Following hot on the heels of widespread reports that SA's mobile duopoly has been eyeballing second fixed-line operator Neotel to bolster their business base and up data capability, industry speculation has it that MTN is looking at a possible acquisition of home-grown Internet service provider (ISP) Afrihost.
While MTN says it "does not comment on market speculation", analysts say such an acquisition would add up, given that mobile networks are relentlessly pursuing means of expanding data revenue streams in light of a declining voice and SMS market.
The technology and broadband market in SA is currently worth about R5.2 billion, and is seeing growth of 5.5% per year.
MTN's half year financial results, released last week, revealed the company is under significant margin pressure and that it was looking to not only focus on cost controls, but also to push into new sources of revenue.
MTN Group has cited data - which gained 36.9% in the half year to June - as a future growth driver. The group says it is focusing on developing new products that it can use to boost revenue growth.
While MTN reported revenue growth of 9.8%, to R65.2 billion, in the first half of the year, this was largely boosted by the weaker rand. If the currency had remained at the same level year-on-year, revenue would only have grown 1.9%; showing that traditional sources of gains are no longer lucrative.
Sensible move
World Wide Worx MD Arthur Goldstuck says, while he is not aware of an MTN-Afrihost acquisition specifically, it makes sense from the point of view that MTN, like other mobile operators, is constantly on the lookout for ways to expand beyond mobile broadband.
"Afrihost is the biggest of the small ADSL service providers, and about to move into mobile broadband in a big way. They have a good reputation and are viewed as price and value leaders in the market, so that could be leveraged by a buyer."
That being said, Goldstuck notes an acquisition by mobile giant MTN could also take away from Afrihost exactly what differentiates the ISP.
Ovum analyst Richard Hurst says MTN - and more specifically MTN Business - would probably be looking at Afrihost primarily for access to the ISP's client base. "While Afrihost has no doubt a number of large enterprise customers, it's clear that their strengths have been in the small and medium enterprises (SME) segment of the market."
In addition to this, says Hurst, there would be the synergy of delivering cloud services, aimed in particular at SA's SME sector.
"In essence, the acquisition of Afrihost would allow MTN Business to further consolidate its position in the market."
It is widely known that data traffic is accounting for more and more mobile traffic, but considerably less revenue.
Buyout buzz
Meanwhile, talk of a Neotel acquisition by MTN's main rival Vodacom is not dying down. While rumours of a buyout have had the rumour mill turning for years, recent reports have heightened the hearsay, and - up until recently - the two mobile rivals were believed to be vying for a takeover of the six-year-old company.
Last week, at the company's financial results presentation, MTN CEO Sifiso Dabengwa confirmed rumours that Neotel may be up for sale. Dabengwa said MTN had gone through the process with respect to Neotel, but that it was not part of the talks anymore.
This has narrowed the stakes and sparked industry conjecture that Vodacom is now the exclusive option for a Neotel acquisition.
At the same time, and as part of their enterprise strategies, both MTN and Vodacom have been increasingly making a play for fixed-mobile convergence solutions in enterprise, with MTN entering the enterprise resource planning space recently, and Vodacom shortly afterwards, saying it would hone its business operations by extending its focus and convergence offering to SMEs.
Update: Afrihost CEO Gian Visser said on 23 August that the recent market talk around the ISP and MTN is purely speculation. "I can confirm that we are not, nor have we ever been, involved in any talks with MTN to sell Afrihost.
"We have a fantastic relationship with MTN. Our partnership has yielded incredible results and opportunities for both of our companies as well as for our clients. My partners and I established Afrihost to create a new kind of company and, despite our achievements, we still have many, many milestones we wish to reach."
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