Johannesburg - Econet’s R6.55 billion offer for Neotel - through its Liquid Telecom subsidiary - spells the end of Neotel’s role as a heads-on competitor to Telkom.
The combination of Liquid Telecom and Neotel, the parties claim, is set to create the largest pan-African broadband network. “Through a single access point, businesses across Africa will be able to access 40 000kms of cross-border, metro and access fibre networks. These currently span 12 countries from South Africa to Kenya, with further expansion planned.”
Royal Bafokeng Holdings, a South African investment group, has committed to take a 30 percent equity stake in Neotel, as it expands its holdings into telecoms.
Neotel was established as SA’s second national operator in 2006 as a way of breaking Telkom’s monopoly. However, analysts have previously pointed out that it failed to gain much traction in the consumer market, and has been burdened by debt.
The deal is a discount to the R7 billion Vodacom put on the table for Neotel almost two years ago as it sought to expand its fibre ambitions.
Econet’s unit is buying all of Neotel, including its fibre network - which spans more than 10 500 kim of fibre - and its spectrum licences. Liquid Telecom was founded in 2004 and has 40 000 km of fibre across Botswana, the DRC, Kenya, Rwanda, South Africa, Tanzania, Uganda, Zambia and Zimbabwe. It is owned by Econet.
Ovum analyst Richard Hurst notes Econet has been dying to get into SA for “many many years”. The company, which has done well in Zimbabwe, is seeking to expand geographically, he adds.
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Hurst notes the deal will end Neotel’s roll as a competitor to Telkom in its own right, but it did need to push to the next phase as it carries a large amount of debt and was facing large capital expenses as it rolled out its network.
“Neotel has found it tough going in SA.”
Tata has previously said it was keen to sell its majority stake. Neotel is majority held by Tata, with its empowerment partner Nexus and Communitel holding the balance.
Liquid Telecom CEO Nic Rudnick , Liquid Telecom CEO, notes the deal will offer a fibre network that provides international connectivity for telecom operators and enterprises across sub-Saharan Africa.
“For the first time, African companies will be able to connect with each other in a cost effective and reliable way, all on a single fibre network. We will also be increasing investments into Neotel to cater for rapidly accelerating mobile and enterprise traffic, enabling us to launch exciting new products and services.”
Vodacom said in May 2014 that it would spend R7 billion to buy out the second national operator as it sought to get its hands on many more kilometres of fibre to boost its own fibre ambitions and Neotel’s spectrum. Neotel has spectrum in the high-demand areas, which mobile operators want because it will allow them to roll out long-term evolution - or 4G - services - faster.
Vodacom experienced much criticism of its bid from other mobile operators, who argued it was getting handed on a platter the spectrum cellular providers had been waiting years for the Independent Communications Authority of SA to assign.
The mobile operator, SA’s largest with about 50 percent of all active SIM cards in the country, dropped its bid in March after it lapsed, almost a year after the Competition Commission gave it provisional approvement to buy the operator. In December, the two companies amended the terms of the deal so that it excluded permits for spectrum and electronic-communications network services and was more limited to the fixed-line assets.
Neotel anticipates the deal, which is subject to the customary clearances, going smoothly as there is no overlap in competitive areas. It is expected to be completed later this year.