What would it mean for the industry if MTN was to buy Telkom? THE INDUSTRY BUZZ over the last couple of weeks has been firmly focused around the high-level talks currently taking place between , Vodafone and .

It is widely expected that Telkom will sell its 50% stake in to Vodafone (the local cellular provider`s other `parent`) for about R75 billion. Some market observers predict that MTN will buy the remainder of Telkom, which would essentially be its fixed-line assets, for about R25 billion.

MTN could, conceivably, present the South African government (39% shareholder in Telkom) with a very appealing share-swap option lowing the government to keep a large and lucrative stake in the local telecoms industry.

Add to this the fact that MTN`s local MD, , last week reinforced the urgent need for his company to beef up its fibre infrastructure, for things like backhaul, providing bandwidth into cellular base stations, private corporate networks, and new wireline products.

Though he is adamant that MTN will lay its own 5 000 kilometre fibre backbone, many observers argue that Telkom`s existing fixed-line infrastructure, which also meanders north of the border, conveniently into other `MTN territories`, would be just the ticket to fulfil MTN`s fixed-line needs.

So what would it mean for the industry if MTN was to buy Telkom?


, CEO of the country`s largest VOIP provider Vox Telecom (formerly DataPro), points out that he has concluded interconnect agreements with Telkom and Vodacom and many of the other smaller operators and ISPs.

"However, we haven`t yet finalised the [interconnect] agreement with MTN. They have put in quite a few onerous clauses with which we`re not too happy."

So, if MTN is to grow into a much bigger brute, would it further stifle the already-limping local VOIP industry?

It seems possible, given that , manager VoIS Solutions at , admits that "MTN wants us to commit to enormous amounts of revenue and traffic, at a price not commercially viable at the moment".

Storm business development manager, Dave Gale, tells ITWeb that "it is more likely that regulatory forces will do more for interconnect - and hopefully subsequently retail - prices than any move of this nature".


Hatfield questions why - throughout all the MTN-Telkom speculation - nobody has stopped to seriously consider the authorities.

"For the biggest mobile operator in Africa to purchase the biggest fixed-line operator, there must be competition implications," he says. However, Hatfield adds that talks between MTN and Telkom couldn`t have begun if there wasn`t a certain boardroom confidence that competition issues wouldn`t come into play.

"A private monopoly is undoubtedly a greater evil than a public monopoly," comments Storm`s Dave Gale. "I cannot see that a move like this is in sync with the government`s strategy to date, brings more choice or competition to the market, is in anyone`s interest except MTN shareholders, and is likely to get past the Competition Tribunal."

But Kaveer Bharath, strategic director at Redline, long-time market analyst and competition expert, is adamant that there is "no way that such an acquisition would be blocked by the competition authorities".

Since Telkom is already a monopoly, it wouldn`t lead to a reduction in competition, he reasons. Secondly, if MTN is able to show that the deal would benefit a significant number of South Africans, and will add to broad-based empowerment, it should be seen favourably by the competition authorities.


Louis Pienaar, product manager for convergence at Verizon Business SA, says he won`t comment on record about these market rumours. "However, any change or consolidation of the market that brings about more effective and competitive service offerings to local businesses is always keenly welcomed."

But Neology joint technical director Regardt van de Vyver foresees "zero change to the consumer" if Telkom was to be bought by MTN.

"It will be the same players, they will just be owning different elements of infrastructure. Aside from the inclusion of Telkom`s market cap into MTN, I can`t see a practical reason for MTN to buy them."

Consumers need choices when it comes to affordable access to the internet, says Gale. The purchase by MTN of Telkom`s fixed assets does not increase that choice.

He believes it is "highly unlikely" that an MTN-Telkom deal would be allowed to take place.

Tags: Telecoms