Vodacom - SA's largest mobile network - has put in a bid for Tanzania's biggest Internet service provider (ISP), Zantel, as it seeks to expand its spectrum and fibre assets in the under-penetrated country.
Its bid, which has not officially been confirmed, marks its first serious expansion on the continent since its initial African forays, and is a step towards making good on CEO Shameel Joosub's plans to boost revenue from the continent.
Tanzania is Vodacom's second largest operation with 11.3 million customers, compared to SA's base of 32.6 million. However, penetration in the country is only at 60%, and analysts say bulking up its presence is a good move as Tanzania has a growing economy.
Vodacom, which has been in Tanzania since 1999, is bidding for Zantel to get its hands on more spectrum and the ISP's fibre network, a source close to the deal explains. The source could not indicate how much Vodacom was offering, but noted it was not as much as the cited $300 million. Vodacom declined to comment.
Zantel, launched in 1999, is part of the Etisalat Group and offers international gateway services, as well as fixed, mobile and data services through its CDMA, GSM and 3G networks. It has a customer base of more than three million subscribers.
Growth point
Ovum analyst Richard Hurst says "there are several green lights" that make sense for Vodacom to entrench its Tanzanian operation, including its current understanding of the market, stable political environment, and growth prospects. He says the bid marks a "re-ignition" of its African forays.
BMI-TechKnowledge director Tim Parle adds Tanzania's macro environment is positive, and the economy has been growing at about 7% for the past five years or so - a rate that is more than double SA's gains. He adds Vodacom is Tanzania's largest operator, with about 37% of the market.
In addition, says Parle, an important element is that M-Pesa is an "impressive phenomenon" in East Africa, and Vodacom offers the service in Tanzania, where it has more than six million customers. "Service revenue from M-Pesa accounts for nearly one-fifth of their revenue, and it is growing fast."
Leaping over competition
Parle adds Tanzania is a profitable operation and buying Zantel would be an important move for Vodacom. "The market in Tanzania is quite well split between Vodacom, Bharti Airtel and Tigo, each with 25% or more market share. Taking Zantel into the stable will push Vodacom to 43% and put them more firmly ahead of the competition. This will be an orchestrated move with Vodafone given their position in neighbouring Kenya. This also takes a competitor out of the market, and weakens the presence of Etisilat in the region."
Vodacom already has a market it has cultivated and is now set to reap the benefits in a country where data penetration is low and demand is rising, says Parle. Access to spectrum along with Vodacom's current resources would allow it to outpace its competition, and take long-term evolution outside of the main centres.
Hurst notes Africa will be the fastest growing region when it comes to mobile broadband growth and it is a good idea for Vodacom to bank spectrum and fibre now. He notes Vodacom is facing constrained growth in its home market as data eats into voice revenue at lower margins, and Vodacom is now "pushing" untapped growth opportunities.
Vodacom's total revenue gained only 2.3% to R37.5 billion in the first half of the year, while its international operations grew 13% to R7 billion.
Joosub has said the company wants its international operations to hit 30% of income, up from 24%. "The revenue has to catch up with the customers."
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