Global Insight Perspective | |
Significance | Vodacom has pursued an additional shareholding in Vodacom for some 18 months, but Telkom now say that its board and the South African government are “supportive of the transaction”. |
Implications | As a result of the proposed transaction, Vodafone would take a controlling stake in Vodacom. Vodafone already has mobile operations in Africa through Vodafone Egypt, One Touch in Ghana, and a 40% stake in Safaricom Kenya. |
Outlook | Telkom is meanwhile pursuing a strategy to become an integrated fixed-mobile operator and will launch its own W-CDMA network in October. |
Telkom SA, South Africa’s fixed-line incumbent, owns a 50% stake in Vodacom. Vodafone currently owns the other 50%, after increasing its stake from 35% in 2006 for 16 billion rand (US$2.43 billion). According to company press releases, Vodafone made a non-binding proposal to acquire a further 15% stake in Vodacom for 22.5 billion rand (US$2.47 billion), less the attributable net debt of Vodacom at the time of signature, which will be settled in cash. In a press release, Telkom said that both the board of directors and South African government are supportive of the transaction.
The proposed transaction is subject to Telkom unbundling its remaining 35% stake in Vodacom to its shareholders through a listing on the Johannesburg Stock Exchange (JSE). Vodafone has been looking to increase its stake in Vodacom for some time as it looks to tap into future growth in emerging markets, and embarked on discussions with Telkom last year (see South Africa: 30 May 2007: Vodafone Moots Vodacom Buy-Out). However, in November 2007 Telkom said that it had ended discussions at the time, although Vodafone signaled that it was still keen to pursue a transaction (see South Africa: 29November 2007: Telkom Ends Discussions with Vodafone and MTN). On 30 May 2008 Telkom issued a statement saying that it had received a non-binding proposal from a wholly-owned subsidiary of Vodafone to acquire a portion of Telkom's stake in Vodacom, subject to the company unbundling its remaining stake in Vodacom to Telkom shareholders, adding that the new round of discussions with Vodafone commenced on 14 May 2008.
Vodacom accounted for some 42.8% of Telkom’s group revenues in the year ending 31 March 2008 (see South Africa: 10 June 2008: Telkom Reports 9% Revenue Increase to US$7.16 bil.). Of a total revenue of 56.285 billion rand, the fixed-line segment accounted for 32.572 billion rand and mobile for 24.089 billion rand. The mobile segment (Vodacom) accounted for 35.7% of total group revenues in 2006, 39.9% in 2007, and 42.8% in 2008.
Outlook and Implications
The transaction will give Vodafone a controlling 65% stake in Vodacom, the largest operator in South Africa. Vodacom also has subsidiaries in the Democratic Republic of Congo (DRC), Lesotho, Tanzania, and Mozambique, and reported a group total of 34.563 million subscribers by 30 June 2008 (see Sub-Saharan Africa: 22 July 2008: Vodacom Reports 34.6 mil. African Subscribers).
Vodafone also holds a 40% stake in Safaricom, the leading Kenyan operator, a 50.1% stake in Vodafone Egypt, and through its 70% stake in Ghana Telecom the Ghanaian mobile operator One Touch. Safaricom reported 10.231 million subscribers as at 31 March 2008, a 68% increase over the 6.083 million reported a year previously (see Kenya: 29 May 2008: Safaricom Reaches 10.2 mil. Subscribers, Reports 29.3% Annual Revenue Growth). One Touch had 1.4 million subscribers as at 31 March 2008 (see Ghana: 18 August 2008: Vodafone Completes Acquisition of 70% Stake in Ghana Telecom). Vodafone Egypt reported 15.2 million subscribers as at 31 March.
Telkom is pursuing its own fixed-mobile strategy. After conducting a review of its fixed-mobile strategy, the operator intends to create an integrated fixed-mobile operator in order to capture growth in the voice and data market, where it is seeing increasingly strong competition from mobile operators. Telkom says that the shareholders agreement with Vodafone has prevented Telkom from entering into the mobile voice market and that the ongoing discussions are intended to remove this impediment.
Telkom announced in its annual report that it has decided to deploy a W-CDMA fixed-wireless and mobile data network, and has appointed Huawei to build it. This will provide Telkom with mobile data, as well as a fixed and a nomadic voice capability, and adds that because of increasing levels of copper cable theft, it is preferable to replace copper with wireless solutions. However, the operator says that because W-CDMA has the capability of supporting full mobility, fixed and nomadic services can be further augmented with mobile voice should Telkom be successful in concluding its mobile strategy and is no longer bound to the current shareholders' agreement with Vodafone.
On 1 October Telkom confirmed that it will initially launch fixed voice and fixed-mobile data services during October, with nomadic voice services becoming available later in the year. "Our revenues have been under significant pressure from declining voice services due to competition and further impacted by the effects of copper cable theft” said Reuben September, Telkom’s CEO in a company press release. "Three years ago, we announced we are investing in next-generation network (NGN) based technologies to provide new generation customer services and products. It isn't about a single network but using various NGN technologies, such as W-CDMA, to provide customer-focused services". Telkom said that W-CDMA technology is expected to ensure sustained service assurance without relying on copper cables and is in line with research which indicates that the majority of voice and data calls on the mobile networks are made from a fixed location, indicating that customers pay a premium for a mobile capability when making a call from a fixed location.