South Africa’s telecommunications market is fiercely competitive, and companies like Telkom, Vodacom, and MTN are constantly looking for ways to grow their business.
Organic growth, acquisitions, moving into different countries, and selling assets are all part of trying to grow revenue and profit.
The challenge is to invest in products which will show growth, select the right companies to acquire, and to sell assets which will not help the company’s ambitions.
Unfortunately, companies get these things wrong, and the cost of poor decision making can be huge.
Here are some of the costliest mistakes from local technology and telecommunications companies.
Altech Node by Altron
Altech launched its Node – a subscription push video-on-demand service and home automation system – in September 2014.
Altron CEO Robbie Venter said The Node was in development for approximately two years prior to its launch.
He added that everything – the payment solutions, the distribution, the manufacturing, the research and development, and the billing system – was done within the Altron group.
Telkom going into Nigeria through Multi-Links
Telkom purchased 75% of Nigeria’s Multi-Links for $280 million in March 2007 as part of its African expansion strategy.
Two years later, the company bought the remaining 25% of Multi-Links for $125-million – an investment which many people questioned.
In 2011, Telkom sold Multi-Links, after its failed Nigerian expansion cost the company over R7 billion.
Former Telkom CEO Nombulelo “Pinky” Moholi said in 2012 that the company made mistakes in its investments in Africa, calling its Nigerian losses embarrassing.
Telkom selling its share in Vodacom
Telkom was the majority shareholder in Vodacom after the company was founded in the early nineties.
Vodacom showed excellent growth in the 90s and 2000s, bolstering Telkom’s coffers with record profits.
Telkom had the option to buy Venfin’s 15% stake in Vodacom in 2005 to own a majority of the company. However, it lost out and Vodafone grabbed the share.
The 50/50 partnership did not work well, and in the end Telkom decided to sell its 50% stake in Vodacom.
Telkom chief strategy officer Miriam Altman said in 2013 that selling its 50% stake in Vodacom was one of the company’s biggest mistakes.
Vodacom buying Gateway Communications
Vodacom bought Gateway Communications in December 2008 for $675 million as part of its African expansion plans.
Things did not work out as planned, and Vodacom had to take an impairment charge of R3.2 billion on the unit after traffic volumes fell in Africa.
In June 2012, Vodacom entered into an agreement to sell certain investments, supplier agreements, and assets of a Gateway unit – Carrier Services – to PCCW Global for $26.4 million.
Altech investing in East African expansion
In 2008, Altech acquired a 51% stake in Kenya Data Networks, Swift Global, and Infocom for over $85 million.
In September 2009, Altech announced it was increasing its stake in Kenya Data Networks from 51% to 60.8% by investing a further $39.5 million into the company.
Cell C very late to the mobile broadband party
Former Cell C CEO Jeffrey Hedberg said in April 2008 that while they had a 3G-ready core network, 3G was hype and “we won’t fall prey to hype”.
Hedberg said Cell C couldn’t justify investing money into something [3G/HSDPA] that does not offer a good return on investment.
Cell C was already three years behind Vodacom and MTN when it came to launching a mobile broadband network, and this cost the company dearly.
Mobile broadband became the biggest growth area for mobile operators, and Cell C is still struggling to catch up to Vodacom and MTN in the data market.
Telkom formed Telkom Media in August 2006, and received a pay-TV licence from telecoms regulator Icasa in September 2007.
The company said it would invest R7 billion in the new media company, and it planned to offer a range of entertainment services.
In March 2008, Telkom said it would reduce its funding by R2.2 billion, but then decided to sell the company.
Telkom sold its 75% interest in Telkom Media to Shenzhen Media South Africa for a “nominal amount” in May 2009.
Vodacom selling its stake in iBurst
Vodacom owned a 24.9% shareholding in iBurst/WBS, which gave the company access to iBurst’s valuable 1,800MHz and 2.6GHz spectrum.
However, in 2010, Vodacom sold its stake in iBurst/WBS as part of its plans to apply for spectrum through Icasa.
Icasa was planning to hand out four new licences for 30MHz of 2.6GHz spectrum, but any company with a shareholding of 5% or more in another applicant in the same band was automatically disqualified.
Vodacom’s trust in Icasa to go through with its planned spectrum process was a costly mistake.
Icasa’s spectrum plans never materialised, and Vodacom lost its shareholding in WBS/iBurst.