fric - consolidation

African telecoms set for big bang

A "big bang" restructuring of Africa's telecoms industry looked to be back on the cards yesterday, as Vodafone sought control of South Africa's largest mobile phone operator and a consortium made a bid for the country's leading fixed line company.

Vodafone, the UK mobile phone group, is hoping to realise its longstanding ambition to control Vodacom by paying $2.5bn for a 12.5 per cent stake. That would take its aggregate holding in the South African mobile operator to 62.5 per cent.

Meanwhile, Mvelaphanda Holdings, one of South Africa's top black empowerment groups, is leading a consortium that is considering making an offer for Telkom, the country's main fixed line phone company.

Analysts and bankers said one of the main factors behind the potential deals was the prospect of MTN, Africa's largest mobile operator, finalising a merger with Reliance Communications, India's second largest wireless company.

Talks between Reliance and MTN began last week. However, the possibility of MTN gaining scale became clear last month when it held merger talks with Bharti Airtel, India's largest mobile operator.

Those talks collapsed, but it underlined the rising status of MTN in the telecoms industry. Vodafone last month looked at the case for buying MTN, which has a market capitalisation of $37bn, but decided against.

If MTN combines with Reliance, it would create a new global force in telecoms in emerging markets.

Moreover, Vodafone risks failing to maximise its impact in Africa if it does not get control of Vodacom soon, and use it as a springboard from which to spread the company brand across the continent.

MTN may be the second largest mobile operator in South Africa, but it is already much bigger than Vodacom.

Vodacom has 34m mobile customers in five African countries. MTN has 68m customers in 21 countries, including 15 in Africa.

Last year, MTN and Vodafone held separate talks with Telkom about deals that could have led to its break up.

MTN was discussing buying Telkom's fixed line operations, but the two companies could not reach agreement on price, among other things. Vodafone was considering buying Telkom's 50 per cent stake in Vodacom.

Telkom, whose largest shareholder is the South African government, terminated talks with both companies last November. It said an agreement with Vodafone had been contingent on it first finalising a transaction with MTN.

Some of MTN's investors expressed relief that no transaction was done because they were concerned at the costs of the company taking on a heavily unionised company like Telkom, which has about 26,000 employees.

The pressure on Telkom continues unabated. Its share price has fallen about 20 per cent in the past year.

Citigroup analysts estimate Telkom's 50 per cent stake in Vodacom to be worth $9bn. But Telkom's market capitalisation is R79.1bn ($10.2bn), which underlines how its fixed line operations are not regarded as valuable.

One person familiar with the situation said Telkom had contacted Vodafone recently about the possibility of reopening talks about Vodacom. On Friday, Vodafone made an informal offer to buy an additional 12.5 per cent of Vodacom from Telkom.

The reason Vodafone's offer may result in a transaction this time rests partly in the identity of those behind the consortium seeking to buy Telkom's fixed line operations.

The consortium is led by Mvelaphanda Holdings, whose chairman is Tokyo Sexwale, one of South Africa's most successful businessmen in the post- apartheid era. He is a prominent supporter of Jacob Zuma, leader of the ruling African National Congress and likely next president of South Africa.

Mr Sexwale's political connections may help smooth the way for the Mvela-phanda-led consortium to buy Telkom's fixed line operations.

The consortium said in a letter to Telkom last Friday that its plans were contingent on the disposal of the company's 50 per cent stake in Vodacom.

Given Vodafone is seeking to increase its Vodacom holding to 62.5 per cent, Telkom could be left with 37.5 per cent of Vodacom.

Several people familiar with the situation said a demerger of Telkom's residual stake in Vodacom could be organised.

Apartheid prisoner who made good

A former prisoner under the apartheid regime, Tokyo Sexwale has emerged as one of South Africa's most successful businessmen, with a strong role in the mining industry.

His Mvelaphanda group is one of the leading businesess created under black empowerment rules.

Last year Mr Sexwale made a bid for leadership of the ruling ANC, brushing off claims he had become too rich to lead a traditionally leftwing party.

While the leadership eluded him, Mr Sexwale won a place on the ANC's executive. He is close to Jacob Zuma, who won the ANC leadership race and is likely to be the next national president.