BCX emerges from merger 'cloud'

By Samantha Perry, co-founder of WomeninTechZA

Johannesburg, 29 Jun 2007

The Competition Tribunal yesterday afternoon ruled against Telkom's proposed Business Connexion (BCX) deal.

Telkom's R2.4 billion bid to purchase BCX was first announced in November 2005, and the announcement follows a Competition Commission investigation, and months of Competition Tribunal hearings.

Says BCX CEO designate Benjamin Mophatlane: "We've always maintained it was a 50/50 decision. Let's face it: there are quite a lot of emotions around Telkom, which come from its position as a monopoly. I think they have had a lot of complaints against them for many years."

Mophatlane says the company has not yet seen the tribunal's report on why the takeover was not allowed, as this has not yet been published. A statement released by the tribunal said its findings would be released in "due course".

"This is the beginning of a period of certainty for BCX," Mophatlane states. "To be under the cloud of a takeover for 12 to 18 months is hard for any business."

Uncertainty around the deal has lost BCX revenue, as evinced by its last set of financial results, and as per submissions made at the hearings. It has also cost the company a number of staff, and made it difficult for the company to attract new talent, said ex-BCX strategy director Willem van Rensburg in a submission made at the hearings. Van Rensburg resigned in March, shortly before the hearings kicked off.

Just decision

The takeover was opposed by, among others, Dimension Data, Internet Solutions (IS), The Internet Service Providers' Association (ISPA) and the SA SMME Forum, which initially supported the deal, then changed its mind.

IS business development director Hillel Schrock says the company believes the decision was appropriate given the history of telecommunications in SA. "We're now going into an environment which is competitive," he says, "and parties shouldn't be able to use monopolies they have had previously to produce results."

ISPA co-chairman Greg Massel concurs. "This decision marks a victory for both ISPA's members and for consumers," he says. "As both the supplier of key services to ISPs and a direct competitor in the Internet market, Telkom has exploited its dominant position for more than a decade. Anti-competitive practices such as margin squeezing and vertical bundling have resulted in high prices for consumers and made it extremely difficult for independent ISPs to compete fairly."

ISPA opposed the deal on the grounds "the acquisition would further entrench Telkom's position in the market, allowing it to engage in vertical integration through BCX and provide attractively 'bundled' services by using revenue gained from basic services to cross-subsidise its offerings in competitive areas," it said in a statement.

Anchor tenant

BCX earlier stated that if the deal did not go through it would look at other potential buyers. "I don't think we're looking for potential bidders in that way, we were looking at a way of consolidating our shareholding; I think we need an anchor tenant," Mophatlane says.

He adds the company would not be averse to another bid by a potential anchor tenant.

Telkom previously indicated it would look offshore for an IT services firm if its deal with BCX was not allowed to go through. The company was unable to comment by the time of publication.

Vodacom a potential suitor?

Less than 24 hours after the decision was announced, market speculation as to a new suitor for BCX is already rife, with MTN and Vodacom heading the top of the potentials list.

Says BMI-TechKnowledge senior analyst Richard Hurst: "Vodacom is trying to get into the fixed-line space, and BCX Communications already has infrastructure. The acquisition would also bring Vodacom a healthy slice of the IT services market, allowing it to diversify in line with international trends."

The only problem with the deal is that Telkom is a 50% shareholder in Vodacom, and it could be construed that the fixed-line operator is using another way to gain access to the BCX asset, having failed to buy it directly, he notes.

Hurst says BCX is an attractive asset for MTN if the mobile operator is looking to move further up the value chain and diversify its portfolio. "It's all very well for MTN to launch operations in wonderful exotic places, but it's also important to keep the home fires burning."

Difficult period

Telkom made its first bid for BCX in November 2005. BCX rejected the bid, along with offers from at least two other parties. Telkom made a second bid in March 2006, which was approved by BCX shareholders in June that year. Submissions vetoing the deal were made in August 2006. The Competition Commission recommended in December last year that the deal not be allowed to go through. The Competition Tribunal hearings kicked off in April and closing arguments were heard two weeks ago.

Now that a decision has been made, BCX get can get back to business. Says Mophatlane: "It gives us the opportunity to beef up BCS, one of the businesses that suffered because of the bid. Clients were saying that we'd be part of Telkom anyway [so what was the point of moving communications providers].

"There has been an element of staff leaving [because they did not want to work for Telkom]. This addresses that issue. Generally our staff have been very loyal and supportive over a difficult period, as have our clients."

Additional reporting by Damaria Senne.