Could Vodacom Unseat Rival MTN After These 2 Massive Acquisitions?

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Image sourced from SABC News.

Vodacom South Africa has announced two major acquisitions today – the buying of a 55% controlling stake in Vodafone Egypt, the North African country’s largest telecom, and a major move in SA’s local fibre market through a new deal with Vumatel and Dark Fibre Africa (DFA) that will see a co-controlling interest in the hands of Vodacom.

Currently the third-largest telecom company in Africa, these two acquisitions better position Vodacom to unseat long-time rival MTN as Africa’s top telecom.

  • The Vodafone Egypt Deal

Vodacom Group South Africa is reportedly entering the North Africa market for the first time ever after announcing that it will seek to acquire Vodafone Egypt from Vodafone Group for $2.7-billion.

Vodafone Group, a UK-based mega-corp, is the parent company of both Vodacom and Vodafone Egypt, agreed to sell a 55% stake in Vodafone Egypt to Vodacom, who is poised to acquire the controlling stake in the Egyptian telecom subject to regulatory and shareholder approvals. Vodacom will fund the transaction by issuing 242 million new ordinary shares at $9.01 per share and $544.2-million in cash, giving the acquisition its $2.7-billion valuation.

The remaining 45% of Vodafone Egypt will remain in the hands of Telecom Egypt, the state-owned fixed-line operator.

With the acquisition, Vodafone Egypt will open the region to Vodacom’s business, with Vodacom CEO Shameel Joosub saying in a statement that Vodafone Egypt will increase Vodacom’s population coverage to more than 500-million people, and will firmly plant Vodacom in countries that make up more than 40% of Africa’s entire GDP.

“Vodafone Egypt is ideally positioned to capture growth in a burgeoning ICT market, which means the proposed acquisition provides our shareholders with an exciting revenue and profitability diversification opportunity and the potential to accelerate the group’s medium-term operating profit growth potential into double digits. We intend to provide an update on our medium-term targets at our full-year results, which will be reported in May 2022,” says Joosub.

Vodafone Egypt enjoys a 43% revenue market share in Egypt, making it the largest single telco in the country. It offers a wide range of integrated telecommunications services including voice, data and mobile money services to 43 million consumer and enterprise customers, Vodacom says.

Apart from increasing its market size, Vodacom sees a big opportunity to sell its financial services (fintech and mobile money services) in Egypt, as 80% of its 100-million people are currently unbanked.

Joosub also adds that “In addition to financial services, Vodacom Group sees attractive synergy potential from combining Vodafone Egypt’s software factory with Vodacom Group’s existing big data capabilities, closer cooperation in scaling pan-African enterprise and IoT solutions, enabling the proliferation of digital services through a platform approach, and also talent sharing.”

  • Vumatel and Dark Fibre Africa

The same day, Vodacom announced that it had entered a new agreement to acquire a co-controlling interest in the assets of Community Investment Ventures Holdings (CIVH), the owners of Vumatel and DFA – two ubiquitous providers of fibre to the home and fibre to the business services in South Africa.

Currently, the deal is pending certain conditions, but when completed Vodacom will own a 30% equity interest in a new entity called InfraCo, which will include Vodacom’s fibre assets, according to Media24.

“CIVH will hold a 70% co-controlling interest in InfraCo and existing CIVH investors including Remgro Limited and New GX Investments (Pty) Ltd will remain invested in CIVH,” the announcement from Vodacom read.

Vumatel’s fibre network services 1.2 million homes in SA, and it has run over 31,000KM of fibre infrastructure across the country. DFA owns and operates a long-distance fibre network itself of over 13,000KM with 37,000 connected circuits.

According to the firm, “the total purchase price paid by Vodacom, including the value of the transfer assets, equates to [$876-million].” This investment will also “accelerate South Africa’s fibre reach, network quality and resilience, fostering economic development and help bridge South Africa’s digital divide in some of the most vulnerable parts of our society,” says Vodacom.

“Through Vodacom’s investment, InfraCo would accelerate and expand its lower and middle-income product offering to deliver affordable high-speed broadband access to a broader population segment, including small and medium-sized enterprises,” it said.

The Battle of the Telecom Titans

MTN is currently the top telecom company on the continent, having the largest user base (277.3 million) and presence. Right on MTN’s heels is Orange Africa and Middle East, with more revenues reported but less market reach than the Big Yellow Brand.

Vodacom and Orange often trade the spot behind MTN, having similar user bases and total revenues, but Vodacom’s new entry into North Africa via Egypt is definitely a major coup for the company in the continent. It is expecting a much larger user base, as well major gains in its mobile money business by bringing its fintech to a population that sorely needs it.

Within the next several years, unless it faces restrictions or obstructions to its business in Egypt, it would be a safe expectation to see Vodacom rise to the top of the telecom rankings in Africa. This isn’t even counting the boost it will receive to its local presence in South Africa after the CIVH fibre deal. Vodacom is poised to sell fibre to more South Africans for less, increasing the size of the fibre market and subscription revenues.


By Luis Monzon
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