Is something brewing between Vodacom and iBurst?
Last year Vodacom bought a 10% stake in Wireless Business Solutions (WBS), the iBurst holding company. This acquisition was widely perceived to be a strategic move to gain access to iBurst’s valuable WiMax spectrum, but recent developments have industry wondering whether there is more to the partnership than what meets the eye.
After securing an initial 10% stake in iBurst the Vodacom CEO, Alan Knott-Craig, said that he is looking to gain management control of WBS. Vodacom said that it is not certain if this can be achieved, but that it remains a long term target for the company.
Bearing this in mind it is not all that strange that Vodacom has started reselling iBurst services and even supplying iBurst support. With an agreement already in place for Vodacom to acquire a larger stake in iBurst, it is understandable that Vodacom is willing to gamble on the smaller broadband provider.
“Vodacom believes its customers should have the widest possible range of broadband access technologies to choose from, to address their specific broadband needs. We see iBurst as a complementary broadband product,” Vodacom said.
New Internet Company for Vodacom
Vodacom further announced a new company which will focus on their WiMax, ISP (Internet Service Provider) and VPN (Virtual Private Network) business. This new company will allow Vodacom to actively target a market currently dominated by larger ISPs.
Vodacom does not have its own WiMax spectrum which means it will currently rely on iBurst for this resource. Everyone, including the mobile providers, are hoping that ICASA will bring them good news about spectrum allocation soon, but South Africa’s largest mobile provider seems to have taken out an insurance policy in the form of iBurst.
The new company began business operations on 1 April 2007 and the Managing Director will be appointed in due course. In the interim, Mr. Pieter Uys, current Chief Operations Officer for the Vodacom Group, will be acting as Managing Director.
Interestingly enough this new company has snapped up both of the long serving Telkom executives who recently left the embattled company, namely Wally Beelders and Thami Msimango. Not too astounding considering Telkom’s shareholding in Vodacom and that this new division will work very closely with the incumbent in their future endeavors.
Mr. Wally Beelders will serve as Executive Director for the Commercial division and report to the MD of the new company. Mr. Thami Msimango has been appointed as Chief Operations Officer and will also report directly to the MD.
With Vodacom’s new company itching to jump on the WiMax bandwagon, iBurst will certainly be a very valuable addition to the Group and will fit in nicely under the umbrella of this new company, but the smaller provider seems to have other ideas.
iBurst wants to hold control
iBurst Managing Director, Alan Knott-Craig Jnr, son of Vodacom CEO, however said that “to the best of his knowledge, Vodacom will not gain management control of iBurst”.
iBurst further dismissed speculation that the Vodacom-iBurst deal was orchestrated before Blue Label Investments’ venture in iBurst, saying that “the earliest that iBurst management became aware of the Vodacom interest was 3rd quarter 2006.” Blue Label Investments acquired 40% of iBurst late in 2005.
iBurst however did not want to confirm that there is any agreement between iBurst and Vodacom for a larger future stake in the wireless broadband provider, something that Vodacom pointed out was the case.
While iBurst MD Alan Knott-Craig Jnr may not want to relinquish power to the company which his father runs, the WBS CEO was more open to offers. Thami Mtshali, WBS CEO, made it clear that everything has its price. And one thing which Vodacom has is a lot of money.
Future
iBurst can be a great asset to Vodacom, not only because of its WiMax spectrum and other strategic assets but also because of its current position in the local broadband market.
Vodacom said that iBurst gives them an opportunity to broaden their broadband product range with the further advantage of gaining access to WiMax spectrum and services.
If Vodacom can gain management control of iBurst, the Telkom-Vodacom-iBurst alliance will essentially control the local broadband scene with only MTN and to a lesser degree Sentech to compete against.
The latest broadband figures indicate that Telkom holds just over 50% of the broadband market, Vodacom 33% and iBurst 8%. Control of iBurst by Vodacom will mean that Telkom-Vodacom-iBurst will control around 90% of the broadband market, something which may be frowned upon by the Competition Commission.
It is undeniable that Vodacom’s 10% stake in WBS and their willingness to make their reseller and support channels available to iBurst is of great benefit to the fixed wireless broadband provider.
It also doesn’t hurt to have a large, profitable company like Vodacom as a shareholder when looking for funding, and it is not too surprising that they recently received a R 100-Million boost from the Development Bank of Southern Africa (DBSA) and Investec.
Whether or not Vodacom will gain their controlling stake in iBurst is still unclear, but what is clear is that the current relationship between the two companies point to a far closer alignment in future.
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