Vodacom eyes African expansion

Johannesburg, 19 Nov 2008

South African cellular giant Vodacom is now able to expand across Africa, following the recent deal announced by Telkom and Vodafone, which will see Telkom shed its 50% stake in the mobile operator.

In terms of the R22.5 billion deal, Vodafone will take an additional 15% stake in Vodacom, raising its shareholding in Vodacom to 65%. The remaining 35% will be unbundled among Telkom shareholders. Following this, Vodacom is set to list on the JSE.

Presenting Vodacom's interim results this week, CEO Pieter Uys - in his first results presentation since taking over the reigns from Alan Knott-Craig - said the group is now free to seek business outside SA.

Due to the previous shareholders' agreement (between co-owners Telkom and Vodafone), Vodacom was restricted in terms of pursuing business on the African continent, and currently has operations in only a handful of African countries.

This has effectively allowed its South African-based rival, MTN, to expand to some 21 countries across Africa and the Middle East.

Preferred partner

However, Uys told analysts and media representatives that Vodacom would now become UK-based Vodafone's vehicle for expansion into sub-Saharan Africa. In terms of the new shareholders' arrangement, Uys added that Vodacom would become Vodafone's preferred partner in the African market.

“We will continue to seek opportunities and also look at different ways of entering this market, for example, through WiMax, fixed-mobile or converged communication services,” explained Uys.

Currently, Vodacom operates outside SA in Tanzania, Congo, Lesotho and Mozambique. Uys says the operator will be looking at Vodacom Business Africa to drive IP services on the continent.

Another way for the company to expand into this market, says Uys, is through its newly-acquired business, Gateway Telecommunications. The deal, worth some $675 million (about R5.3 billion), was announced in late August and is still awaiting Competition Commission and South African Reserve Bank approval.

Growth potential

Gateway has a physical presence in 13 countries and provides services across 40 African countries. Uys stated that the company also has a pan-African data network, as well as a blue-chip and multinational customer base, describing it as a “platform of future expansion”.

At the time of the deal, Uys said: “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.”

Among others, Gateway currently provides managed communications services to financial institutions, mining, construction, manufacturing, logistics and hospitality sectors across Africa.

It is expected that the two businesses will, for now, run independently, as Gateway is a well-established 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,“ Uys added.

Meanwhile, Gateway, which already has a huge presence in West and southern Africa, says it would seek to expand into the eastern part of the continent, a market that it considers high-growth.