LTE spectrum , something which could give competitors like MTN and Cell C an advantage if they get LTE spectrum.

An easy, albeit not cheap, solution is for Vodacom to sell its share in WBS/iBurst despite the fact that it is likely to get far less than what it paid for its share.

But is there more than meets the eye in Vodacom’s sale of its iBurst stake?

Back in time

To get the full picture one has to go back to 2006 when Alan Knott-Craig Junior, son of then Vodacom CEO Alan Knott-Craig Senior, was appointed as MD of iBurst after a shareholder change.  It was not long after his appointment that Vodacom acquired a 10% stake in iBurst’s holding company WBS, and in 2007 Alan Knott-Craig Snr became the acting chairman of WBS Holdings.

The main reason for Vodacom’s investment in WBS/iBurst in 2006 was to gain access to 2.6 GHz spectrum, which would allow Vodacom to build a WiMax network and expand its portfolio in the data space.

Vodacom WiMax

The 2.6 GHz iBurst/Vodacom 802.16e WiMax network and related products however took longer to get off the ground than expected.

Joosub said that the network took time to mature, and through various improvements and optimizations the network speed and stability is now significantly better than what it was when it first went live.

Joosub confirmed that Vodacom had been approached by buyers for its WiMax network. While they may consider selling their WiMax network, Vodacom’s price tag will definitely not fall below carrying value. 

Joosub added that Vodacom will ensure that all the commercial relations remain intact which will give it access to WiMax services through this network in the event of it being sold off to a third party.

Since Vodacom owns all the high sites and transmission links from the current WiMax network, it may well still generate revenue from the WiMax network if it is sold by providing high site access, services and transmission capacity to the new WiMax network operator.

Selling WBS/iBurst stake

While Vodacom does not seem keen to make a loss on its WiMax investment, it is likely that its WBS/iBurst stake will be sold at a loss.

Vodacom CEO Pieter Uys told MyBroadband in a recent interview that the initial WBS/iBurst investment strategy was to gain access to additional spectrum, something which Vodacom was willing to pay a premium for at the time.

It is rumoured that the Levy Consortium, which includes Blue Label Telecoms joint-CEOs Brett and Mark Levy as shareholders, are the most likely candidates to take over Vodacom’s 24.9% shareholding in WBS/iBurst.

Developments at iBurst

There are already a few developments taking place at iBurst, including the resignation of numerous iBurst Business staff members who have joined the newly formed Blue Label Communications.

Vodacom is also taking back its HSDPA subscriber base from iBurst.

Joosub said that while negotiations are ongoing, a likely scenario is that iBurst will be getting its own corporate APN from Vodacom. The future of Vodacom’s iBurst Wireless subscribers will form part of these negotiations.

Blue Label Telecoms and iBurst are mum on the supposed mass resignation of iBurst Business staff who have supposedly joined the newly formed Blue Label Communications, but sources within iBurst confirmed that it is indeed what has happened.

A call to iBurst Business on Friday confirmed that Blue Label Communications – a company which is headed up by Steve Briggs who used to be an iBurst executive – will serve many (if not all) current iBurst Business clients in future.

A more recent development is that iBurst CEO Jannie van Zyl will leave the company at the end of May 2010.  Van Zyl is closely linked to Vodacom, but it is unclear whether he will move to the cellular provider after leaving iBurst.

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