Ready to ring the changes
Potential multibillion-rand deals involving Telkom, Vodafone, Vodacom and MTN, which would reshape SA’s telecommunications industry for decades to come, have already been discussed at political level and will be put to cabinet for approval should that be necessary.
MTN and Telkom on Monday finally confirmed months of speculation that they are in talks, fuelling expectations of a fundamental restructuring of SA’s telecom industry that would also see Telkom selling its noncontrolling 50% stake in Vodacom to the UK’s Vodafone (or, possibly, Vodafone acquiring Telkom).
Investors punished MTN, sending its share price down as much as 6% late on Monday (it later recovered some lost ground) after the two groups confirmed their rapprochement. Telkom closed up nearly 9% at a new record high.
Talk of an acquisition by MTN of Telkom’s fixed-line assets first surfaced in June when Telkom told shareholders that it was reviewing its mobile strategy.
Government, which holds a controlling 38% stake in Telkom, is playing its cards close to its chest. But communications department director-general Lyndall Shope-Mafole confirms that government has been informed of the discussions and says she has faith in the boards of MTN and Telkom to make the “right decisions”.
The two most likely scenarios are:
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Telkom sells its 50% stake in Vodacom to Vodafone in a deal that would net it R70bn or more. It then sells its fixed-line assets to MTN, leaving a shell with as much as R100bn in cash to be distributed to Telkom shareholders.
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Another possibility is that Telkom reinvents itself as a media company, with its new Telkom Media asset forming the core of a formidable rival to Naspers’s MultiChoice
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Vodafone buys enough of Telkom to give it control of Vodacom, sells the fixed-line business to MTN, and retains the company’s listing on the JSE, rebranding Telkom as Vodacom or Vodafone. This may be a more palatable option for institutional shareholders, but would require government to dilute its stake in the operator — Vodafone will want management control of Telkom.
Whichever way the talks pan out, a deal involving Vodafone and Vodacom will almost certainly include a multibillion-rand black empowerment component. Vodafone has indicated previously that it is keen to introduce black shareholding into Vodacom as soon as possible.
Asked if government would be prepared to sell its stake in Telkom or whether it would be open to swapping its shares in Telkom for a stake in MTN to facilitate the latter’s acquisition of the former’s fixed-line assets, Shope-Mafole says she does not want to “pre-empt what the boards are doing”.
She adds that government’s stake in Telkom is “strategic” and the Telkom board “knows that”. Government has long said it has no intention of selling its stake in the fixed-line operator, drawing sharp criticism from some industry leaders who have questioned why the stake should be seen as strategic — and what “strategic” means. Shope-Mafole says that whatever the company boards decide will require the approval of cabinet.
A deal between the companies would make sense. Vodacom and Telkom have never had a good working relationship; Telkom selling its fixed-line business to MTN would allow it to explore synergies in fixed-mobile convergence it hasn’t been able to with Vodacom.
MTN cautions, however, that the “talks are at a very preliminary stage”. Like Vodacom, MTN is keen to offer data services to the corporate market using fixed lines. It also wants more control over its transmission network — the fibre-optic lines that connect its base stations to its core network.
Whether MTN will want to take over Telkom’s large base of retail customers is another matter — government could seek to impose stringent terms on a deal to ensure that MTN doesn’t simply pursue the lucrative corporate market.
If the deal happens, it won’t be MTN’s first foray into fixed lines. It already operates a fixed-wireless network in Uganda and recently acquired a fixed-line provider, VGC Communications, in Nigeria in a US70m deal.
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