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Vodacom mulls bid for state broadband company

Broadband Infraco acquisition could make up for abandoned Neotel bid, CEO says.
Vodacom CEO Shameel Joosub

Vodafone Group’s South African unit is considering a bid for unprofitable state-owned internet company Broadband Infraco, as the government works toward the privatisation of some assets to boost the country’s finances.

The acquisition could help Johannesburg-based Vodacom Group make up for an abandoned R7 billion ($479 million) proposal to buy internet provider Neotel, chief executive officer Shameel Joosub said in e-mailed comments on Monday. Broadband Infraco’s asset base was valued at R2.1 billion as of end March 2014, according to its latest audited financial report.

“When our proposed acquisition of Neotel lapsed earlier this year, we said that our ambition to increase the rollout of fibre-based broadband services to customers remains,” Joosub said. “Acquiring an asset like Broadband Infraco would help achieve this and would be supportive of the government’s” ambition to increase broadband access, he said.

The potential sale of Broadband Infraco would follow a report commissioned by President Jacob Zuma that showed South Africa should consider selling stakes in state-owned companies to private entities to improve their finances and tackle operational failures. The government is considering merging two state-owned airlines and selling off a stake in the enlarged carrier to private investors, Finance Minister Pravin Gordhan said in his budget speech in February.

Vodacom shares closed 1.07% higher at R167.40 in Johannesburg, increasing the 2016 gain to 8.8%. That values the company at R247 billion.

Vodacom, 65% owned by Newbury, England-based Vodafone, scrapped the purchase of Neotel from Tata Communications of India after almost two years of regulatory battles and legal opposition from its competitors. The company pursued Neotel to increase its spectrum and fiber network for broadband provision to consumers and businesses. Neotel uses Broadband Infraco’s network, which includes more than 147 000 kilometers (91 000 miles) in fixed-line infrastructure, to deliver some of its services.

Treasury spokeswoman Phumza Macanda didn’t immediately respond to an e-mail and phone call seeking comment.

Broadband Infraco started services in 2010 as the South African government sought to address a lack of connectivity in the country, particularly in rural areas, according to a report by the National Treasury published in September. The company made a loss in each of the five years through March 2014, and has asked for R932 million from the government to support it over the next three years, the report shows.

South Africa owns 74% of Broadband Infraco and a 40% stake in Telkom, the country’s biggest fixed-line operator. The two companies may agree to a merger mediated by the government, it has been reported. Telkom doesn’t comment on mergers and acquisitions activity until it’s required to do so by the necessary governance and regulatory requirements, spokeswoman Jacqui O’Sullivan said by email.

South Africa is one of the world’s stragglers in internet access with just 3.21 fixed-line broadband subscribers per 100 people in 2014 compared with 11.68 in Brazil, 37.38 in the UK and 29.31 in Japan, according to figures compiled by the World Bank.

© 2016 Bloomberg 

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