Telecom Travails

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While recent moves in South Africa's mobile phone market have lifted the Johannesburg Stock Exchange (JSE), they may do considerably less for the country's consumers. Insiders also fear that the acquisition of Venfin by Vodafone may lead to a major battle for control inside the country's largest GSM provider.

With their R21bn ($3.17bn) purchase of Venfin's 15% stake in Vodacom, South Africa's largest mobile phone operator, Vodafone have increased their stake in the GSM network from 35 to 50%.

News of the deal sent the JSE up 2.42% on the day, with a record R7.6bn ($1.15bn) worth of shares changing hands November 3.

However, the deal now leaves Vodafone eyeball to eyeball with the owner of the other 50% of Vodacom, Telkom - and relations between the partners these days are not rosy.

Indeed, Telkom had expected to buy Venfin's share instead, but were then trumped by Vodafone's bid.

Under the deal with Vodafone, the international giant will sell all of Venfin's other assets back to a new company in which Venfin's previous shareholders will be given the opportunity to buy their shares back.

The transaction, which could take up to two months to receive approval from the competition commission, would allow Vodafone to tap revenue from Vodacom's 19.1m customers.

Meanwhile, telecoms players MTN and Telkom both posted large profits last week. Telkom reported a net profit of R4.2bn ($634.33m) for the six months ending September 30, much of which has been attributed to growth in the mobile sector.

The group's chief executive officer, Papi Molotsane, announced that that the second half of the year had seen a renewed focus on broadband adoption and customer service.

Meanwhile, despite the fact that South Africa's wireless telecoms market has the hallowed third operator often sought by governments, which seek to increase competition and lower prices in the wireless market, the introduction of Cell C has had little impact on prices. Analysts generally agree that South Africans continue to pay far too much for their phone calls.

Strive Masiyiwa, CEO of Econet, told OBG recently that the problem was that South Africa had a history of supporting and maintaining monopolies. In addition, the fact that Cell C had only been granted a licence 10 years after Vodacom and MTN had left the operator struggling to create a presence.

Meanwhile, Vodafone, which is struggling in its traditional markets (posting three consecutive years of declining revenues), will likely view Vodacom as a useful platform from which to boost its presence on the African continent.

In addition, Vodacom does not have any such declining revenue problem. It is also currently pursuing a stake in the Nigerian Telecoms group V-Mobile. A previous joint bid with Richard Branson's Virgin group for the Nigerian firm has expired, but the company plans to go ahead with a bid alone. However, the bid has run into further trouble owing to a dispute with Masiyiwa's Econet, who claim that they have rights to buy 5% of V-Mobile before any other group. The dispute will have to be settled in court.

Whatever the outcome, Vodafone's investment in South Africa shows that there is considerable interest from European wireless operators in investing in Africa.

Many analysts agree that MTN is also looking like an increasingly ripe target for a foreign takeover. Most analysts agree that wireless technology can fill the huge gap left by the traditional landline operators across the continent. There is no such thing as market saturation in Africa, or as Masiyiwa put it "70% of Africans have probably never heard a phone ring".

It is certainly clear that wireless communications will remain one of the most exciting sectors throughout Africa for years to come - with some even saying the continent is about to experience the telecoms equivalent of a gold rush. Good news for GSM providers then, even if consumers may still feel they have to dig deep to make a call.

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