Vodacom targets loss-making Broadband Infraco after lapse of R7bn Neotel bid

Where one opportunity falls away, so another presents itself. And following Vodacom’s unsuccessful R7 billion acquisition of Neotel last month, the group is still searching for ways to increase its broadband rollout. The target now is apparently state-owned Broadband Infraco, a loss making unit which needs almost a billion Rand from government for the next three years of support. The potential sale also follows a report commissioned by President Jacob Zuma that showed South Africa should consider selling stakes in SOEs to improve finances. The regulatory hurdles burnt any chance of Vodacom acquiring Neotel, and one wonders if the competition and regulation will also bring this potential sale to a halt. – Stuart Lowman

By Loni Prinsloo

(Bloomberg) — Vodafone Group Plc’s South African unit is considering a bid for unprofitable state-owned Internet company Broadband Infraco, as the government works toward the privatization of some assets to boost the country’s finances.

The acquisition could help Johannesburg-based Vodacom Group Ltd. make up for an abandoned R7 billion ($479 million) proposal to buy Internet provider Neotel Pty Ltd. last month, Chief Executive Officer Shameel Joosub said in e-mailed comments on Monday. Broadband Infraco’s assets were valued at R2.1 billion as of end March 2014, according to its latest audited financial report.

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“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 to Vodacom 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 rose 0.1 percent to 165.81 rand as of 1:08 p.m. in Johannesburg, boosting the 2016 gain to 8.8 percent. That values the company at 247 billion rand.

Vodacom, 65 percent owned by Newbury, England-based Vodafone, scrapped the purchase of Neotel from Tata Communications Ltd. 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 to deliver some of its services.

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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 932 million rand from the government to support it over the next three years, the report shows.

South Africa owns 74 percent of Broadband Infraco and a 40 percent stake in Telkom SA SOC Ltd., the country’s biggest fixed-line operator. The two companies may agree to a merger mediated by the government, Johannesburg-based newspaper Business Day reported on April 4. 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 U.K. and 29.31 in Japan, according to figures compiled by the World Bank.