Vodacom-Neotel acquisition: the deal killer

Speculation is rife that Vodacom is currently performing due diligence on Neotel following successful acquisition discussions between the companies, but for the deal to go through Vodacom will need to get Neotel’s spectrum as part of the acquisition. This is by no means certain to happen.

A regulatory expert told MyBroadband that for any potential buyer to use Neotel’s valuable spectrum, they will first have to apply to the Independent Communications Authority of South Africa (Icasa) for a transfer.

A spokesperson for the regulator confirmed this, adding that the acquiring entity must be a licensed telecommunications operator as well.

“You will note that in terms of the ECA, there are two licences, i.e. service and spectrum licences,” Icasa said.

“The Act requires that, for an entity to apply for spectrum licence, they must already have a service licence, not the other way round.”

In the case where a licensee is applying for a transfer, Icasa said that the assumption is that they will be transferring both licences to the acquiring company.

“After due consideration and provided the other company meets all the requirements, the Authority may grant the transfer of that licence,” Icasa said.

No spectrum can be a deal breaker

Industry commentators and sources have said that one of the main reasons Vodacom would be interested in Neotel is its spectrum licenses.

In addition to its 3.5GHz license, Neotel also holds licenses for precious spectrum in the 1,800MHz and 800MHz bands.

Operators have been clamouring for spectrum to be assigned in the 800MHz “digital dividend” and 2,600MHz bands.

More importantly, Vodacom and MTN have both rolled out Long Term Evolution (LTE) technology on 1,800MHz spectrum that has been “refarmed” from their existing voice networks.

Additional 1,800MHz spectrum would therefore be of great value to local mobile operators to assist their LTE network rollouts.

If Vodacom is unable to convince Icasa to transfer the licenses to them, it stands to reason that it would be far less interested in buying Neotel.

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Vodacom-Neotel acquisition: the deal killer