Shares in SA's largest fixed-line operator, Telkom, surged more than 5% yesterday on the back of speculation that the group's mobile arm, 8ta, could merge with Cell C.
Stock in Telkom gained 5.56%, to close at R19 yesterday, beating the JSE's all share index, which only gained 0.49%.
Telkom shares have been under pressure recently, after the group reported lacklustre results and government canned a proposed R3.3 billion investment from Korea-based KT Corporation.
Waiting game
After the state rejected the offer from KT to buy 20% of Telkom, an inner-ministerial task team was set up to ponder future options for Telkom, which is seen as a strategic asset.
Communications minister Dina Pule had until the end of August to report back to Cabinet on a way forward for Telkom. However, the matter was not tabled at the latest regular Cabinet meeting, which was held at the end of last week. A post-Cabinet statement contained no reference to Telkom.
Communications spokesman Siya Qoza said Pule has presented findings by a task team to Cabinet, and it is up to Cabinet's process as to when the matter will be raised at a regular meeting.
Due to the lack of clarity around Telkom's future positioning in the telecoms landscape, investors are steering away from putting money in the stock, which lost about 60% of its value, shortly after Telkom unbundled Vodacom in May 2009.
However, a Business Day report yesterday, based on sources, indicating that 8ta and Cell C could merge, sent speculators to the market to buy Telkom shares, which started gaining traction towards the end of the afternoon.
Vesact analyst Sasha Naryskine queries who could be buying the stock, given government's almost 40% stake and the Public Investment Corporation's (PIC's) around 10%. He says the gains are likely to have been driven by speculation.
At the end of March, institutional and retail investors - including the PIC - held 58% of Telkom's stock. The company has almost 2% of its own shares in treasury, and 79% of shares are held by South African entities.
Consolidation inevitable
Cell C CEO Alan Knott-Craig Snr did not directly refute or confirm the rumours that Cell C could be in talks around a tie up with 8ta. However, he believes market consolidation is inevitable. "Margins are thinning and smaller operators' ability to compete is being hampered by lack of scale."
Knott-Craig says consolidation will help smaller operators compete more effectively with larger players, and it is only then that customers will benefit from tariff reductions, network availability and quality of service.
"In my view, there will be some form of consolidation or partnership in the industry in the near future. However, any decisions on consolidation or future partnerships involving Cell C would be for our shareholders to decide upon."
In the year to March, 8ta - a key part of Telkom's future growth strategy - returned an earnings before interest, tax, depreciation and amortisation loss of R2.4 billion, an increase on the expected R2.2 billion loss. Next year, this loss is expected to come down by 20%.
The mobile operator reported revenue of R1.2 billion, from 1.48 million subscribers, the bulk of which are prepaid. A year ago, 8ta had 473 604 active subscribers.
Telkom does not comment on speculation.
Share
