MTN confirms Verizon buy

Johannesburg, 25 Jun 2008

MTN has entered an agreement to acquire Verizon Business SA, 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 yesterday, MTN's market capitalisation was R227.57 billion, which would place the deal at 0.6% of the company's cap. Neither company has confirmed the actual value.

MTN Group president and CEO Phuthuma Nhleko says the acquisition will enhance MTN's product offering to meet the diverse requirements of its customers.

"Verizon Business SA, with its strong track record of providing advanced communications and information technology solutions to enterprise and government customers, is a natural fit to enhance MTN's existing corporate offerings not only in SA, but across the region," he says.

Verizon Business VP John Doherty says: "This transaction is consistent with Verizon Business' core strategy of optimising operations globally to meet the needs of its multinational customer base."

He says Verizon Business remains committed to serving its multinational customers with operations in SA through partnerships with MTN and other local providers. "The company is also committed to making this transition as seamless as possible for affected customers and employees, and is working hard, alongside MTN, to achieve this goal."

Opposition knocks

Frost & Sullivan ICT industry analyst Lindsey Mc Donald says the transaction is a healthy one for MTN. "MTN has been positioning itself alongside Telkom as a converged services provider."

She says Verizon is considered a tier one Internet service provider, feeding primarily into the business market. "This speaks of MTN's strategy to position itself in the enterprise market as opposed to the consumer business."

Verizon Business has been looking at bidding for Naspers-owned MWeb when it goes on auction later this year. "It will be interesting to see whether MTN will pick up on that strategy to move into the consumer market," says Mc Donald.

BMI-TechKnowledge MD Denis Smit says Verizon will slot nicely into MTN's current profile and will only make MTN a stronger player.

However, he says the deal will definitely be contested. "There will be several other ISPs that will submit concerns to the Competition Commission."

Smit says companies such as Internet Solutions and Vox Telecoms could stop the deal "dead in its tracks".

IDC analyst Richard Hurst says MTN's dominance in the mobile market could be a slight hindrance. "We're probably going to see major objections from major ISPs, but I don't think that's going to have an impact on the final outcome."

Ripple effect

In an earlier interview, Irnest Kaplan, head of Kaplan Equity Analysts, said a merger between the companies will have significant impact on the local industry.

"In the fixed-line space, there are really a few dominating players, Telkom and now Neotel, with smaller players springing up with alternatives to fixed voice offerings."

According to Kaplan, in order to succeed in the alternative voice space, companies need a customer base, and experience in voice and data.

"Verizon would bring the data experience and a customer base, while MTN would provide the voice experience."

India's second-largest telecoms group, Reliance Telecoms, is also looking at entering into some type of business partnership with the pan-African mobile operator.