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Vodacom buyout important for Neotel

The buyout of Neotel by mobile operator Vodacom "is very important" for the fixed-line operator's future‚ Neotel's Chief Executive Sunil Joshi said.
Neotel's Sunil Joshi has confirmed that the deal with Vodacom is "very important" to the future of the company. Image: WN.Com
Neotel has been operating for seven years and while it has shown signs of improvement year-on-year‚ it has struggled to provide significant competition for fixed-line rival Telkom.

Vodacom said last week that it had agreed to pay R7bn to buy Neotel. The deal is still subject to regulatory approval.

Vodacom sees a major opportunity to accelerate growth in unified communications products and services by integrating its extensive distribution and marketing capabilities with Neotel's fixed network and products.

Joshi said the buyout would enable Neotel to offer more products and services. "The takeover would also enable us to serve a wider segment of the market and deliver far more competitive products‚" he said.

Vodacom would spend about R9bn in each of the next five years to grow its fixed-line business‚ which includes Neotel‚ to connect homes and businesses to its fibre-optic network

Neotel reported a 23% rise in revenue for the year to March, reaching R3.9bn‚ lifted by an increase in subscriber numbers to 200‚000. Earnings before interest‚ tax‚ depreciation and amortisation doubled to R1bn. This is the first time Neotel has shared so much information about its financial performance.

Increased competition

Old Mutual Investment Group's Electus Telecommunications Analyst Greg Cort said the acquisition was likely to result in increased competition in fixed and mobile telecommunications in South Africa‚ with lower costs for Vodacom.

"While Vodacom is not applying for the transfer of Neotel's spectrum‚ a similar networking share agreement to that between MTN and Telkom may be concluded‚" said Cort.

Vodacom said the combination of Neotel and Vodacom's networks would improve overall network availability and cut the cost of serving customers.

The combined entity will also be able to use the radio spectrum currently assigned to Neotel more effectively. This spectrum will enable Vodacom to speed up the roll-out of long-term evolution services‚ providing high-speed‚ high-quality wireless connectivity to consumers. Neotel will become a subsidiary of Vodacom SA and may work closely with its fixed enterprise business.

Joshi said that until the regulators make a decision on the transaction‚ it would be business as usual and he would remain with the company and focus on growing it further.

Vodacom spokesman Richard Boorman allayed fears that the takeover may lead to retrenchments. He said one of Neotel's greatest assets was its employees and the plan was retain all of them. He said there was no intention to rebrand Neotel.

Bowman Gilfillan Director Lloyd Chater‚ whose law firm advised Tata Communications on the deal‚ said South Africa's telecommunications industry was in a state of flux. "The market is maturing and the Vodacom and Neotel deal is indicative of the trend towards greater levels of consolidation," he said.

Neotel has invested R5bn over the past few years‚ with the bulk of the money going to its fibre-optic network roll-out. This year‚ it will invest R500m to grow its network footprint. The company has R4.5bn in debt.


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