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Growth on tap for Neotel

Paula Gilbert
By Paula Gilbert, ITWeb telecoms editor.
Johannesburg, 19 Jul 2016
Liquid Telecom is the right partner for Neotel, says Neotel director in charge Kennedy Memani.
Liquid Telecom is the right partner for Neotel, says Neotel director in charge Kennedy Memani.

Liquid Telecom plans to expand and upgrade Neotel's network "to cater for rapidly accelerating mobile and enterprise traffic" when it takes over the converged communications network operator.

This is according to Neotel director in charge Kennedy Memani, responding to questions from ITWeb about the upcoming acquisition.

Last month, Liquid Telecom announced it and Royal Bafokeng Holdings (RBH) had entered into an agreement to acquire Neotel for R6.55 billion. RBH will acquire a 30% stake in Neotel, while the rest will be held by Liquid, a subsidiary of pan-African diversified telecommunications group Econet.

Memani also confirmed the Neotel board and shareholders have accepted the offer from Liquid Telecom and RBH, which manages the Royal Bafokeng Nation's commercial assets. Memani is also chairman of Neotel's black empowerment partner and minority shareholder, Nexus Connexion.

"The acquisition will create the largest pan-African broadband network and B2B telecoms provider spanning 12 countries from South Africa to Kenya, with further expansion planned. This will enable the combined entity to offer a unique set of next-generation, converged services and international connectivity to telecom operators and enterprises via a single fibre network across Sub-Saharan Africa," according to Memani.

He says the expansion and upgrade will also enable the "launch of exciting new products and services" for the business.

Neotel's national fibre network, which is partly leased, has a backbone of over 27 000km of fibre linking cities and towns, and all five submarine cables connecting SA. The network is IP-based next-generation and connects over 42 cities and towns in SA.

Meanwhile, Liquid Telecom's cross-border fibre backbone network stretches 40 000km across Sub-Saharan Africa, with further expansion planned into new markets. It also owns an independent data centre in East Africa and a high-tech support centre in London.

"I believe Liquid Telecom is the right partner for Neotel. Our respective customers and networks complement each other well, the transaction structure is in line with our country's critical BEE agenda, and I am confident that our customers and our employees will benefit from the transaction and from the resulting stability and business expansion," says Memani.

Neotel provides converged communications services to businesses in SA and also operates two data centres. It has prime access spectrum in the 800MHz and 1 800MHz bands, key for LTE, along with additional frequencies.

Memani says the next step in the merger process will be to submit the transaction to the Independent Communications Authority of SA, the Competition Commission and then the Competition Tribunal for approval.

"We expect this process to be concluded by the end of the current financial year," he says.

The deal comes after an acquisition offer from Vodacom fell through after almost two years of negotiations. Vodacom had offered to buy Neotel for R7 billion but came up against strong opposition from rival industry players, which were worried about Vodacom gaining access to Neotel's much sought-after radio frequency spectrum.

In December, Vodacom decided to remove the spectrum from the deal and only acquire Neotel's fixed-line business, allowing the spectrum to be offered to all network operators through roaming arrangements. The two groups tried to renegotiate the restructured transaction but in March ultimately announced the deal could "no longer be progressed".

Leadership vacuum

When asked how Neotel's search for a new CEO and CFO was going, it responded: "Neotel does not have any new information to share with you at this stage."

Memani has been leading the business as director in charge since CEO Sunil Joshi and CFO Steven Whiley were placed on special leave in August 2015. The move came as the firm began an investigation into whether the two were involved in any alleged bribery and corruption in connection with a Transnet deal worth R1.8 billion. This after the Mail & Guardian reported Neotel had paid tens of millions of rands in "commissions" to the letterbox company Homix to clinch the lucrative Transnet deal.

At the time, Neotel said auditors had found alleged irregularities when conducting an audit.

"On learning of the irregularities, the Neotel board took immediate action, mandating an independent investigation. The investigation concluded the irregularities indicated a possible non-compliance with the company's internal procurement and payment processes," it said at the time.

In November, Whiley resigned "as a result of the lengthy duration of the investigation" deciding to "pursue his own interests". At the time of his exit, Neotel said he had fully complied and cooperated with the investigation, and "with the information currently at its disposal, the board is satisfied Steven Whiley has at all times acted with integrity".

In December, Joshi followed suit, stepping down from his role with immediate effect. Neotel said he had also fully cooperated and it had "found nothing to date that implicates Mr Joshi personally in any bribery or corruption activities".

The company declined to comment on whether it planned to appoint a new CEO ahead of the acquisition deal, or whether Liquid Telecom would appoint someone internally after the acquisition was approved.

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