Vodacom’s move to acquire equity in Community Investment Ventures Holdings (CIVH) spooked the telecoms market, opening a fierce race for Telkom’s assets.
This is according to analysts, who say with the potential of a new fibre company being formed by Vodacom and CIVH, telcos are reassessing the market and realising that another large infrastructure operator, Telkom, presents an opportunity.
Vodacom made a mega move for the CIVH fibre assets in November, in a deal that will see the telco co-controlling 30% equity in a newly-formed infrastructure company.
The deal is now awaiting approval from anti-trust authorities and if approved, Vodacom will settle the CIVH deal through a combination of cash and access to its infrastructure.
The potential of the Vodacom and CIVH deal comes on the back of fierce competition in the fibre market, and analysts believe this startled the market, prompting the ongoing scramble to control Telkom’s assets.
Last month, MTN set off the race for the telephony group, announcing it was in discussions to take control of Telkom. Last week, data-only network Rain and Toto Investments joined the contest.
For Rain, if the tie-up goes through, the data-only network hopes to create an entity valued at R40 billion. Rain is valued at around R16.67 billion, while Telkom’s market cap is around R24.24 billion.
“I think, with the potential Infraco/FibreCo being formed by Vodacom and CIVH, there is a realisation that another large infrastructure operator may also be required; there may be an opportunity to form one,” says Dobek Pater, telecoms analyst at Africa Analysis.
“Telkom is a perfect candidate. With MTN making another approach, other parties have realised they may also pursue this opportunity to improve their position. Toto Investments (consortium) is more speculative, looking to expand its investment portfolio in infrastructure and hoping to do it relatively inexpensively.
“If we do see a stronger entity emerging, with involvement of Vodacom, DFA [Dark Fibre Africa] and Vumatel, then it would be wise for Telkom to become part of a larger entity as well.
“Even apart from this, Telkom has been struggling, and becoming part of a larger entity with a larger mobile subscriber base and enterprise-focused services would enhance Telkom’s position (or that combined entity’s position) in the market,” comments Pater.
Concurring, Peter Takaendesa, head of equities at Mergence Investment Managers, says the Vodacom, CIVH deal opened “constructive discussion on Telkom assets” as telco players begun re-evaluating their market positions.
Takaendesa says MTN, which has deep pockets, has for some time been searching for viable assets and Telkom presents a prime opportunity.
“With the Vodacom deal with CIVH, the market is clearly changing. The moment someone moves, everyone else will start questioning and reassessing the market. At the moment, everyone is reassessing going forward, and it is known Telkom assets are undervalued and underutilised.”
Pater believes it will be good for the local telecoms market if Telkom accepts an offer from any of its suitors.
“Overall, it should have a positive impact, as long as competition is preserved at the infrastructure layer and also the service provision layer. Infrastructure and infrastructure-based products are becoming a volumes game, given the decreasing prices/commoditisation of this market segment.
“It makes sense to have fewer larger infrastructure operators, supporting healthy competition in the retail market. This would also fulfil government’s objective of having less duplication of national infrastructure, to focus investment on other ICT areas and/or reduce capex/opex for wholesale operators to allow delivery of lower-priced wholesale services.”
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