Vodacom and the shareholders of Neotel have announced today (30 September 2013) that they have entered into exclusive discussions regarding a potential acquisition of 100 percent of the shares of Neotel by Vodacom South Africa.
Vodacom Group CEO Shameel Joosub said that there are a number of important steps that they still need to complete to conclude the transaction.
The finalisation of the transaction is subject to the successful conclusion of commercial negotiations and receiving the requisite regulatory and corporate approvals.
“If the deal is implemented, Vodacom intends to put significant investment into the combined entity to provide high-speed fixed connectivity to many more businesses and consumers,” said Joosub.
Neotel CEO Sunil Joshi said that this deal presents an exciting opportunity for all parties, including their customers to whom they “will be able to offer more meaningful and innovative products and services”.
Increasing competition in fixed business, broadband market
After MyBroadband reported in May that Neotel was for sale and that Vodacom was looking to buy, many people felt that the deal may face a challenge from the Competition Commission.
Vodacom and Neotel, however, argue that this transaction, if concluded, would stimulate greater competition in the South African fixed telecommunications sector and will accelerate the rollout of broadband access.
“It would result in the combined entity being able to offer an expanded product range and, as a consequence, enhanced customer choice,” Vodacom said.
Telkom currently has a dominant position in the fixed telecommunications and business market, and this deal will attack this dominant position.
Combining two sub-scale business service providers – Vodacom Business and Neotel – will provide better competition to Telkom in the business market.
Vodacom’s financial muscle and country-wide presence will also assist to grow Neotel’s footprint, and make the most of the company’s spectrum.
“Spectrum is an important consideration as the combined entity could use this resource more efficiently, and in doing this we can keep pace with South Africa’s rapidly growing demand for mobile data,” said Joosub.
“This transaction, if concluded, would further enable Neotel to extend its footprint in South Africa and add the mobile capability that our customers require for their business’ growth in a new world of converged communications,” said Neotel’s Joshi.
Another advantage of this deal is that Vodacom will be able to leverage Neotel’s 15,000km of fibre-optic network, including 8,000km of metro fibre in Johannesburg, Cape Town and Durban.
Many people feel that Neotel did not do enough to compete against Telkom in the ADSL/fixed broadband market. A Vodacom-Neotel deal may change that.
“By further building on the capabilities within Neotel, we would aim to develop entirely new services such as fibre to the home and business,” said Joosub.
With government’s strong focus on better broadband access for South Africans, it should not be too difficult for Vodacom to argue that the deal will improve broadband access instead of hampering competition.
“This transaction is all about providing greater choice and better infrastructure for South Africa’s businesses and consumers,” said Joosub.