Telkom SA plans swoop on NETONE

A move by Telkom SA to acquire Zimbabwean network operator NetOne or a strategic equity stake in the operator would fit with the company’s current strategy of expansion into the African market, analysts claimed.

During May 20007 Telkom SA acquired a 75% stake in Nigerian CDMA operator for US$280 million before taking up the remaining 25% for US$130 million. The Multi Links deal has impacted the company’s headline earnings per share dropping 141.2% to a ZA150.2c.

Former CEO of South African mobile network Cell C Jeffery Hedberg has been retained as CEO of Multi Links to implement a turn around strategy across the Multi Links operation.

Other elements of Telkom SA strategy to enter the African market have included the acquisition of Africa Online as well as MWeb Africa giving the company a sizeable footprint in terms of internet subscribers in various African countries including Zimbabwe. 

A stake in NetOne could be an attractive opportunity for Telkom SA as it would give Telkom SA access to revenues in both an existing fixed line network as well as a mobile licence with little in the way of a meaningful penetration of both fixed and mobile services. 

The current Zimbabwean market is estimated to have a mobile penetration of around 11% expected to rise to around 13.9% by the end of 2012 and a fixed line penetration of 0.5% at the end of 2009 and expected to remain flat.
Mobile operator revenues are expected to be in the region of US$197 million rising to around US$290 million by the end of 2012.

NetOne may be characterised as a stagnant government owned operation which has failed to meet market needs.

Indeed depending on the level of engagement that Telkom SA enters with NetOne a turn around strategy will be required a la Hedberg.
The major risks associated with the Zimbabwean market revolve around the political and regulatory environments.

The current uncertainty surrounding the viability of the fragile democracy or peace that has been brokered between current president Robert Mugabe and the Movement for Democratic Change (MDC) under the leadership of Morgan Tsvangirai are likely to be a deep concern for operators and investors. However, the most pragmatic approach will probably to take a long terms view of the operations and the investment.

The regulatory environment may pose additional risks as there may be uncertainty as to the current market condition .ie will there be additional licence issued in the near future? 

However, despite the associated risks other network operators from South Africa are also reported to be in negotiation of their own looking at either Telecel the mobile operation which has Orascom as one of its major stakeholders as well as Econet, the mobile network which has championed the liberalisation of the Zimbabwean mobile market.