The telecoms sector is undergoing a period of intense change - with more activity than has been seen in about two decades - as the industry gears up to fend off top line pressures by adding on more services, such as content.
This year alone, several large deals have been announced, including Vodacom's R7 billion bid for Neotel, which Neotel CEO Sunil Joshi defended yesterday as being pro-competitive. Other offers include Telkom's R2.6 billion bid for Business Connexion, Internet Solutions' purchase of MWeb's business assets, MTN's purchase of a majority stake in Afrihost - and an unnamed party putting an offer on the table for Blue Label.
Independent analyst Paul Booth, who expects more consolidation to take place, notes the buyouts are a bid by companies to add scale and capacity because that will enable them to price more aggressively, which will boost digital inclusion. He says the industry has not seen this level of activity since around the dawn of the mobile age.
Transitioning
ICT veteran Adrian Schofield adds the industry is "in a state of flux" as it transitions from the separate carriages of voice and data to the provision of a network layer that will support almost any device that will serve any purpose.
Recent strides towards this shift have been made by Telkom, Vodacom and MTN, with moves towards voice over long-term evolution, HD voice, and true 4G being made. In addition, cellular companies are at various stages of talks with content providers in a bid to add quad-play to their offerings.
"Carrying zeros and ones is not a very exciting market," says Schofield, noting the margins are "not great". As a result, operators need to add value to the zeros and ones through aspects such as content, security and devices, he adds.
Job cuts
Booth says there has been a global move towards consolidation, with deals starting to happen around two to three years ago, accelerating over the past few months. He hopes the "Competition Commission and Competition Tribunal will be future-thinking enough to not be luddites" and favour the bids, all of which are at various stages of regulatory approval.
The greater economies of scale the buyout companies are seeking will enable them to price more aggressively, which will increase access to the Internet, and to communications, potentially creating more jobs, adds Booth. Yet, the sector is also going through a phase of job cuts, with both MTN and Telkom in the midst of retrenchments.
About 200 Telkom managers have already taken voluntary retrenchment packages, with another 140 set to follow by the end of this month as Telkom battles a dwindling revenue line, and high cost base. Telkom is seeking to cut about 2 500 managers from its staff base.
Meanwhile, MTN is in a consultation process that could see as many as 847 staff being affected by retrenchments as it battles "poor returns" and a need for growth.
Booth hopes the jobs created as a result of the consolidation will outweigh those shed by the industry's bid to keep a lid on costs.
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