With fixed-line teledensity in Africa estimated at 3% nd cellphone penetration at 8%, it would be plain short-sighted of Telkom not to expand into certain markets ripe for the picking. THE JANUARY announcement by fixed-line operator Telkom that it was to expand beyond SA`s borders was to be expected.

Telkom needs new sources of revenue due to falling revenues in its core fixed-line business, increased competition from value-added service providers, and the imminent launch of a second national operator.

Though it initially released a shortlist of five targeted African countries, namely Angola, Botswana, the Democratic Republic of Congo, Kenya and Nigeria, there`s more. Mike Mlengana, group executive for business development at Telkom, informs iWeek that it is not considering these countries exclusively, though he declines to elaborate.

"We`ve been evaluating our options for nearly a year now, and the countries mentioned are at varying degrees of progress, especially from a due diligence aspect. It`s difficult to give details though, as we don`t want to give too much away to our competitors," he reports.

The shortlisted countries have, however, met Telkom`s criteria of being politically stable democracies on a growth path and in relative proximity to SA, among other things.

HUNTING STRATEGY

"Our strategy is to make majority acquisitions in these countries. Reason being that due to the heavy capital investment required, particularly in fixed-line telecoms, we want to have majority control of that investment," explains Mlengana.

This confirms CEO Papi Molotsane`s sentiments. He informed Moneyweb last month that the "approach to these markets would be to look at existing businesses,".

"We`re busy working on two licences in particular this year," though not necessarily both in the fixed-line business or the same country, indicates Mlengana.

"Telkom is looking at opportunities in both fixed-line and mobile. With mobile there is less need for capital investment and higher returns on shareholder value in comparison with fixed-line, so a balance of the two is preferable," he adds.

Telkom may bundle its services with its 50%-owned subsidiary Vodacom.

But the latter possibility would be subject to its shareholders agreement with Vodacom. Vodacom is currently restricted from competing with UK shareholder Vodafone in Africa. Vodafone is in the process of increasing its stake in Vodacom to an equal 50%, a deal which could signal changes in the shareholders agreement.

Mlengana indicates that a particular focus will be on its broadband offering to deliver converged voice and data services to these target markets."It`s difficult to give details, as we don`t want to give too much away to our competitors."