Further consolidation predicted for '07

The New Year is expected to usher in consolidation in the local ICT market, with SA's incumbent fixed-line operator expected to spread its wings offshore, while other telecoms companies are expected to have a quiet year.

A snap survey of analysts revealed that on the top of the agenda for companies to watch out for this year is Telkom's proposed takeover of Business Connexion. Telkom's bid for the outsourcing IT firm is to be decided in the first few months of this year.

One analyst suggests that if Telkom succeeds in its R2.4 billion takeover bid, Bytes Technology Group - which had shown interest in BCX - will look at other takeover targets.

He says that Bytes' Xerox business is mature now and, while the company has scooped a few opportunities offshore, it is likely to look at local growth.

Allied Electronics Corporation (Altron), which indirectly owns Bytes, had R1.5 billion in cash when it reported its interim results in October and is not averse to spending in order to grow.

At the time, CEO Robert Venter said the company would rather fund growth off the balance sheet than through debt. The company, he said, is not afraid to spend its cash, just cautious about its choices.

A second analyst suggested that Telkom would be making a few African acquisitions this year, but he had no insight into whether the Tekom/BCX deal would be allowed to proceed by the Competition Tribunal.

However, he did point out that Telkom has been losing fixed-market share to cellular companies, justifying acquisitions on the continent.

Other targets named by the first analyst, who spoke on condition of anonymity, that could be subjects of takeover bids include EOH and ERP.com, which he suggests may be taken off the JSE's main board through a takeover.

Multinationals too could spring a few surprises, and the analyst suggests that some could look at either exiting the market or tie up an arrangement with a local partner.

Private equity firms, which last year bought out local technology companies Idiom and FrontRange are not likely to be contenders for the services companies, he says.

Consolidation has been playing out for the last few years, but is expected to continue to a smaller degree this year.

Turning to telecoms, the analyst says that he expects to see more consolidation among VANS and ISPs. This consolidation is expected to be along similar lines to DataPro's aggressive growth strategy, he says.

Nashua Mobile, which has already completed a small acquisition, is expected to play a larger role in the telecoms space, as is Autopage. Altech indirectly owns Autopage, which has 10 000 broadband subscribers and a customer base of over 700 000 mobile subscribers, and has already indicated it will be looking at aggressive growth this year.

Altech has recently been quite in terms of corporate activity and - if it fails to find a suitable takeover target - could well return excess cash to shareholders.

Telkom and MTN are both expected to remain in the news. However, the analyst does not expect that MTN will make any major acquisitions between now and its year-end in March.

The analyst added that MTN would not take part in the bidding war for India-based mobile firm Hutchison Essar. Vodafone has confirmed that it is contemplating acquiring a controlling interest in the company.

Hutch, worth around $14 billion, is currently being bided for by several international companies, but its size - similar to MTN's own worth - means that the SA firm could not be a contender, he says.

The second analyst concurred, saying that the only activity he expected to see around MTN would be if a competitor bid for it.

However, the race to take over the Indian GSM firm implies that India will be the next major market to undergo a process of consolidation as it has about seven mobile operators, he says.

Locally, the second analyst added that he would not be surprised to see Cell C's major shareholder exit the company and seek better returns on investment in other countries such as Turkey.

He said that the company's cancelled intention to list could be a "noose around its neck".

Turning to arivia.kom, recently put up for sale by owners Eskom and Transnet, the analyst suggested that GijimaAst - which has indicated that it has its chequebook ready for an acquisition - might look at the parastatal.