Vodacom rings in the changes on all fronts
Between now and next Monday, when Vodacom lists on the JSE, it will have new shareholders, a new board, a new government, a new communications minister and a change in status from a private to a public company.
In addition, in recent months it has entered a much changed economic environment — the worst in its 16-year history.
The listing, which follows Telkom’s R22.5- billion sale of 15% of Vodacom to Vodafone, will probably be the only big listing the JSE will see this year.
The Vodafone deal values Vodacom at R150-billion, which would make it the seventh-largest company on the JSE, behind its rival and the JSE’s fifth-biggest company MTN, valued at R207-billion on Friday.
But one can assume that Vodafone paid a premium for its increased stake, which makes it Vodacom’s majority shareholder and frees Vodacom from the sometimes debilitating joint ownership previously shared between Telkom and Vodafone.
Vodacom is therefore likely to be valued much lower, though its value will only be determined by market forces when it makes its JSE debut, and could be adjusted a day later when investors react to publication of its results for the year to March.
Leading the listing is CEO Pieter Uys, also “new” after taking over from Alan Knott- Craig in October — although Uys has in fact been a Vodacom stalwart since 1993.
Filling Knott-Craig’s shoes is challenging — more so because of economic conditions, the listing and growing competition.
Since October, the business has required a faster-paced approach as the telecommunications environment has become increasingly complicated.
Uys said a lot of effort has been put into gearing Vodacom for change. “This is not just a change in shareholding — we will have a new government, new shareholders, and 90% of our board will be new,” he said. “ We have had to refresh the way we do things in the company.”
Vodacom has to be an attractive investment opportunity as a listed company.
“We have proven we can deliver. We have good management, many members of which have been here since day one. We have been the first on a number of innovations, like pre- paid,” said Uys.
Vodacom is still the dominant cellphone company in SA, with a 52% market share as of December.
But with increased competition, especially in convergence technology where everyone, from telecoms companies to banks, is expanding into broadband, wireless networks and other services, Vodacom has had to focus on doing things faster. Uys has brought in young people, and Vodacom’s average staff age is now below 30.
He said Vodacom has “democratised voice communication” and would now focus on democratising data.
In SA and in its other areas of operation in Tanzania, the Democratic Republic of Congo, Lesotho and Mozambique, “we see a hunger for access to information and knowledge, and we need to democratise the Internet”.
That is why pan-African telecoms provider Gateway was bought for R675- million in December.
Other developments in data include free e-mail boxes for subscribers and significant Internet developments. Vodacom has a few million Internet users on mobile, making it SA’s biggest Internet service provider.
Industry regulator the Independent Communications Authority of SA has awarded 350 value-added network service licences to companies who are now able to provide their own wireless and terrestrial infrastructure, paving the way for hefty competition. But Uys said the group could defend its turf.
It has put together “a pool of talent who understand telecommunications and can move quickly — so we have first-mover advantage”.
“It is also not cheap to build a network, and one needs to have scale,” he said. Vodacom could easily manage both.
Release from Telkom has given Vodacom more leeway. Vodacom and Telkom were competing against each other in the SA market as Telkom tried to diversify away from landlines. Now Vodacom can enter into partnerships with Neotel and MTN in the new fibre-optic network.
The old shareholding structure restricted African expansion. “In the rest of the continent, we have not been good at acquisitions. But we were looking for converged- type licences and eventually found that through the acquisition of Gateway.
“But we are not forgetting voice. Voice is still king. The market in SA is supposed to be saturating, but there is still growth. However, people are more cautious; they are controlling their spend more.”
The immediate focus is on the listing.
“We have spent a lot of time preparing, we have seen lot of potential investors and analysts, we have been telling shareholders why we are a good investment story and spending time with employees — we have to make sure they all come with us on the journey.”
On listing, Vodacom will be 65%-held by Vodafone with the remaining 35% held initially by Telkom shareholders. The South African government will be left with 13.9% of Vodacom and the Public Investment Corporation with 6.3%. The government will retain a holding of at least 10% for a year.
The relationship with Vodafone is now much closer, and Uys welcomes being part of a global organisation. Vodacom has already exported some of its ideas and skills.
The relationship is mutually beneficial. “For our part, we would not have had iPhone without Vodafone. We also benefit, for example, in buying equipment; Vodafone is buying for 300-million customers.”
Vodafone has not indicated that its increased shareholding will translate into a more dictatorial approach. “The message they have given us is that they will do what is good for the business.”
Vodafone is not telling Vodacom to rebrand as Vodafone, although Uys did not exclude this possibility.
One day after listing, Vodacom will release its annual results.
Revenue and pre-tax earnings will drop slightly, with profit margins affected by R97- million expenses relating to an empowerment deal and lower profitability in Vodacom DRC.
Vodacom changes – give your views
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