Casting its net: Telkom’s fibre assets are probably the biggest drawcard for MTN but it has other attractions, including a large property portfolio. Photo: Nadine Hutton/Bloomberg/Getty Images
A shift is set to happen in South Africa’s telecommunications sector after an announced transaction between MTN and Telkom.
Vodacom is the largest subscription-based cellphone operator in the country, with 45.7-million clients. MTN has 34.5-million subscribers and Telkom 16.9-million. Combining MTN and Telkom will send subscriber numbers to 51.4-million, surpassing Vodacom.
“If MTN is allowed to take over Telkom mobile, then MTN will match Vodacom in terms of customers. The issue for the regulator will be that those two [MTN and Vodacom] will become so large and will probably be up to 80% of the market,” said Peter Takaendesa, the head of equities at Mergence Investment Managers.
But besides that, he said, there are no foreseeable major implications on competition.
Last week, MTN and Telkom said there were discussions about acquiring the entire issued share capital of Telkom in return for shares or a combination of cash and shares. The parties added the talks “are at an early stage and there is no certainty the transaction will be consummated”.
Takaendesa said markets elsewhere were consolidating into two-player markets, so having a “duopoly” is not uncommon.
For example, the Chinese telecommunications industry is dominated by three companies — China Telecom, China Unicom and China Mobile. But there have been reports of a merger between state-controlled China Unicom with China Telecom.
“The reason for the duopoly in those countries is probably a realisation that there is no more growth left in those markets. They consolidate so they can share infrastructure,” Takaendesa said.
Another reason for consolidation is smaller players in some markets have become unsustainable, so regulators allow them to be swallowed by bigger players just to survive.
Simon Brown, an independent equity analyst, said there were no competition implications because “Telkom is a small player in mobile and MTN small in fibre”.
As MTN bids for 100% of Telkom, it raises the question of what exactly MTN wants from Telkom.
In an age of rising internet connectivity, and with the roll-out of 5G, MTN could be eyeing Telkom’s fibre assets, which outweigh those of its counterparts.
The telecoms company has 165 900km of fibre network, owned and operated by its fibre wholesale division Openserve. Its network passes about 459 000 homes in South Africa. MTN only has 23 000km of fibre network.
Although the fibre assets are the key attraction for MTN, Telkom does have other valuable assets, Takaendesa said. These include a large property portfolio and Telkom Consumer, which operates the mobile and fixed-line high-speed broadband segments (the division that offers ADSL and fibre to homes).
“But, most importantly, if it misses on anything else, one thing [MTN] really needs is the fibre,” Takaendesa said.
Brown agreed that Telkom was attractive to MTN because it had a strong fibre network. Brown also said there was speculation MTN wanted Telkom for its spectrum “but I think it’s more about the fibre network”.
Early this year, an auction of high-demand spectrum facilitated by the Independent Communications Authority of South Africa (Icasa) raked in R14.4-billion for the fiscus.
(John McCann/M&G)
Telkom obtained 20MHz of 800MHz and 22MHz of 3 500MHz for R2.1-billion. MTN and Vodacom spent R5.2-billion and R5.4-billion, respectively, giving them access to the 2.6GHz and 3.5GHz bands.
This means should MTN’s bid to purchase Telkom succeed, MTN will also have access to more spectrum.
This is not the first time the two telecom operators have made eyes at each other.
It is reported MTN has made a bid for Telkom at least twice in the past decade. Bloomberg reported MTN expressed an interest in acquiring Telkom in November but the partially state-owned telecom company showed no interest in a sale.
Takaendesa said the previous talks collapsed for two reasons. The first was that the market structure at the time was difficult because Icasa had not auctioned spectrum for a long time and any move that gave other operators access to more spectrum would be opposed because there was a shortage of spectrum.
The second reason was some of the operators had geared balance sheets, meaning that funding such a transaction would have been difficult.
“For example, on the Telkom side, about two years ago the government was trying to sell its shareholding in Telkom to fund Eskom but they ended up raising that funding through selling spectrum.”
Based on the fact that the government wanted to sell its shareholding, it might now be open to selling Telkom, “especially if it’s a South African company that is acquiring Telkom”, said Takaendesa.
Brown said the public had not been privy to prior discussions but he suspected the point of contention could have been the offered price.
Takaendesa said: “I think this transaction is quite timely because last year Vodacom made an approach to buy Vumatel and Dark Fibre Africa and that transaction is now before the competition authorities. So, whatever comes out of that one has implication for this transaction.”
Dark Fibre Africa has 13 800km of fibre, while Vumatel has 30 000km and Vodacom 33 000km. That is a total of 76 800km of fibre that Vodacom would have, much more than MTN’s 23 000km network.
Anathi Madubela is an Adamela Trust business reporter at the M&G.
