Vodacom-Neotel deal should worry Telkom, says analyst

The approval by industry regulators of Vodacom’s bid to buy fixed-line business Neotel should worry Telkom, according to technology analyst Steven Ambrose.

The Competition Commission gave Vodacom the green light on Tuesday to buy Neotel for R7-billion.

The regulator made the decision a year after Vodacom signalled its intention to buy Neotel. The Competition Commission’s decision comes after the Independent Communications Authority of South Africa (Icasa) approved the merger last month.

The deal is expected to boost Vodacom’s spectrum capabilities and help it enter the fixed-line market, meaning it could compete with Telkom head-on.

Technology research firm Strategy Worx chief executive officer Steven Ambrose said Telkom should be worried about the development.

“The second [fixed-line] operator as originally envisaged is now Vodacom across all levels – wholesale, retail,” said Ambrose. “And they’re formidable.”

‘Significantly improved’ infrastructure
While Telkom still had the country’s biggest fibre network, Vodacom would upscale as a result of snapping up Neotel. “Strategically, Vodacom now has significantly improved its infrastructure,” said Ambrose.

Telkom chief executive officer Sipho Maseko spoke about Vodacom’s bid for Neotel at the telecoms company’s annual results briefing in Johannesburg last month.

“It will make them [Vodacom] a formidable competitor,” he said at the time.

“But, as I said, you can … [get tears] in your eyes and be morose and miserable about it, but actually that is the nature of the market.

“There is going to be competition. The bigger question is how do we begin to respond as a company to those sort of competitive changes in the marketplace, so that we retain our relevance and set ourselves on a path to glory,” said Maseko.

Telkom response
One way Telkom has responded is with its R2.6-billion bid to buy local IT services company Business Connexion. The Competition Commission approved its bid earlier this year.

The deal is expected to beef up Telkom’s business in the enterprise space in South Africa and other African countries.

While the Competition Commission’s approval of the deal is a key milestone for Vodacom in its bid to buy Neotel, certain hurdles remain.

Final word on the deal still needs to come from the Competition Tribunal and conditions placed on the deal could frustrate Vodacom’s spectrum ambitions.

The Competition Commission stipulated that the tie-up can only happen if Vodacom does not use Neotel’s spectrum for two years.

Other conditions include that the company commit to a R10-billion investment in fixed network, data and connectivity infrastructure in South Africa, and that share capital in Vodacom held by black economic empowerment shareholders increase by an amount of R1.4-billion.

Cell C challenge
Challenges to the deal could come from the likes of Cell C, which has said previously that it could launch legal action to prevent the Vodacom-Neotel deal from going ahead.

On Wednesday, Cell C said it was “reviewing the announcement by the Competition Commission regarding the Vodacom-Neotel transaction and will comment at a later stage”.

But Ambrose is expecting the challenge. 

“Cell C is definitely going to try and put a spanner in the works. They said there’s going to be a legal challenge and I have no doubt they’re going to try.

“But I don’t see what leg they’ve got to stand on because now their major bone of contention, unfair competition on the radio side, has been sort of delayed with a two-year stipulation from the Competition Commission that Vodacom cannot use any of the spectrum.

“So that sort of kills any major Cell C concern for the short term,” said Ambrose.

Focusing on the next step
Vodacom has said it is focusing on the next step regarding the Neotel deal.

“We welcome the Competition Commission’s recommendation to the Competition Tribunal for the conditional approval of the Neotel transaction,” said spokesperson Richard Boorman.

“The tribunal is now expected to set the matter down for hearing. We look forward to working with the applicable regulatory bodies to achieve a speedy outcome, which will ultimately result in increased investment in communications infrastructure and the accelerated rollout of broadband connectivity in South Africa,” he said. – News24.com

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