Politics to grease the wheels of an MTN, Telkom deal, by Duncan McLeod and Irnest Kaplan
pan-African telecommunications champion that has a large shareholding by the South African government looks likely to grease the political wheels of MTN Group’s audacious – and complex – bid to buy smaller rival Telkom.First, a quick recap: last week, MTN and Telkom disclosed to investors that they were in talks about a deal that would see the former buy the entire issued share capital of the latter – including government’s 40% direct stake.
It’s understood that the deal is being championed by MTN Group chairman Mcebisi Jonas, a former ANC finance minister who is believed to have the ear of the right people in government. Jonas and MTN’s group CEO, Ralph Mupita, have been lobbying hard behind the scenes for the transaction to happen.And Jonas and Mupita might just persuade the politicians that a deal makes sense, that they’d be merging the companies to create an African telecoms champion.
After the political issues are sorted out, the next hurdle will be getting the transaction past trade, industry & competition minister Ebrahim Patel and his enforcers at the Competition Commission, who have taken a dim view of previous efforts at consolidation in the sector. This includes blocking a previous effort between MTN and Telkom to share their radio access networks .
This would mean clawing open the infrastructure to greater competition, opening it to Internet service providers in much the same way ISPs are able to provide fibre broadband services to consumers on the Telkom Openserve and Vumatel networks. The Internet Service Providers’ Association has been demanding this for years; expect it to lobby hard for this position at any future Competition Commission hearing on an MTN/Telkom deal.
There’s also the matter of employee layoffs. Although Telkom has shed thousands of staff in recent years, it is still bloated. The Competition Commission may prohibit retrenchments for several years in return for sanctioning a deal. This will diminish some of the efficiencies MTN will want to extract from a combined entity, but many staff will go over time anyway, through natural attrition.
There are other parts of Telkom that MTN might be less interested in. The perennially low-margin BCX might not be deemed to be core to MTN, even though it could give it better access into corporate accounts in South Africa. Telkom has already hinted it might seek a strategic partner for BCX, possibly one of the big Indian IT services companies. It seems unlikely there’d be any objection to that from MTN.
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