Vodafone continues African spree with controlling stake in Vodacom

• Posted: Tuesday, November 11, 2008
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• Author: pradhana
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• Filed under: Business Analysis

By Jeremy Green, mobile practice leader at Ovum

Vodafone's African shopping trip shows no sign of abating in the face of the global financial crisis. Last week the company announced that it had achieved its long-held ambition to take a controlling stake in Vodacom, the South African mobile operator in which it held a 50% share. Vodacom will now form an important element in its future strategy for expansion in Africa, which looks set to continue.

Vodafone completed its purchase for ZAR 22.5 billion ($2.3 billion) at the time of writing. Vodacom is now to be listed on the Johannesburg stock exchange in the first half of 2009, and the South African government (the biggest shareholder in Telkom South Africa, hitherto Vodafone's co-owner of Vodacom) will retain a 10% stake for at least 12 months thereafter. Vodafone will now own 65% of Vodacom.

The deal is still subject to the approval of Telkom's shareholders, which is due in March 2009, and regulatory approval by the telecoms regulator and the competition authorities, due in April 2009. Although it's hard to foresee every possible twist and turn in the current financial uncertainty, the transaction should be completed by May or June.

Vodacom will be Vodafone's 'vehicle' for Africa

Interestingly, Vodafone has promised the government that it will use Vodacom as its primary vehicle for future investments in sub-Saharan Africa – perhaps a sign of just how keen it was to seal this deal. The agreement to use Vodacom doesn't apply to Kenya and Ghana, where Vodafone already has a presence, or to North Africa; it already operates in Egypt.

There is every indication that Vodafone remains as committed as ever to further expansion in Africa, where it has comparatively few majority operator stakes. Its increased stake in Vodacom already means that it immediately controls the largest operators in Lesotho, Tanzania, and the Democratic Republic of Congo, and the second largest operator in Mozambique. Whether the exclusion of all of North Africa, rather than just Egypt, from the terms of the Vodacom deal means anything must remain speculation at present.

The Vodacom brand lingers on

Vodafone has agreed to continue using the Vodacom brand, which bears no visible resemblance to any Vodafone branding, in Africa; it's hard not to wonder what part of the South African government will be involved in ensuring that this part of the agreement is implemented equitably, or how long it will remain in place once the government disposes of its own shareholding.

The struggle continues

We expect that the removal of Telkom's participation in Vodacom will mean a more intense struggle with other pan-African operator groups such as MTN, Zain and Orascom, as well as with external players like Orange, for the remaining mobile opportunities in the continent. Vodafone will now how have a freer hand to make decisions, and a stronger motivation to pursue more acquisitions.

Paradoxically, it may also face competition from former partner Telkom South Africa. As Telkom points out, it will now be free to re-enter the mobile market itself, both in South Africa and across the rest of the continent. In its home market it says that it will develop integrated and convergent offerings, and will be able to use wireless as a complement to its fixed network. /PR

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