Growth path
Despite being a lesser-known player in SA, Gateway’s turnover is in fact more than R1bn/year, making it a fairly sizeable contender against other telecoms operators (albeit that 95% of that comes from outside SA).
However, COO Mike van den Bergh – who himself is well known as the outspoken former chairman of industry lobby Cuasa – says while SA remains a key country for expansion for Gateway it’s still difficult to plan, given the continued regulatory "opaqueness".
Van den Bergh says relative to some parts of Africa, SA isn’t merely standing still but is falling behind. Nigeria’s telecoms market recently grew to exceed SA’s.
Gateway is one of the largest carriers of voice traffic in Africa, largely for mobile operators via satellite. It operates in 28 countries and counts more than 79 operators ranging from BT, to France Telecom, Celtel, Millicom and Vodacom as its clients, as well as 900 corporates to which it provides other services, ranging from virtual private network (VPN) services to e-commerce.
In April last year, Gateway catapulted its pan-African voice and data business to a new level with the $50m acquisition of Celtel satellite business Link Africa.
It could also have played a role in SA’s second national operator – now Neotel – as one of the original shareholders in the CommuniTel consortium. However, having been left with too small a stake to be a meaningful contributor – just 3% – Gateway decided earlier this year to focus on other opportunities instead, says Van den Bergh. It seems future growth will be largely organic and expansionary, with some "bolt-on acquisitions".
Company president Julian McIntyre says Gateway used some of the cash it raised to restructure its long-term debt and some to change its shareholder structure. The founders – a collection of investors, including the core management team and private investors that originally put up seed capital – increased their stake to 54%, while a black economic empowerment consortium, Batsalani, now holds 31%.
Gateway plans to use the rest of the cash and future cash flows to meet the growing demands of existing clients whose markets are liberalising. It also wants to expand its offering and enter new markets in which it doesn’t already play. A direct or indirect consumer offering is also a possibility over the longer term.
McIntyre says SA and Nigeria are two markets where Gateway already operates but it has its sights set on further expansion into North Africa and other markets in sub-Saharan Africa, especially focusing on potentially high growth countries such as Angola, Morocco, Tunisia and Algeria.
Van den Bergh says in the past the bulk of the traffic it carried to and from Africa was incoming, but as African economies grow and markets liberalise, outbound voice traffic is its fastest growing revenue source, currently accounting for around 25%.
Though satellite has a reputation for poor quality, Van den Bergh says Gateway delivers the vast amount of its traffic via satellite and you wouldn’t notice the difference between that and a call delivered over fibre. He says it hinges on understanding and managing capacity issues and other parameters. That its network is a next generation network (NGN) also makes a huge difference in helping it provide carrier quality voice over satellite.
Gateway competes with traditional players in Africa such as BT, Belgacom and France Telecom as a carrier of traffic to and from the continent. However, Van den Bergh says most of those aren’t investing in their networks in Africa. And McIntyre says there’s no single company that offers the same range of services as Gateway does, so it plays against a different set of competitors in each business segment.
If Gateway wants to raise more capital and wants greater visibility, a listing – in either SA or London – would seem to make sense. McIntyre says it has been very successful at raising cash on debt markets (its latest bond was five times oversubscribed), but will always evaluate its capital structure to maximise returns for shareholders.
With a mere 100 people in its employ, Gateway has the opportunity to be nimble. It could turn out to be a major player in SA’s telco space – if Icasa will let it. But if the regulator takes too long to license new players, there are plenty of other African countries that would no doubt welcome its investment.
FINWEEK
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