Should Vodacom be allowed to buy Neotel?
The official line, for months now, has been that we should have news from Vodacom and Neotel’s exclusive negotiations “within weeks”. The original indicative timeline from both parties was for due diligence and commercial close to be completed before the December holiday madness.
When pressed for details, Neotel MD Sunil Joshi last week blamed the holidays for the delay. But it’s been more than two months since mid-January when presumably everyone would’ve been back from the month-long shutdown? So if Vodacom wouldn’t have found something untoward in the due diligence process, what’s taking so long?
Regulatory and competition approvals come next, so while a concern, the delay couldn’t be related to that.
Could it be that Vodacom-parent Vodafone is rumoured to be in talks to buy Neotel-parent Tata Communications? It certainly makes the most sense. Vodafone wouldn’t want to pay twice for Neotel.
With or without a Vodafone takeout of Tata Comunications, will Vodacom be allowed to buy Neotel?
One can only assume Icasa (the Independent Communications Authority of South Africa) is trying to pre-emptively answer this question as part of its market inquiry. We know that the regulator is “concerned” about market consolidation. With that in mind, a Vodacom-Neotel tie-up looks doomed to failure.
But, any argument is likely to rest on how the “market” is defined. Is it the broader (converged) telecoms market? Is it the fixed-line market? You can almost be certain the regulator will prefer the former, while both Vodacom and Neotel will favour the latter (Neotel has 8% of the fixed-line market).
Again, we need to look at the glacial pace of the licensing of the second national operator in the late nineties and early 2000s… That’s the real travesty here. Truth is, Neotel never really had a chance. It was licensed too late to make a difference (ditto with Cell C). And it wasn’t as if there were dozens of companies lining up to bid. There were precisely two bidders for the licence.
And what of the 400-odd ECNS licences (made possible following the so-called “Altech” court decision in 2008)? Again, Icasa’s confused by the absence of competition. Again, it points to all the licences as evidence that its done what’s necessary to stimulate competition.
Given that these licences enable self-provision, any holder could build a telecoms network in the country. Mobility is an issue, given scarcity of spectrum. But nonetheless, there’s little stopping anyone with an ECNS licence from building a network to rival Telkom.
Except there’s no compelling business case for anyone to pour hundreds of billions of rands into what’ll be a bottomless pit. No ones been brave (or stupid) enough, have they?
A dozen or so have used ECNS licences to build commercially viable and very sizeable businesses. Take Dark Fibre Africa, for example. It has a >7500km fibre network which it values at over R4.3bn. But, even at that size, it’s hardly a meaningful competitor against Telkom. Those ECNS licensees at scale have identified niches and have created tidy, profitable businesses.
But, nearly a decade after a competitor was licensed, we still sit with a dominant Telkom.
Peeking into the future offers a view of more of the same… Barely good enough ADSL from a single provider whose billing and service systems are in absolute crisis (more on that later this week). Practically one provider of scale to the enterprise, with a few smaller competitors feeding on the scraps.
Take a look at any European market, Australia, Brazil even… that’s the future we should have! Real broadband (That might fix the iron grip Multichoice has on pay TV too.)
The real question is whether we want two (or three) strong competitors or five or six sub-scale operators with nothing but the illusion of competition.
Perhaps the more pertinent question to ask is: can we afford for Vodacom not to be allowed to buy Neotel?
* Hilton Tarrant contributes to ‘Broadband’, a column on Moneyweb covering the ICT sector in South Africa.
* Hilton Tarrant owns a handful of shares in Vodacom, acquired in June 2013.
More on Vodacom-Neotel deal
Vodacom-Neotel deal discussions confirmed
Vodacom-Neotel acquisition: the deal killer
Vodacom’s Neotel acquisition plans “progressing well”
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