Telkom Acquires 75% Stake in Multi-links

Multi-links is one of the leading private telecommunications operators (PTOs), operating since the late 1990s. Telkom has acquired a 75% stake in the operator from Kenston Investments Ltd, the holding company that owns Multi-links, according to Dow Jones newswire. Telkom will take control of the company at the board and operations level, said Telkom’s CEO Papi Molotsane, adding that this will "enable us to manage our investment more effectively and efficiently".

To defend against competition from the national GSM operators that were licensed in February 2001 and fixed-wireless access (FWA) operators and other operators that have been licensed in the liberalising Nigerian market, the leading PTOs first invested in migrating their TDMA and CDMA networks to CDMA 2000, then CDMA 2000 1X, and in some cases CDMA 2000 1X EV-DO. They have successfully carved a niche in the increasingly crowded Nigerian marketplace, and are offering 3G services (see Nigeria: 25 April 2003: Nigerian PTOs Find New Niche in CDMA2000). By August 2006, the PTOs had a total of 1,149,780 lines in service, up from 775,259 as at December 2005. Starcomms reported that it had reached 490,000 CDMA 2000 1X subscribers by December 2006, up from 250,000 at end-June 2006. Intercellular had 200,000 subscribers.

With the advent of unified licensing in 2006, the leading PTOs have gone a step further and acquired new licences, allowing them to expand even further. In May 2006, Multi-links was one of four operators awarded a unified access licence, which allows it to provide fixed, mobile, data, long-distance, and international telecommunication services (see Nigeria: 16 May 2006: Four Operators Awarded Unified Licences in Nigeria). Multilinks, Starcomms, Intercellular, and Prest Cable and Wire (Preste) were awarded unified licences, each paying 260 million naira (US$2.1 million) for the 10-year licences (see Nigeria: 6 March 2006: NCC Issues Final Unified Licensing Framework). The technology-neutral licences will allow the PTOs to offer an expanded range of telecoms services within their existing licensed footprints.

Already well entrenched in the lucrative Nigerian market, having invested in 3G technology and having acquired operating licences required for further expansion, it is not surprising that the PTOs have attracted interest from major foreign investors as a means of entering the market. For the PTOs, one of the key factors for their future growth is the ability to finance the expansion of their networks. In June 2005, the executive vice-chairman of the Nigerian Communications Commission (NCC), Ernest Ndukwe, noted that the CDMA-based PTOs were attracting the interest of foreign firms, saying "it's possible that some other international company might find its way into the market pretty soon through some of those smaller companies," (source: Reuters) (see Nigeria: 24 June 2005: Nigerian CDMA Operators Could Become Takeover Target for Foreign Investors). The following operators have sold stakes to foreign investors:

• Starcomms: In January 2005, Starcomms sold a "major" (undisclosed) shareholding for US$43.2 million to private equity investors Actis and the AIG African Infrastructure Fund (AAIF) (see Nigeria: 18 January 2005: Starcomms Sells Stake to Foreign Investors). 
• Intercellular: In January 2006, Intercellular announced that it had sold a 51% stake to the mobile operator Telecel for US$137.5 million, but in February 2007 it was reported that the deal had collapsed (see Nigeria: 28 February 2007: Telecel's Planned Acquisition of Majority Stake in Intercellular Collapses). Intercellular was granted a licence in Sierra Leone in 2004, and has also applied for licences in Benin, Chad, Guinea, Liberia, and Mali (see Nigeria: 25 June 2004: Intercellular Applies For Licences in Six West African Markets).
• VGC Communications Ltd: In January 2007, leading mobile operator MTN Nigeria acquired a 100% stake in Victoria Garden City Communications Ltd (see Nigeria: 23 January 2007: MTN Nigeria Acquires VGC Communications Ltd).
• Multi-links Telecommunications Ltd: In March 2007, Telkom SA acquired a 75% stake in Multi-links for US$280 million.

Outlook and Implications

In the face of mounting domestic competition, South Africa’s fixed-line incumbent Telkom is actively seeking expansion into foreign markets. In its annual report, Telkom reported that it was "exploring opportunities outside its borders where there is potential for growth, healthy returns, and long-term value creation for its stakeholders. The focus is on data acquisitions and fixed/mobile opportunities." In April 2006, Molotsane stated that Telkom had set a target to become the "ICT market leader in three countries outside South Africa" by 2010 (see South Africa: 11 April 2006: Telkom Plans to be Leader in Three Foreign Markets by 2010). 

Molotsane said that "the size and nature of growth of the Nigerian telecoms market, its low teledensity of only 20%, and its pent-up demand for internet access demonstrate that there is immense potential for future growth, making this an ideal acquisition," according to Dow Jones newswire. "Multi-Links not only meets Telkom's broader investment criteria but also provides us with the opportunity to expand our mobile capability."

Telkom also announced on 23 February that it had successfully acquired the multinational ISP Africa Online from the African Lakes Corporation for 10.32 million British pounds (US$20.30 million) (see sub-Saharan Africa: 26 February 2007: Telkom Announces Acquisition of Africa Online). Africa Online has the largest geographic presence of any ISP across Africa, with operations in nine countries: Côte d'Ivoire, Ghana, Kenya, Namibia, Swaziland, Tanzania, Uganda, Zambia, and Zimbabwe.