Tech

After years of flirting, Telkom and MTN announcing they were in merger talks was almost inevitable

Business Insider SA
MTN makes a big play. (Photo by Gallo Images/Papi Morake)
MTN makes a big play. (Photo by Gallo Images/Papi Morake)
  • The move to merge MTN and Telkom is no real surprise.
  • It follows rivals Vodacom and the Remgro-controlled Community Investment Ventures Holdings (CIVH), announcing they were merging their fibre network operations.
  • Both MTN and Vodacom want to become players in the rapidly growing fibre market.
  • Both deals would need the approval of the competition authorities.
  • For more stories go to www.BusinessInsider.co.za.

The announcement that MTN and Telkom are looking to merge is no real surprise, says Dominic Cull, a telecom lawyer and owner of Ellipsis Regulatory Solutions.

MTN and Telkom put out cautionary notices on Friday morning saying they had "entered into discussions in relation to MTN acquiring the entire issued share capital of Telkom in return for shares or a combination of cash and shares in MTN."

Cull says Telkom and MTN have been flirting for years - seemingly never leading to anything - but a few months ago, their hands were forced. A deal mooted in November 2021 by rivals Vodacom and the Remgro-controlled Community Investment Ventures Holdings (CIVH), merging their fibre network operations, had the potential to reshape the market, leaving MTN and Telkom facing a rival that now had considerable fibre assets.

See also | MTN wants to buy Telkom. Here’s how they compare, and why MTN can afford to.

Since its founding in 2004, CIVH has grown into a sizable player in the local telecom market. It owns fibre-to-the-home (FTTH) operator Vumatel, long-distance fibre group, Dark Fibre Africa (DFA), and has a holding in the Seacom undersea cable.

For Vodacom, the merger with DFA's 13,200 km fibre network, along with Vumatel's fibre network 31,000 km, with its own fibre assets, will give it a significant footing in the rapidly growing fibre market.

The next big thing

With mobile phone penetration now well over a 100%, the mobile operators see the burgeoning fibre market as their next big growth sector.

The growth in the demand for fibre can be seen in FTTH subscriptions rising from 280,097 in 2017 to 1,379,207 in 2021, according to The State of the ICT Sector Report of South Africa, put out by the telecom regulator, Icasa.

Despite this growth, in a conference call on the group's latest results, Vodacom Group CEO, Shameel Joosub said he still believed the market had not peaked and that their was a still a "huge opportunity in South Africa" when it came to fibre.

Fibre only covered 2,2 million homes, which still leaves 17 million homes without access to fibre, Joosub added.

A second chance for MTN

For its part, the merger of MTN and Telkom would also see MTN transition into a powerful fibre operator.

MTN has been out muscled by Vodacom in SA – it has 34,5 million subscribers in the country compared to Vodacom's 45,7 million – but will now get a significant edge if it gets control over Telkom's 165,900 km of fibre, which is six times larger than Vumatel’s.

The challenge for both these deals, however, is getting to past the Competition Commission, which in 2019 accused both MTN and Vodacom of having "significant market power" which they then used to drive up data costs.

A cunning plan

Cull says, looking at how the Vodacom/CIVH deal is designed, it was meant to get around the accusation that it would give more power to Vodacom.

Under the proposed deal, the fibre assets of both companies would be housed in a separate business, and not see a change to CIVH’s "open-access" business model.

Open-access is where the operator of a network allows smaller companies to transmit data across without being discriminated against.

This is important for relatively new entrants like Rain, which depends on open-access networks to not giving larger telecom player preferential treatment over them, resulting in the smaller players not being able to compete when it came to quality of service.

Though it's evident how the Vodacom/CIVH merger will be structured, how the MTN and Telkom deal will look is still unclear.

For now, both parties seem rather cautious, saying: "Discussions are at an early stage and there is no certainty that the transaction will be consummated."

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