MTN's attempt to buy Telkom is one of the most audacious bids that we have yet to see in the South African Information and Communications Technology (ICT) space, according to Arthur Goldstuck, the managing director of World Wide Worx.
This follows mobile operators MTN and Telkom announcing that they have entered into a formal discussion about MTN buying Telkom.
In similar statements released on the JSE on Friday, both companies said the discussions were about MTN acquiring the entire issued share capital of partially state-owned telecommunications provider, Telkom, in return for shares or a combination of cash and shares in MTN.
The companies said the discussions were at an early stage and there was no certainty that the transaction would be consummated.
If the deal goes through, this means MTN will have to buy out the government as it holds a 40% stake in Telkom, while the Public Investment Corporation (PIC) owns a further 14% of Telkom’s equity.
On Friday, Telkom's share price surged on the JSE by about 28 percent following the announcement. Telkom's share price closed on the stock market at R42,25.
MTN's share price also increased by almost 6 percent and closed at R141,87c.
Goldstuck said MTN wanting to acquire Telkom would help the organisation multiply its capability as Telkom is not just any telecoms company in the continent, but the one that practically invented, paved and created the groundwork for ICT infrastructure in South Africa.
"While Telkom became a major player in the ICT sector, it did so under monopoly conditions, it had a massive head start more than everybody else and it remains one of the great infrastructure providers on the continent. It provides the biggest fibre network in South Africa, and that makes it a formidable player".
He said while the acquisition would be a great idea for MTN, it would be terrible for the consumer.
"The consumer has found Telkom mobile the most consumer-friendly operator. It has both competitive data rates, while other mobile operators are more expensive," Goldstuck said.
He said MTN and Vodacom were still relatively expensive and looking for ways of complicating their offerings to enable them to sell their services at a higher price than what the consumer should be paying based on their choice of product.
"MTN has a superior network and is constantly rated as having the highest quality mobile network in the country, especially for data services. So it doesn't really need Telkom for that because it does a good job and based on that good job, it has been able to grow its subscriber base," he said.
Goldstuck added that while Vodacom also provides quality service, when it doesn't work, Vodacom lacks the recourse to sort out their customer issues.
"Acquiring Telkom is just going to exacerbate that. That takes away one of the most competitive choices available to the consumer and for that reason, it is highly unlikely that the Competition Commission would give it a green light".
According to Goldstuck, there were several challenges the acquisition could bring about, including that both companies had different corporate cultures.
"MTN is process-driven and geared towards the groups that work across Africa and the Middle East, whereas Telkom is heavily South African focused, and tends to be more flexible, in terms of its promotional offering."
He said MTN would have to integrate two separate cultures that are very different from its own.
"The second big challenge would be integrating the customer bases of the two organisations. It would make sense for MTN to combine the user bases and that is going to result in massive complexity but dissatisfaction from Telkom users as they would be brought into MTN's current structure or contract structure," Goldstuck said.
He said another big challenge would be if the Competition Commission were to give a go-ahead, the key element in approving this would be no jobs were lost.
"That would be a huge challenge for MTN to retain all the Telkom staff. Telkom has done a great job in the past two decades of trimming down its workforce. The unions didn't like that. It was necessary for the organisation to survive and thrive. MTN would probably want to cut down the workforce and that is something the Competition Commission will specifically be against and it won't give approval," he said.
Goldstuck said if the bid goes through, it will concentrate services and customer base in two organisations.
"There is CellC, another player but its subscriber base has been dwindling rapidly even though for other mobile operators it has been increasing. One would have thought CellC would be an acquisition target instead for that very reason," Goldstuck said.
He said if the acquisition came to fruition there would be only two major market players; Vodacom and MTN.
"The duopoly is not good for the market, and it is not good for the consumer, not even good for these companies, though they might think it is as they would be operating in a less competitive fashion," he said.
He said the Competition Commission would not want a duopoly in this sector.
"Another element that might happen is that Vodacom might go to court and fight tooth and nail. This would come down to protecting the consumer and the sector," he said.
Meanwhile, social media users and Business Report users reacted to the announcement.
A reader said: “Telkom is one of the best performing SOEs and I don't think it's a good idea to sell it.”
Twitter user @superiorZulu said: “Telkom is 55,3% owned by the State and is currently the only cheapest, reliable and fast network with R99,15Gigs connecting almost everywhere in SA. Just like how flight tickets sky rocketed after the State-owned SAA was sold, the same will happen with Telkom should MTN buy it.”
Telkom is 55.3% owned by the State and is currently the only cheapest, reliable and fast network with R99 15Gigs connecting almost everywhere in SA. Just like how flight tickets sky rocketed after the State owned SAA was sold, the same will happen with Telkom should MTN buy it
— Great Zulu👑 (@SuperiorZulu) July 15, 2022
At the moment we don't have electricity due to load shedding, and only Telekom is working, vodacom only works when there's electricity
— Khithika🇿![CDATA[]]>🇦 (@Namathela5) July 15, 2022
Why would the competition commission allow this monopoly move?
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