SA's fixed-line operator Telkom has confirmed it is in "discussions" with African Lakes to buy out its Internet service provider (ISP) subsidiary Africa Online.
Telkom's statement to the market yesterday comes after weeks of speculation, followed by African Lakes' announcement yesterday that Telkom had submitted a bid for the firm.
Telkom is also in talks with Ucom, a consortium that owns 51% of Uganda Telecom, to acquire a stake in the Ugandan operator.
Telkom previously refused to confirm or deny it was bidding for Africa Online. The fixed-line operator would only reiterate it is looking for expansion opportunities in Africa.
Africa Online's board has garnered pro-Telkom support for the deal. However, a hostile bidder says a sale to the South African company would be negative for the Kenyan Internet industry, job creation and shareholders.
Strange move
An analyst, who asked that his name be withheld, says Telkom's bid for an ISP is "strange". He cannot understand why the fixed-line operator would buy into an ISP rather than other, more lucrative, operations such as mobile or fixed-line communications.
"If Telkom does move into Africa, adding IT to a telecoms portfolio would be the way to go, " he says.
Instead, the analyst argues, the addition of an ISP may subtract value from Telkom because of low penetration rates and a lack of sophisticated technology on the continent.
"Telkom has far more serious issues to sort out at this stage," he says. This refers to impending competition as Neotel enters the market and Telkom's bid for Business Connexion comes before the Competition Tribunal.
BMI-TechKnowledge senior analyst Tertia Smit says buying into an ISP would be another way for Telkom to enter the African market. This would allow it to establish a presence in African countries where Africa Online has operations, before making a bid for larger players like fixed-line and mobile operators.
Africa Online offers services in Cote d'Ivoire, Ghana, Kenya, Namibia, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.
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