Chris Spillane and Amy Thomson

Vodacom, South Africa’s largest cellular network operator, was negotiating final details for a deal to buy local fixed-line provider Neotel from Tata Communications, two people familiar with the matter said yesterday.

An agreement had yet to be approved by Neotel’s lenders and board, said one of the people, who asked not to be identified because the negotiations were private.

The two companies expected to complete the transaction in the first half of this year pending regulatory approvals, the other person said.

Vodacom, which said in September last year that it had started exclusive talks to buy Neotel, is expanding in data services to offset declining revenue from domestic voice calls.

Buying Neotel would help Vodacom add internet users as it competes against Telkom and MTN Group.

The transaction could be worth more than R5 billion, a person familiar with the discussions said in September. Vodacom would assume about $500 million (R5.3bn) of debt, people familiar with the talks said in October last year.

The spokesman for Vodacom, Richard Boorman, and Tracy Cohen, Neotel’s chief corporate services officer, declined to comment.

Rozzyn Boy, a spokeswoman for India’s Tata Communications in London, said the talks between the companies were continuing, declining to comment further.

Once Vodacom had reached a deal, it would seek approval from the communications regulator and Competition Commission, one of the people said.

Shares in Vodacom, which is majority owned by Britain’s Vodafone, closed 2.07 percent up at R132.05 on the JSE yesterday. Tata Communications rose 0.5 percent in Mumbai.

Vodacom is seeking new sources of sales growth as competition and regulatory changes weigh on revenue.

It said yesterday that a cut in the rate small local cellular firms are required to pay to connect to the large carriers’ networks would lower its earnings before interest, tax, depreciation and amortisation by about R500m over six months.

The Independent Communications Authority of SA cut the rates by 50 percent from yesterday. The high court called the reduction, coupled with an increase in the amount large carriers pay to small ones, “invalid and unlawful”, yet allowed the new fees to be in place for six months, after which the rates will be evaluated again.

“We are busy reviewing how the financial impact from the rate cuts will translate in terms of our investment plans, and how to minimise the impact on our customers,” Vodacom said.

Vodacom is increasingly focused on small to medium-sized business customers and adding data services and plans to spend more than R9bn on domestic infrastructure this year. Cellular operators are turning to fixed-line assets that allow them to sell a wider range of services and carry data traffic more efficiently. – Bloomberg