South Africa’s Vodacom is considering acquiring state-owned long-haul and broadband service provider Broadband Infraco in the wake of its failed attempt to buy ISP Neotel’s fixed-line assets. Shameel Joosub, CEO of Vodacom, majority owned by UK-based Vodafone, said such a deal would help the company fulfil its pledge to accelerate its rollout of fibre-based broadband services.
South Africa’s Vodacom (JSE:VOD) is considering acquiring state-owned long-haul and broadband service provider Broadband Infraco in the wake of its failed attempt to buy ISP Neotel’s fixed-line assets.
Shameel Joosub, CEO of Vodacom, majority-owned by UK-based Vodafone (LSE:VOD), said such a deal would help the company fulfil its pledge to accelerate its rollout of fibre-based broadband services, a company spokesperson confirmed.
Vodacom reached a modified agreement with Neotel, controlled by India’s Tata Communications, in December 2015 aimed at securing Competition Tribunal approval for their M&A transaction first announced in May 2014. The buyer said at the time that it would acquire “the majority of Neotel’s assets related to its fixed-line business as a going concern, excluding” its spectrum licences. As part of this modified deal, Neotel would “offer a roaming arrangement to all the mobile network operators including Vodacom”. It was unclear whether the modified arrangement would have impacted the agreed R7bn (US$446m) price.
In late February, however, Vodacom said the proposed acquisition had lapsed “due to regulatory complexities and certain conditions not being fulfilled”.
New Street Research analysts said in an investor note a Broadband Infraco deal would be smaller than the abandoned Neotel one.
“From a regulatory/competitive perspective we see little reason why such a transaction would not be allowed given that spectrum is not involved,” they said. “Overall, this is not a hugely material transaction for Vodacom, but does reflect its ambition to move more aggressively into converged services.”
A report by the Presidential Review Committee, published on the South African Presidency website, recommends that the government consider exiting, fully or partially, underperforming state-owned enterprises (SOEs) “competing unsuccessfully against private operators”. It also recommends the government explore direct partnerships with the private sector.
The state owns 74% of Broadband Infraco and has a 40% stake in incumbent Telkom.
Broadband Infraco attributed its loss of R244.6m (US$17m) for 2015 to a 249% increase in fibre lease costs and a 136% rise in colocation costs. Its revenue for the year stood at R365.5m (US$26m), up from R302.3m (US$21m) in 2014, which it said was due to adding a new customer, Sita.
The company, launched in 2010, has a legislative mandate to expand the availability and affordability of access to electronic communications, including in underdeveloped and unserviced areas. According to its 2015 integrated report, the company’s fibre optic network stretches some 14,000km nationally and it has 158 points of presence (PoPs). It aims to achieve 100% broadband penetration by 2020 but has reportedly asked the government for R932m (US$65m) to support its strategy.
