Telkom is bullish on its position as a standalone telecommunications operator, following the announcement that it would shed its 50% stake in SA's mobile powerhouse, Vodacom.
After several months of negotiations between the joint shareholders of Vodacom, Telkom and Vodafone announced a R22.5 billion deal that will see Vodacom in foreign hands soon.
Telkom CEO Reuben September told ITWeb this morning: “Telkom [as a] standalone has very strong prospects.” He says the company has made a decision to divest from its stake in Vodacom so that it has better options to pursue its “standalone strategy”.
September says Telkom is positioning itself strategically to become a converged ICT business. “As such, it is our intention to provide our customers with fully converged solutions that integrate voice, data and content services.”
The CEO confirms the company has been planning to develop a mobile business. With the recent roll-outs of WiMax and other wireless technologies, he explains Telkom “will be in a position to offer mobile services, and not just fixed wireless services. We will provide more details once the deal is done.”
The company also recently revealed information about its new 3G network, based on WCDMA technology.
The big split
Telkom and Vodafone made a breakthrough agreement last night that will see Vodafone pay R22.5 billion for a 15% stake in Vodacom. The deal will end a notoriously difficult relationship between the 50:50 owners of Vodacom.
Vodafone's effective ownership of the mobile operator will increase to 65%. The companies reiterated that signatures will be subject to Telkom unbundling its remaining 35% stake to its shareholders and announced that Vodacom will list on the main board of the JSE once the deal is complete.
While the total deal is valued at R22.5 billion, Vodafone will find some cash relief, since it will subtract the debt that Vodacom incurs by the time of the signing. Market speculation is that Vodacom's current debt comes in at around R5 billion.
In a statement released by Vodafone last night, the company said it was pleased with the negotiation agreement. “The proposed transaction would result in Vodafone owning 65% of an attractive asset with strong market positions in SA, Democratic Republic of Congo, Lesotho, Mozambique and Tanzania.”
Confident investment
While Vodafone's proposed investment in Vodacom places the business in foreign hands, it is expected to draw competition and more international investment in the local telecommunications market.
Since the announcement last night, the deal has received blanket approval from industry, government and the Telkom board.
According to independent analyst Irnest Kaplan, MD of Kaplan Equity Investments, while many industry commentators have questioned the value of placing “SA's telecoms jewel” in British hands, the deal may actually spark international investments in telecoms and increase competition.
“The deal shows a vote of confidence by Vodafone in our country. Maybe we are handing over our prized possession, but it will also build confidence in the local economy.”
Kaplan says the confidence that Vodafone is showing in the business opportunity is a sign there is little chance that it will make any massive changes to the current business. “It is unlikely that Vodafone will make any major alterations to the model. It clearly works and the price they offered shows they know that.”
Better off without
IDC programme manager for communications in Africa Richard Hurst also expects to see a surge in telecoms investment once the deal between Telkom and Vodafone is completed. “I also don't really foresee any delays in the completion of the deal.”
Hurst adds that the listing of Vodacom on the bourse is an interesting move. “It will give South Africans a chance to invest more directly in the telecoms space.”
Frost & Sullivan industry analyst Lindsey Mc Donald says industry should be thrilled that Telkom has made a decision about Vodacom. “Both companies now have an opportunity to shine. Telkom can finally get on with consolidating its fixed-line business. They can also start thinking about building partnerships with companies like Zain.”
Late August saw speculation that Kuwait-based telecoms operator Zain had been courting Telkom for a possible partnership. Nothing came of the deal.
Telkom has cautioned investors that the Vodacom transaction will be “subject to a number of conditions, including the successful negotiation and agreement of final transaction documents, shareholder approval and the receipt of certain regulatory approvals”.
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