A shift is set to happen in South Africa’s telecommunications sector after the announced transaction between MTN and Telkom.
Vodacom is the largest subscription-based mobile phone operator in the country, with 45.7 million clients. MTN has 34.5 million subscribers and Telkom sits at 16.9 million. Combining MTN and Telkom will send subscriber numbers to 51.4 million, surpassing Vodacom.
“If MTN is allowed to take over Telkom mobile, then MTN will match Vodacom in terms of customers. The issue for the regulator will be that those two [MTN and Vodacom] will become so large and will probably be up to 80% of the market,” said Peter Takaendesa, the head of equities at Mergence Investment Managers.
But besides that, he said, there are no foreseeable major implications on competition.
Last week, MTN and Telkom said that discussions about acquiring the entire issued share capital of Telkom in return for shares or a combination of cash and shares have ensued.
The parties added that the talks “are at an early stage and there is no certainty the transaction will be consummated”.
Takaendesa said there are some markets elsewhere consolidating into two player markets so having a “duopoly” will not be uncommon.
For example, the Chinese telecommunications industry is dominated by three companies — China Telecom, China Unicom and China Mobile. But there have been reports of a merger between the state-controlled China Unicom with China Telecom.
“The reason for the duopoly in those countries is probably a realisation that there is no more growth left in those markets. They consolidate so they can share infrastructure,” Takaendesa said.
Another reason for consolidation is that some of the smaller players in those markets have become unsustainable, so the regulators allow them to be swallowed by the bigger players just to survive, according to Takaendesa.
Simon Brown, an independent equity analyst, also said there are no implications on competition because “Telkom is a small player in mobile and MTN small in fibre.”
As MTN bids for 100% of Telkom, it raises the question of what exactly MTN wants from Telkom. In the age of rising internet connectivity and the rollout of 5G, MTN could be eyeing Telkom’s fibre assets.
Telkom’s fibre assets outnumber those of its counterparts. The telecoms company has 165 900km of fibre network, which are owned and operated by its fibre wholesale division Openserve. Openserve’s network passes about 459 000 homes in South Africa.
MTN only has 23 000km of fibre network.
Although the fibre assets are the key attraction for MTN, Telkom does have other assets that could be a source of value creation for MTN, Takaendesa said. These include Telkom’s large property portfolio and Telkom Consumer, which operates the mobile and fixed-line high-speed broadband segments (the division that offers ADSL and actual fibre to the home).
“But most importantly, If they miss on anything else, one thing they [MTN] really need is the fibre,” Takaendesa said.
Brown agreed that Telkom is attractive to MTN because the former has a strong fibre network that MTN could use.
Brown also said that there is speculation that MTN wants Telkom for its spectrum “but I think it’s more about the fibre network”.
Early this year the auction of high-demand spectrum, facilitated by the Independent Communications Authority of South Africa (Icasa) raked in R14.4-billion for the fiscus.
Telkom obtained 20MHz of 800MHz and 22MHz of 3500MHz for R2.1 billion. MTN and Vodacom spent R5.2-billion and R5.4-billion respectively giving them access to the 2.6GHz and 3.5GHz bands.
This means that should MTN’s bid to purchase Telkom succeed, MTN will also have access to more spectrum.
It is not the first time the two telecom operators have made eyes at each other.
It is reported that MTN made a bid for Telkom at least twice in the past decade. Bloomberg reported that MTN expressed an interest in acquiring Telkom in November 2021 but the partially state-owned telecom company showed no interest in a sale.
Takaendesa said the previous talks collapsed for two reasons, the first being that the market structure at the time was difficult because Icasa had not auctioned spectrum for a long time and any move that gave other operators access to more spectrum would be opposed because there was a shortage of spectrum.
The second reason is that some of the operators had geared balance sheets, meaning that funding such a transaction would have been difficult.
“For example, on the Telkom side, about two years ago the government was trying to sell its shareholding in Telkom to fund Eskom but they ended up raising that funding through selling spectrum.”
Based on the fact that the government wanted to sell its shareholding the government might now be open to selling Telkom, “especially if it’s a South African company that is acquiring Telkom”, said Takaendesa.
Brown said the public has not been privy to prior discussions but he suspects the point of contention could have been the offered price.
Takaendesa said: “I think this transaction is quite timely because last year Vodacom made an approach to buy Vumatel and Dark Fibre Africa and that transaction is now before the competition authorities. So, whatever comes out of that one has implication for this transaction.”
Dark Fibre Africa has 13 800km of fibre while Vumatel has 30 000km and Vodacom sits with 33 000km. That is a total of 76 800km of fibre that Vodacom would have, much more than MTN’s 23 000km of fibre network.
Anathi Madubela is an Adamela Trust business reporter at the M&G.
[/membership]