Vodacom buys Gateway

Johannesburg, 29 Aug 2008

Local cellphone giant Vodacom has bought the carrier services and network solutions subsidiaries of Gateway Telecommunications SA for $700 million as part of its growth strategy.

Vodacom Group CEO designate Pieter Uys says the company is seeking to grow its geographic footprint, as well as diversify to a converged telecoms and services provider from its current status as primarily a mobile-centric network operator.

“To us in Vodacom, this is a very important day because it will set us for good growth going forward and we've been looking for a good opportunity to build on the business we have in SA and get access to a much bigger market; and hopefully this will be it,” he said in a teleconference this morning to announce the deal.

Uys says the deal is subject to South African Reserve Bank and regulatory approval. He is hopeful this would be obtained in the next three months.

The purchase price includes payment of a $25 million high-yield bond. Uys says the money will be raised in the form of loans both in SA and abroad.

The Vodacom CEO-to-be says the buy gives Vodacom immediate access to 40 markets including Nigeria.

“We believe that Gateway's significant presence across Africa will allow Vodacom to tap into the huge potential for growth in business services and connectivity, and will enhance our position with multinational corporations.”

He adds that the two businesses will, for now, run independently. “[Gateway] is a good brand. We are not going to change the brand immediately. We will keep the company as a separate entity; we are going to keep existing management.

“We will move some of our products and services into Gateway and vice versa,” Uys says. He also expects significant cost savings to Vodacom resulting from the vertical integration of the businesses, joint procurement and combining the two entities' satellite operations.

“We will be the biggest buyer of satellite services on the continent, which will give us a better bargaining position,” he says.

The Gateway acquisition follows hot on the heels of Vodacom taking a controlling interest of 51% in managed services company StorTech earlier this week.

The deal, however, excludes Gateway's broadcasting businesses, including MultiChoice rival GTV. The current proprietors will retain ownership of these.

A Gateway view

Gateway COO Mike van den Bergh says the group has done well as a pan-African player, delivering services into 40 countries on the continent and with a presence in 17. But, he says, the deal gives Gateway more muscle and is the fastest way for the company to expand and take advantage of the large-scale growth within the African market.

Specifically, he explains, Gateway has its eye on East Africa, which it views as a high-growth target. “We already have a huge presence in West and Southern Africa, but we want to grow in East Africa, as well as the Democratic Republic of Congo, where we mostly provide carrier services.”

Van den Bergh point out that the Gateway is positioned to go where its customers go, and has the ability and know-how to enter new countries and roll out services quickly, which is also a good fit with Vodacom.

The deal also provides Gateway with access to Vodacom's fibre, which will allow it to offer greater levels of service. Until now, Gateway has mostly relied on satellite.

Commenting on the “tremendous” growth rate currently seen in the Africa market, Van den Bergh says it is mostly driven by multinational investment. Gateway's market growth is thus proportional to the growth of its customers.

“These multinationals' ability to grow in Africa is related to their ability to access the same level of services that they are used to at home, which we can provide. There is thus a high demand for access, reliability, connectivity and capacity. They are basically looking for First World services in a Third World region.”