Vodacom is still desperately seeking opportunities to expand its operations in Africa as revenue in SA - currently generating 80% of its income - comes under increasing pressure, but the outlook is bleak.
UK-based Vodafone CEO Vittorio Colao said during a press briefing in Johannesburg yesterday that the group - the world's second largest network after China Mobile - was still looking to expand its African operation, but "there have been fewer opportunities than we thought".
Vodafone owns 65% of Vodacom - a stake Colao says the group is happy with, but would be open to increasing, should the opportunity arise.
Vodacom SA, under CEO Shameel Joosub, is the delegated driver of Vodafone's African ambitions, says Colao. Apart from the local heart of its African operations, Vodacom also operates in Tanzania, the Democratic Republic of Congo, Lesotho and Mozambique.
Vodacom manages Vodafone operations in Egypt, Ghana and Kenya, and the global telco is also present in other markets, but only offering fixed-line services.
Fruitless search
The company has been on the hunt in Africa for years, without a conquest. As far back as 2006, Vodacom founding CEO Alan Knott-Craig indicated the company had a keen interest in expanding further into Africa and penetrating regions north of the equator.
In 2010, former Vodacom CEO Pieter Uys admitted the operator had struggled to find a suitable candidate for an acquisition or merger, while arch rival MTN realised further expansions plans with a deal with Orascom.
At the time, Uys said one of the company's largest hurdles into Africa was the price of the larger assets. "The current price expectations on a possible M&A [merger and acquisition] in Africa are too high. We are still looking for big opportunities, but with a reasonable tag."
Five years down the line, not much has changed. Colao says Vodacom's hurdles in Africa are essentially price and the quality of the assets. "I have to say, [when it comes to] the good assets in Africa, the owners often have a disproportionate idea of their value. That, or there are assets for sale, but they are not good companies."
Colao says Vodacom has looked at all its options, big and small. But if the right opportunity does not arrive at the right price, he says, it must be borne in mind that Vodacom is a listed company and cannot take the risk, for its shareholders' sake.
MTN's might
On the flip side of the coin, MTN - SA's second biggest mobile operator and Africa's biggest - has operations in 17 African countries, including SA, Botswana, Namibia, Uganda, Kenya, Nigeria, Ghana, Zambia, Cameroon, Congo Brazzaville, Rwanda, Sudan, Benin, C^ote d'Ivoire, Liberia, Guinea Conakry and Guinea-Bissau.
Analysts say the disparity in the duopoly's African assets comes down - at least in part - to the fact that MTN left the launch pad early. Africa Analysis analyst Dobek Pater says MTN did its great push into Africa at a time when there were more opportunities. He points out that, while the company missed one big deal (Celtel), it acquired Investcom; a move that saw it move into a number of markets.
Absa Investments analyst Chris Gilmour says MTN went into Africa on a high risk basis, established its own operations there and is now reaping the benefits. "It did this at a time when there was very little competition on the continent. To adopt a similar approach now would be extremely risky, not to say foolhardy."
Pater says another reason MTN is so far ahead in the race is because the company was "less risk averse" in the midst of its African expansion than Vodacom has been. "[MTN] probably [undertook] some acquisitions with the belief that it would make them work. Vodacom was more constrained by its shareholders."
Crucial quest
Analysts say, despite the uphill it faces, Vodacom must pursue African expansion if it wishes to grow. "While the company has developed a decent footprint, the nature of the opportunity is about to change with consumers and enterprise becoming more sophisticated in terms of their telecommunications consumption," says Hurst.
Pater says Vodacom needs to expand into new markets; whether into new local markets or different countries. "New jurisdictions are also important where markets are not yet mature, and especially the fixed-line market will only begin to grow, in most instances.
"The problem is that an entity like Vodacom would need to ideally buy a local player that is first or second position in the market - or at least a strong third. However, in all larger markets these top positions in the mobile market are already occupied by large pan-African players (MTN, Airtel, Orange) who don't want to sell at this time."
Colao says the company will not stop looking, but SA will remain its African heart. "We have been in the country [since the time] when nobody had trust in SA, and we will be here forever."
Vodacom is investing R8.5 billion in its South African network this year - an amount that could grow by 50% with Neotel on board next year, says Colao.
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