Here comes another Voda Con
The fact that Vodafone will now be the controlling shareholder of Vodacom is much of a muchness.
My cell has had the Vodafone label on it for years and my 3G card also sports the brand. The latest deal is in line with the way Vodafone has already infiltrated the minds of South African consumers.
But the transaction represents foreign direct investment - something South Africa is desperately in need of. From the Barclays deal with Absa and ICBC'c acquisition of a chunk of Standard Bank, the country gained not only some good, hard cash but also a base of fixed investments. As we're witnessing now, foreign investors who merely play on our stock markets or trade in our bonds are a fickle bunch. In fact, they're lemming-like, only stupider. At the first sign of trouble in developed markets they run like hell from healthier, developing markets. It's all very odd, but what it means is that the short-term cash flows we rely on to keep our trade accounts healthy cannot be relied upon at all. That's why Vodafone's impending R22.5 billion acquisition of another 15% of Vodacom is a good move from an economic point of view.
Not that the announcement of the deal helped the rand. Once it would have, but the poor little currency is currently at the mercy of those lemming-like foreign traders who are panicking about the global financial disaster.
But the fact that Telkom may disburse all of the money it gets from Vodafone in the form of a special dividend deserves some investigation. Government said yes to the Vodafone deal. Government is also Telkom's largest shareholder. It will get billions if a special dividend is paid out. So of course it approved the sale of a controlling stake to Vodafone. If conflicts of interest were to be avoided, as the principles of good governance suggest, government should have recused itself from any say and left the decision to Telkom's board and the regulators. In fact Telkom's board probably stands to benefit too - I can just imagine the huge bonuses that will be paid out next year because those directors finally nailed down a deal.
Instead of making the fat cats richer with Vodafone's money, how about improving training, equipment and network roll-outs?Ren'ee Bonorchis, Business Day, editor at large
Another problem with the distribution of all of that cash is that Telkom could have and should have used the money to improve its services and meet its roll-out targets in under-serviced areas. Telkom has not been performing well when it comes to the country-wide distribution of fixed line services.
It's still not very good with fixed line services in urban areas, for that matter. Instead of making the fat cats richer with Vodafone's money, how about improving training, equipment and network roll-outs?
There's also the small matter of competition. Vodafone's more direct entry into the local market will do nothing to improve competition, and thereby nothing to bring down South Africa's over-inflated telecommunications costs.
This huge UK-based company has become a dominant player in many countries - it's aggressive, if not cutthroat. In some countries that has helped competition, but in South Africa, with Vodacom already well known for offering consumers nothing different from its supposed rivals, Vodafone will fight to keep the status quo and the profit that goes hand in hand with bullying the market.
The only way I can see for a local investor to benefit from Vodacom's liberation is to buy the shares as soon as the company lists. Businesses that operate large duopolies (or tripolopolies if that's a word and if Cell C can be taken into account) usually see vast increases in their share prices after a public listing. Personally, after the rotten way I've been treated by my cellular operator, I'd rather stick my 3G card up my nose than own shares in Vodacom. But that's not entirely rational and any investor with less emotional baggage and a few rand to spare will probably make a killing if they buy in on the day Vodacom lists.
* Ren'ee Bonorchis is Business Day's editor at large.