Why Internet Solutions wants Mweb Business

Internet Solutions, which is part of Dimension Data, has announced its plans to acquire the business assets of Mweb Connect, the Naspers owned ISP. At first glance the deal looks a little strange given Multichoice’s interest in video-on-demand (VOD) services, but considering each company’s respective skills and focus areas the tie-up actually makes perfect sense.

Multichoice, through its satellite TV business DStv, has already made a play in the VOD market with its BoxOffice offering, which pushes the latest blockbuster movies to high-end decoders than can then be unlocked for a fee. Why then would it want to dispose of its ISP given that streaming looks set to take off in South African as high-speed fibre and VDSL connectivity becomes more commonplace?

This question is even more pertinent given the two new VOD services that have launched in the last fortnight, Times Media’s Vidi service – which mimics the model created by services Netflix and Hulu in the US – and Altech’s Node, which offers Internetless VOD by giving users a large body of content that can be updated via satellite, like BoxOffice but on a grander scale.

Answering the question requires a taking a closer look at the proposed deal. Multichoice is not selling off Mweb’s retail ISP business or the extensive base of retail customers that comes with it. This makes sense given that subscriber management is something Multichoice has proven extremely good at.

Instead, Multichoice is selling off the core network assets of the business components of Mweb, which focuses on small- and medium-sized (SME) businesses and has an existing customer base of 5 000 users. It’s also including Optinet, its internal ISP for Naspers properties, in the deal. In this sense, the proposed deal is like an outsourcing deal of the sort that have become common with mobile operators, some of which have sold off their physical infrastructure or outsourced the management of it to companies like Eaton Towers.

At the same time, a separate deal will see Mweb’s Wi-Fi business and Internet Solutions’ AlwaysOn service merge under a new company, WirelessCo.

Should the deal go ahead, Internet Solutions will get greater access to the SME market – above and beyond the corporate market where it’s played traditionally – through Mweb Business’s existing customer base and will gain additional scale by taking over the wholesale infrastructure for a Mweb, which is now one of South Africa’s largest ISP.

The deal still has to get the nod from South Africa’s competition authorities, but is unlikely to meet resistance given the key question the authorities have to ask when considering deals like this is whether or not an acquisition will result in a reduction in competition. In the retail space it won’t, as Multichoice isn’t offering Mweb’s retail arm as part of the proposed deal.

This isn’t the first time Mweb has looked for suitors. Parts of the company were put up for auction in 2008, but despite interest then from the likes of Internet Solutions and Vox Telecom nothing came of it, presumably because Mweb failed to attract what Multichoice would consider a suitable price.

Derek Hershaw, CEO of Mweb ISP says in a prepared statement released on Monday that, “going forward, this deal will allow us to extract greater benefits and efficiencies by combining our underlying technology platforms with IS. At the same time we will be able to focus more closely on our consumer ISP, and ensure that we continue to offer you the kinds of online products and services so essential to your everyday lives”.

Meanwhile, Derek Wilcocks, Dimension Data Middle East and Africa CEO says the deal will allow Mweb Business and Internet Solutions to service the SME market “more competitively and ensure that the ICT offerings for this sector are designed and supported in a way that is economically viable and, importantly, support them in operating and growing their business”.

Wilcocks says there is a “strong strategic and cultural fit” between the two companies and that the “combined entities will have the scale to compete in the SME market, whilst the SME market will benefit from access to a wider range of services, more market competitive prices, and greater support for their ICT”.

Source: Moneyweb

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Why Internet Solutions wants Mweb Business