SA's largest mobile operator, Vodacom, is watching its African expansion options dwindle, while MTN coughs up billions to snap up what's left.
Speaking this morning during a conference call on the company's first set of final results since it listed, CEO Pieter Uys admitted that the company had battled to find a suitable candidate for an African acquisition or merger.
Vodacom has been standing by this year, watching MTN and possible low-cost future competitor, Bharti Airtel, tackle two large African expansion deals - MTN with Orascom, and Bharti with Zain's African assets.
Too much
Uys says one of its largest hurdles into Africa is the current price of the larger assets. “The current price expectations on possible M&A in Africa are too high. We are still looking for big opportunities, but with a reasonable tag.”
However, despite the struggle, Uys says there is still room to manoeuvre in the African market. “We don't want to engage in M&A for the sake of it, we need to gain value from our plans. We are still looking at the opportunities,” he explained.
In its prelisting statement, last year, Vodacom said it expected to expand into the lower half of the continent, saying parent company, Vodafone, has agreed to use it as an exclusive investment arm for sub-Saharan Africa.
More troubles
However, it has yet to make any strides further than the few countries it already has a footprint in, some of which are showing signs of trouble. One of the company's biggest African problem operations is Vodacom DRC.
Operations in the Democratic Republic of Congo have been hit by several particularly trying factors for Vodacom. Not the least of these, a new tax order, which forced the company to fork out $35 million in an unexpected claim. The new tax has now been fully implemented and Vodacom will have to pay a certain tax level for each subscriber it has on its network in the country.
Another problem for Vodacom in the country is its relationship with Congolese Wireless Network (CWN), 49% shareholder in the business, which has turned sour. The two have been at loggerheads for some time, with the Congo business suffering from the lack of cohesion between shareholders.
The relationship has reached a point where the two are now in arbitration to try and resolve the matter, and Uys said this morning he is still committed to making the DRC business work. Without many remaining opportunities in Africa, Vodacom will be clinging to its shareholding in the DRC for all its worth.
Frost & Sullivan ICT industry analyst Spiwe Chireka warns that market issues in the DRC are expected to continue affecting the growth of the operator in that country, both in terms of revenue and subscribers. There are, however, indications that the economic conditions are slowly improving.
Not much left
Chris Gilmour, Absa Investment analyst, says the company needs to act or lose out on investment opportunities in Africa. He says the resource of the big African opportunity is fast running out.
The African market is not standing still for Vodacom, Gilmour says, and there is now a significant amount of competition on the continent. Vodacom faces additional troubles when looking for African growth. “With the trouble in the DRC, Vodacom is not covering its name in glory in Africa,” he says.
Gilmour says the outlook will become increasingly limited, especially if MTN has any say in the matter. “MTN will want to mop up as much of Africa as it can. Look at what it is willing to pay in the Orascom deal,” he explains.
He says Vodacom is a “Johnny-come-lately” and it will take some significant strides to catch up with its competitors. “And I am not sure they will be able to make up that ground at all,” he adds.
Other options
However, Irnest Kaplan, MD of Kaplan Equity Analysts, says there will always be some sort of opportunity in the African market for Vodacom, despite the high level of competition. “While it's unlikely to be a large deal like the Zain or Orascom opportunity, there will be other ways for Vodacom to get into Africa.”
He says if Vodacom had been independent from conception, the African market would have had a very different face; however, its current position is not as concerning as some believe. “Mobile voice is not the only way forward for Vodacom,” he explains.
Kaplan says the prospect of mobile data, while not as lucrative as voice, will likely be a key driver for Vodacom's African investment. “Consider the African market in five to 10 years' time, when the cellphone is the only computerised device that people will have. Mobile data will be a big win for Vodacom then.”
Kaplan believes the golden era of large revenue off mobile voice is fast coming to a close. However, he says this will only drive Vodacom's possible opportunity position in Africa.
Business is best
One of Vodacom's more pivotal options is in the business segment across Africa, and Cherika says Vodacom must now leverage the Vodacom Business brand into the rest of Africa, specifically off the back of its success in SA.
“Frost & Sullivan expects business data services to experience exponential growth in many parts of the continent, especially with the landing of the undersea cables,” she says.
Uys agrees, saying the growth shown over the year in Vodacom Business has proved it is in a possible expansion position for the African market.
Vodacom will present the rest of its results to investors this morning.
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