MTN walks away with Verizon

By Candice Jones, ITWeb online telecoms editor

Johannesburg, 08 Jan 2009

After less than a day before the Competition Tribunal, MTN has been given the go-ahead to buy 100% of Internet service provider Verizon.

This is the second MTN deal this week that the Competition Tribunal has unconditionally approved. On Tuesday, the company was given permission to buy out its Durban-based channel partner, iTalk Cellular, sweeping the deal out from under the Huge Group.

The authority's decision to allow MTN to buy 100% of Verizon, at a speculated R1.4 billion, comes as no surprise to industry, particularly after Allied Technologies agreed, just yesterday, to rescind its arguments against the deal.

MTN SA MD Tim Lowry says the company is pleased with the tribunal decision, saying: “All regulatory conditions have now been met in order to proceed with the acquisition and MTN expects to complete the transaction soon.”

He says the Verizon acquisition will bolster MTN's product offerings, specifically for Internet service provider MTN Network Solutions (MTN NS), while strengthening its regional presence.

Deal-making

According to Altech's announcement yesterday, MTN has agreed not to give preferential treatment to its MTN NS division, or to Verizon. However, Altech may have had more to lose if it followed through with its case against an MTN-Verizon merger.

Altech has other business relationships with MTN that could well be affected if it scuppered the deal. The company's Autopage cellular is licensed to carry MTN subscribers and also owns another billing company which does work with several of the mobile operators.

In MTN's written statement to Altech, it says: “MTN undertakes to Allied Technologies and its subsidiaries that it will treat MTN NS and Verizon SA on an equivalent basis to any other firm of a similar nature, and will not provide the above entities with preferential pricing or preferential incentives, whether directly or indirectly, in respect of products or services offered by MTN.”

Internet Solutions (IS) has also expressed concerns around competition issues, if the deal between the telecoms giant and SA's third-largest ISP goes through. However, it is unclear how the deal will affect the company. IS was not available for comment at the time of publication.

Policing the deal

Irnest Kaplan, head of Kaplan Equity Analysts, says the acquisition is relatively small fry for the pan-African mobile operator, however, the agreement that the mobile operator made with Altech will have to be policed.

“It will be difficult to tell if MTN is subsidising Verizon, but I'm sure that Altech and the other players will watch the situation closely.”

He says that, while it needs to be policed, the deal will be a good shake up for the industry. “The smaller businesses will have to start thinking strategically, they will have to change the way they do business.”

Mobile operators are also having to look at their businesses, which is testament to this deal, he adds. “The industry is starting to get harder for them and they will need to look at diversifying. They will want to become a full telecommunications provider as opposed to a mobile operator.”

These kinds of acquisitions will give them a competitive edge, because they will be able to approach business with a full bundled solution that offers mobile voice, mobile data, as well as fixed data.

Future plans

MTN has noted in previous interviews that it plans to integrate Verizon into its MTN NS subsidiary.

Lowry said there are two reasons Verizon appeals to MTN. Firstly, it will add to the number of pan-African clients that MTN already has. Secondly, it strengthens MTN's enterprise business in the local Internet market.

Telkom and Internet Solutions currently dominate the market, with the rest of the market made up of smaller players. “With this acquisition, there will be three strong players in the local market as opposed to two. We will be able to actively compete with the likes of Telkom and IS,” he added.

In an interview with ITWeb yesterday, Lowry also said that the company would be integrating iTalk Cellular into its Service Provider division. Both companies' staff, if positions are taken away, will have opportunities within MTN itself.