Vodacom interest in Neotel causes a stir in SA

Vodacom is currently in talks regarding a potential acquisition of 100% of the shares of fellow South African operator Neotel.

Reportedly, the market-leading operator is looking to acquire Tata Communications’ 60%+ stake in Neotel for over ZAR5 billion ($500 million). If concluded, the deal would be another example of parent company Vodafone adding fixed services to a mobile offering to improve market share.

The fixed market is increasingly part of Vodafone’s international strategy; it recently acquired control of Kabel Deutschland, and will likely invest a portion of the money generated by its sale of Verizon into fixed infrastructure.

A statement from Vodacom said that the deal would “stimulate greater competition in the South African fixed telecommunications sector and will accelerate the provision of high speed data links. It would also result in the combined entity being able to offer an expanded product range and, as a consequence, enhanced customer choice.”

Speaking about the transaction, Vodacom Group CEO Shameel Joosub said:  “Neotel has access to over 15,000km of fibre-optic cable, including 8,000km of metro fibre in Johannesburg, Cape Town and Durban. Spectrum is also an important consideration as the combined entity could use this resource more efficiently, and in doing this we can keep pace with South Africa’s rapidly growing demand for mobile data.”

However, this view is strongly contested by the Wireless Access Providers’ Association (WAPA), which maintains that “the acquisition would stifle competition, lead to job cuts, and do little to reduce the digital divide that it believes should be the country’s top priority with regard to broadband.”

WAPA fosters close relations with smaller operators who fill the gap created in the broadband market, particularly with respect to last-mile access. This is in line with international trends, where considerably more data is now carried on so-called WiFi-based technologies than on 3G and LTE.

“The growth in smaller operators is good for the customer and good for the country,” says Christopher Geerdts, Chairperson of WAPA. “It increases competition, creates jobs and drives rural broadband penetration. Larger operators tend to cut jobs and cherry-pick customers in the most lucrative suburbs and business parks.”

WAPA believes that South Africa needs to build up a complementary strategy where large and small players coexist and play to their strengths. In addition, operators with a national backbone need to provide truly neutral and open wholesale services so as to open the market to competition. “WAPA’s concern is that Vodacom’s influence will dampen these gains achieved, severely limit open wholesale access and set back  rather than increase competition and consumer choice,” concludes Geerdts.

However, Neotel CEO Sunil Joshi said: “We believe this presents an exciting and attractive opportunity for all parties, especially our customers to whom we will be able to offer more meaningful and innovative products and services. This transaction, if concluded, would further enable Neotel to extend its footprint in South Africa and add the mobile capability that our customers require for their business’ growth in a new world of converged communications.”


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