Telkom eyes Zimbabwe gold mine

Should Telkom decide to enter the Zimbabwean telecommunications market, it could realise greater growth and return on investment than it could see in its home market, says Frost & Sullivan analyst Spiwe Chireka.

Media reports late last week speculated that SA's dominant fixed-line operator may be eyeing a stake in Zimbabwe's state-owned telecommunications operator, TelOne, which operates that country's number two mobile network, NetOne.

Econet is Zimbabwe's premier mobile operator and third place goes to Saudi Arabian-backed Telecel.

Telkom's group executive for corporate development, Mike Mlengana, said in response to a query from ITWeb: “Telkom continues to explore and investigate acquisition opportunities in Africa. This process is informed by strict financial criteria to ensure shareholder value creation.”

Zimbabwe has one of the lowest fixed and mobile telecommunications penetration rates on the continent. Frost & Sullivan estimates that last year the country had 1.654 million mobile subscribers – less than 10% of the total population.

“In fact, Zimbabwe has a lower penetration rate than the Democratic Republic of the Congo. The country could, therefore, be a gold mine for Telkom if it decides to move into it,” Chireka says.

Frost & Sullivan, however, expects the mobile subscriber base there to climb to around eight million people within seven years.

“It would make a lot of sense for Telkom to move into Zimbabwe, either through a stake in TelOne, or by itself. It will get a greater return than on its fixed-line South African business,” Chireka says.

She says an added incentive is that the Zimbabwean economy has become US-dollar-based and this has made it a more predictable environment for telecoms operators, as they don't have to worry about fluctuating exchange rates.

“In fact, the business environment has become far more stable than ever before,” Chireka says.

TelOne is in dire need of capital in order to update its aging network and expand its market. However, obtaining that capital has been difficult due to the political environment and the fact that it introduced a law that limits foreign ownership of Zimbabwean companies to 49%.

“In our discussions with telecoms operators, they say the lack of capital rather than the regulatory environment is the biggest inhibitor to growth there. There are indications that Zimbabwe will be reviewing its empowerment laws,” Chireka says.

She adds that Telkom has had an aggressive pan-African strategy on the table for some time and so it already has operations in Namibia, Nigeria and Kenya.

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