MTN expects Verizon opposition

Johannesburg, 26 Jun 2008

MTN plans to integrate Verizon Business into its MTN Network Solutions subsidiary, if the acquisition stands up to Competition Commission scrutiny.

MTN SA MD Tim Lowry says the cellular operator does not expect major obstacles from the competition authorities over the newly announced deal. However, Lowry says the company does expect some opposition from its competitors.

Yesterday, MTN formally announced the long speculated agreement to buy 100% of Verizon Business, a subsidiary of US-based Verizon Communications.

Market speculation places the value of the deal in the region of R1.4 billion. At the close of business on Tuesday, MTN's market capitalisation was R227.57 billion, which would place the deal at 0.6% of the company's cap.

"Both parties have agreed not to disclose the value, and MTN is currently in a closed period. We are just focusing on the competition process now."

Lowry says Internet Solutions (IS) is the most likely candidate to contest the acquisition. "IS has already publicly stated it would take up the deal with the Competition Commission."

BMI-TechKnowledge MD Denis Smit says the agreement will definitely be contested. "There will be several other ISPs that will submit concerns to the Competition Commission." He says companies such as IS and Vox Telecoms could stop the deal "dead in its tracks".

What about MWeb?

Verizon Business said, before the agreement with MTN was made, that it was interested in acquiring MWeb, which Naspers will auction later this year.

The purchase of MWeb would have bolstered Verizon's consumer business, as its current client base is primarily the business market. Lowry says MTN has no immediate plans to follow Verizon's strategy.

"We are not sure if the acquisition of MWeb would make sense to us yet. Even if it does, we may choose to focus on what we already have, rather than adding another management challenge."

Stronger African footprint

Lowry says there are two reasons Verizon appeals to MTN. Firstly, it will add to the number of pan-African clients that MTN already has. Secondly, it strengthens MTN's enterprise business in the local Internet market.

Telkom and Internet Solutions currently dominate the market, with the rest of the market made up of smaller players.

"With this acquisition, there will be three strong players in the local market as opposed to two. We will be able to actively compete with the likes of Telkom and IS," he says.

He notes that the acquisition also gives MTN access to a big pool of skilled professionals. MTN does not expect job losses, as the local market already has a skills shortage.

The MTN Group is in acquisition talks with Reliance Telecoms, India's second-largest telecoms group, which could result in both companies swapping shares.

Indian media indicated this week that the deal could be finalised as early as Tuesday, 1 July. However, the MTN Group was unable to comment on this speculation by the time of publication.