Conditions there may be a concern, but Vodafone is sticking to its strategy of expanding in emerging markets. The mobile phone operator announced Thursday that it had taken control of South Africa’s largest mobile operator, Vodacom, setting it up to make further purchases in the region.
Vodafone is spending 22.5 billion South African rand ($2.3 billion) to buy 15.0% of Vodacom from South African fixed-line company Telkom, increasing its stake to 65.0% from 50.0%. It was first rumored over a year ago (see Vodafone Jumps On Emerging Markets) that Newbury-based Vodafone had become frustrated with the 50-50 ownership of Vodacom that it shared with Telkom. Vodacom’s network is established in several sub-Saharan African countries.
Vodafone’s stake increase signals how serious the British company still is about expanding in emerging markets, in spite of recent concerns about economic growth in BRIC countries. Last July, Vodafone also bought a 70.0% stake in Ghana Telecom for $900.0 million.
Daniel Okubo, an analyst for Datamonitor, suggested that Vodafone’s move was “extremely beneficial,” since Vodacom has a market share of approximately 55.0% in South Africa, and by solidifying its base in the African telecoms industry, the company was better placed to further expand in the region. Africa’s mobile device market is widely seen as under-penetrated.
The South African government also looks set to benefit from the deal as it owns around 40.0% of Telkom. Under the agreement, Telkom will be required to spin off its remaining 35.0% stake in Vodacom to shareholders. On top of this, Vodafone has also promised the government that any further expansion into sub-Saharan Africa will take place via Vodacom, not Vodafone, which Ovum analyst Jeremy Green said was an uncharacteristic move for Vodafone.
The long-term benefits for Telkom seem almost non-existent. Telkom is primarily a fixed-line communications provider and by selling its stake in Vodacom, it will lose the majority of its fast-growing mobile operation. While fixed-line sales in Africa are growing at 1-2% per year, mobile revenues in the region are growing at around 15.0%, said Okubo. Vodacom latest annual figures showed a 17.1% increase in sales to 48.2 billion South African rand ($4.8 billion), while Telekom’s fixed-line division grew by 0.7%.