Time to get moving
Telkom CEO Papi Molotsane has his work cut out convincing investors there’s still growth to be had in its fixed-line business. Consumers are abandoning fixed lines for cellphones and Molotsane must reverse the slide by rapidly expanding broadband penetration and by building a converged IT and communications company.
In the mobile business, subscriber numbers are surging amid predictions that SA could eventually reach 100% cellphone penetration. Vodacom CEO Alan Knott-Craig has a busy year ahead, managing this growth and pursuing new opportunities.
The company will conclude a black empowerment deal in the next 12 months worth at least R7,5bn, and a blockbuster acquisition may also be on the cards in an effort to catch up to chief rival MTN in Africa. At home, Knott Craig hopes to gain control of rival Wireless Business Solutions (WBS), which operates the fast-growing iBurst wireless broadband network.
Vodacom has appointed Rand Merchant Bank to advise on the empowerment transaction. Vodacom’s two shareholders, fixed-line operator Telkom and the UK’s Vodafone, will probably sell equity in Vodacom to facilitate the deal.
Knott-Craig says no partners have been identified, though there’s speculation that Didata SA chairman Andile Ngcaba and former Telkom chairman Nomazizi Mtshotshisa are interested.
One company that looks likely to bid for the stake is Mowana Investments, whose principals include former parliamentarian Nkenke Kekana and Business Connexion executives Bridgman Sithole and brothers Benjamin and Isaac Mophatlane
Vodacom, estimated to be worth about R100bn, enjoyed further strong growth in the six months to September 30, with subscriber numbers rising sharply to 25,8m (see chart, right). There could be further strong growth in the years ahead, particularly elsewhere in Africa.
Knott-Craig says Vodafone CEO Arun Sarin is “certainly much more supportive of us moving into Africa” than any of his predecessors were. The present agreement between Telkom and Vodafone forbids Vodacom from expanding north of the equator.
The delays in changing the shareholders’ agreement have cost Vodacom market share in Africa. Its chief rival, MTN, has built a powerful presence in Africa and the Middle East and now boasts about 35m subscribers, 10m more than Vodacom.
Knott-Craig admits opportunities in Africa are drying up, but he is keen to acquire a company that already operates networks in a number of territories, rather than doing deals country by country. “We are in talks with a view to making acquisitions,” Knott-Craig says. “We’re talking a lot of money, but it certainly would be affordable for us.”
It is not immediately clear which parties Vodacom is talking to. Most of the pan-African cellphone groups also have interests in the Middle East, and Vodafone won’t allow it to expand there. One option, then, might be for Vodacom and Vodafone to do a joint acquisition.
For the moment, Vodacom is focused on SA, where it still has aggressive expansion plans. This week Knott-Craig confirmed market speculation, first reported on consumer broadband website MyADSL, that Vodacom would acquire a stake in WBS, the iBurst operator. Knott Craig says he eventually wants management control of WBS, which has 30000 iBurst subscribers.
Vodacom is primarily interested in WBS because of its WiMax licence. The Independent Communications Authority of SA, which regulates the telecom sector, has denied Vodacom and other mobile operators WiMax licences. iBurst, Telkom, Neotel and Sentech have all been given the go-ahead to build WiMax networks. For Knott-Craig, this is unacceptable. “We don’t have a WiMax licence and I don’t want to wait anymore [to get one],” he says.
The proposed deal with WBS has already raised eyebrows, though. Analysts wonder whether it would concentrate too much power in SA’s broadband market in the hands of Telkom and Vodacom.
This concern might be misplaced, though — Knott-Craig says he is keen to beat Telkom to the punch when it comes to deploying a WiMax network.
The two companies have had a rocky relationship in the past but now claim to be working more closely together. Despite denials, it is evident that there is still some friction between them.
Telkom’s Molotsane insists, however, that the two companies will work more closely to exploit synergies. “Frankly, I don’t give a damn what happened in the past,” he says of previous disputes between Telkom and Vodacom management.
Inet-Bridge
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