In a rapidly converging telecoms sector, the big question on everyÂbody’s lips is when Telkom will sell Vodacom and who it will partner to re-enter the mobile market.
MTN might seem a perfect fit with its large African footprint, but analysts feel the price tag of between R250-billion and R300-billion is too costly for Telkom. The deal would be unlikely to get approval from the competition authorities, which are increasingly anti-monopoly.
This leaves South Africa’s smallest mobile operator, Cell C, as a potential acquisition target for Telkom. This would allow the fixed-line incumbent to place its financial muscle behind the struggling operator.
However, analysts say Cell C’s shareholders would want about R25-billion for the mobile operator, but suggest that it is worth only about R12-billion at present.
Although a break-up between Vodacom and Telkom is speculative, the two telco giants are behaving increasingly like competitors instead of business partners.
Last week Vodacom CEO Alan Knott-Craig announced that Vodacom would be looking to build its own infrastructure network (currently provided by Telkom) and would offer converged services to corporate clients.
This follows Vodacom’s aggressive entry into the broadband and pay-TV markets through its partnerships with DStv and WBS. These aggressive strategies by Vodacom have led analysts to predict that Telkom will look to offload its 50% share in the mobile operator, which is valued at between R70-billion and R75-billion, before it loses joint control of the mobile operator through a yet-to-be-announced BEE deal.
However, Telkom realistically cannot afford to exit the mobile game and if it was to dump Vodacom, it would need an alternative mobile strategy.
An analyst said this week he believed Telkom would make an offer for the other 50% of Vodacom held by Vodaphone, but that Vodaphone would ultimately “give them the middle finger” and the result would be Telkom selling its shares.
Last week Telkom’s acting CEO, Reuben September, said that the fixed-line monopoly was reviewing its mobile strategy and would Âcomment only on the speculated sale of Vodacom when the process was complete.
The majority of analysts interviewed by the Mail & Guardian agreed that Telkom would have to enter the mobile market through an acquisition because a start-up mobile venture would be too risky.
The proposition that Telkom could buy MTN made sense because of MTN’s strong footprint in Africa, which mirrored Telkom’s plans to take its triple-play offerings to the rest of the continent.
BMI-TechKnowledge’s telecoms analyst, Richard Hurst, said Telkom might see MTN as a nice fit with its expansion plans for Africa, but said competition commission approval would be hard to secure.
Another potential target for ÂTelkom could be Cell C, which has battled to compete against MTN and Vodacom. Cell C’s introduction to the market has not had the intended impact and if it was acquired by Telkom it might have the financial muscle finally to take on the big two operators.
Genesis Analytics’ telecoms analyst Robert Lipschitz said the competition commission might look more favourably on Telkom’s acquisition of Cell C than of MTN. “Perhaps Telkom buying Cell C would not be challenged by the commission because they may see it as a saving grace for a company that has battled to get into the market,” he said.
Sweet spot cell c’s survival plan
To survive Cell C will head downmarket to focus only on the middle- and lower-income markets through innovative offerings focused on price rather than status, writes Lloyd Gedye.
Its latest offering is a restructuring of its Woza Weekend package, which now offers pre-paid subs-cribers two hours of free calls to other Cell C subscribers on weekends.
The only catch is that the subscriber has to have recharged his or her phone with airtime in the week preceding the weekend but, with Cell C’s R5 Half-Tiger and R10 Tiger recharge options, this is a very affordable service still for lower-income users.
When Cell C entered the South African mobile market in late 2001, it was expected to shake up the duopoly of MTN and VodaÂcom, which still dominates. But exorbitant interconnection costs have favoured the big players and meant that Cell C could not take them on when pricing calls across networks. Its new offering will encourage friends and family to be on the Cell C network to take advantage of free weekend calls.
Cell C’s chief of strategy, Hari Rauhala, says the idea is to grow the operator’s subscriber base in the lower-income market and to use economies of scale to offer on-network community-based services.
Rauhala says there is little it can do about the regulatory status quo and so it has decided to go after the lower-income markets, which do not interest the bigger players as much.
The new strategy has seen Cell C launch innovative new products, such as the Half-Tiger and Tiger recharge vouchers and the Hola 7 starter pack, which offers subscribers additional benefits like a Zola CD single and two free Zola ringtones all for once-off cost of R9,95.
Cell C’s head of marketing, Simon Camerer, says mobile penetration in the LSM groupings lower than seven is about 30%, but the experience of most African countries is that this market can afford cellphones.
Camerer says this has led to Cell C realigning its strategies to target the three to seven LSM groupings, which he describes as Cell C’s “sweet spot”.
Camerer says research has shown that price is the major distinguishing factor for these LSM groupings when choosing an operator and that Cell C expects its two free hours of weekend calls to be very attractive to lower-income users because of this.