Telkom SA Confirms Talks with Vodafone and MTN

Telkom South Africa has confirmed that it is in talks with Vodafone and MTN. This follows local press reports that have suggested that the South African incumbent is in advanced negotiations to sell its 50% stake in the African mobile group, Vodacom, to the United Kingdom’s Vodafone. Telkom SA said by contrast that its talks with Vodafone and MTN are at a very early stage and did not disclose what assets it may be discussing with the operators. However, local press reports suggest that MTN may be interested in Telkom’s domestic fixed-line assets.

Outlook and Implications

• Rationale for Vodafone: Vodafone also indicated that it is in talks with Telkom SA on increasing its current 50% stake in Vodacom. Such an acquisition would be in line with its strategy of investing in high-growth markets. An acquisition would give it access to subscribers across the markets of South Africa, Tanzania, Lesotho, Mozambique and the DRCongo. The U.K. operator was also recently cited as a potential investor in Mubadala Development Company, the fifth Nigerian GSM licensee, following Vodacom’s failure to enter Africa’s largest market (see Nigeria: 21 August 2007: Vodafone In Talks on Taking Stake in Nigerian GSM Licencee—Reports).

• Rationale for MTN: MTN’s reported interest in Telkom South Africa’s fixed-line assets would be in line with its strategy of targeting the corporate segment and offering broadband services. Over the past few months, the group, which has mobile operations in 21 markets in southern Africa and the Middle East, has positioned itself towards these segments through selective acquisitions and participation in unified licensing (see Nigeria: 17 August 2007:MTN Nigeria Agrees to Buy XSBroadband). Nevertheless, the acquisition of Telkom SA’s fixed-line business would be on a grander scale than any of its other previous acquisitions and would carry heavier risks, not least of which would be the increased competition it will face from the Tata-backed Noetel (see South Africa: 1 September 2006: SNO Launches in South Africa). Local banks value Telkom’s South African assets at some 50 billion rand (US$7 billion). In the year to 31 March 2007 the operator had 4.7 million main lines in service, down slightly from 31 March 2006, and generated 33.3 billion rand in revenues, up from 32.8 billion rand. The operator is recording strong broadband growth, but from a very low base. At the end of March 2007, it had 92,140 ADSL subscribers.

• Rationale for Telkom South Africa: Telkom South Africa has not disclosed which of its assets might be up for sale. However, any sale would likely be part of a broader deal. While Vodacom has helped Telkom South Africa generate revenue growth, the mobile group’s relatively small mobile footprint and lack of a GSM network in Nigeria would dilute growth prospects in the longer term. A tie-up with MTN would give Telkom access not only to a leading mobile operator in Nigeria, but also the other large markets of Ghana and Iran. In total, MTN has a licensed mobile footprint in Botswana, Cameroon, Côte d'Ivoire, Nigeria, Congo-Brazzaville, Rwanda, South Africa, Swaziland, Uganda, Zambia, Afghanistan, Benin, Cyprus, Ghana, Guinea-Bissau, Guinea, Iran, Liberia, Sudan, Syria, and Yemen.