Telkom confirms Ugandan move

By Nicola Mawson for Telkom
Johannesburg, 09 Jan 2007

SA's fixed-line operator Telkom has confirmed it is in acquisition discussions with a Ugandan telecommunications operator.

Analysts previously stated this indicates the start of a busy year for Telkom.

The company, which is bidding for local IT services firm Business Connexion, says it is in discussions with Ucom, a consortium that owns 51% of Uganda Telecom.

The Ugandan government owns the balance of the operator, which is reported to have about 500 000 mobile phone subscribers and 100 000 fixed-line subscribers, in a country of 27 million people.

Last year, Ugandan publication NewVision quoted Uganda Telecom's corporation secretary Donald Nyakairu as saying the two entities were negotiating price after completing due diligence aspects.

Details unclear

It is not yet clear whether Telkom is interested in acquiring all or part of Ucom, which is 60%-held by Telecel, with the balance split between Germany's Detecon and Egypt's Orascom.

However, Telkom's bid faces competition. Reuters, quoting Uganda Telecom's chief commercial officer Hans Paulsen, indicates there is a sticking point over price and other bidders are interested. Paulsen said Telkom's period of exclusivity had already lapsed.

Telkom says it has been "following a detailed evaluation process" to make sure it understands the risks involved and the operator's resource requirements.

Uganda Telecom is expected to spend about $80 million - or R577.2 million at this morning's exchange rate of R7.22 - on strengthening its network.

In addition, Telkom says the company must provide returns above its "minimum requirements".

Strategic move

Telkom's confirmation is in line with analysts' expectations that the company will have a busy year on the continent.

One analyst - who recently spoke on condition of anonymity - expects more activity from Telkom this year. He said the Ugandan move was the first wave of Telkom's African expansion plan.

In addition, analysts predict consolidation on the continent, anticipated to result in a market dominated by large operators.

A year ago, Telkom stated it was seeking to grow into Africa and released a shortlist of five targeted African countries: Angola, Botswana, the Democratic Republic of Congo, Kenya and Nigeria.

CEO Papi Molotsane - last April - said the company was looking at a number of opportunities, including Nigeria. "Nigeria is a market that you cannot ignore."

Dwindling local numbers

Telkom, which is seeing fixed-line penetration dropping locally, says it "is exploring opportunities outside South African borders where there is growth potential, healthy returns and long-term value creation for its stakeholders".

The operator's latest figures - to the end of September last year - indicate fixed-line penetration of 4.73 million lines, a year-on-year reduction of 1.2%.

The company, which is facing competition from Neotel this year and expects to lose market share as a result, is also positioning itself to boost business.

Its statement says it seeks to provide "the full spectrum of ICT solutions, including voice, data, video and Internet services increasingly through broadband penetration".

Telkom, almost 40%-owned by the South African government, reported revenue of R25.5 billion, with attributable profit of R4.5 billion, in its interim results to end-September. Its shares closed down yesterday at R145.70. Friday saw the share close at R146.