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Liquid Telecom to acquire SA's Neotel for R6.55bn

Liquid Telecom to acquire SA's Neotel for R6.55bn.

Pan-African telecoms group Liquid Telecom, majority owned by Econet Global, has partnered with South African investment group Royal Bafokeng Holdings (RBH) to set in motion the R6.55-billion acquisition of local communications network operator Neotel.

According to a statement issued to the media, RBH has committed to take a 30% equity stake in Neotel as part of a transaction to create what stakeholders describe as "the largest pan-African broadband network."

"Through a single access point businesses across Africa will be able to access 40 000kms of cross-border, metro and access fibre networks," the statement reads. "These currently span 12 countries from South Africa to Kenya, with further expansion planned."

The transaction is subject to approval by South African regulatory authorities and is expected to be completed later this year.

Nic Rudnick, Liquid Telecom CEO, said: "We are excited about this transaction. Leveraging the strengths of Liquid Telecom, RBH and Neotel, we will offer an unprecedented fibre network with a unique set of services and international connectivity for telecom operators and enterprises across sub-Saharan Africa. For the first time, African companies will be able to connect with each other in a cost effective and reliable way, all on a single fibre network. We will also be increasing investments into Neotel to cater for rapidly accelerating mobile and enterprise traffic, enabling us to launch exciting new products and services."

Albertinah Kekana, Royal Bafokeng Holdings CEO, said: "This transaction is part of our diversification strategy and its focus on infrastructure is in line with our objective to invest in high growth sectors. As a long term investor, we are pleased to be partnering with Liquid Telecom who has a very credible track record in rolling out fibre in challenging and diverse markets. This deal represents our long-term investment approach and our commitment to the African growth story."

Neotel majority shareholder Tata Communications of India and minority shareholder Nexus have expressed support for the transaction saying the move will benefit growth in Africa and Neotel customers.

Vinod Kumar, MD and CEO of Tata Communications, "Liquid Telecom is the right partner for the next phase of Neotel's evolution. Convergence of technologies and services will be the key driver of growth across the globe and this transaction will encourage inclusion and support the growth aspirations of the African continent. We believe that Liquid Telecom will deliver on the vision of a well-connected Africa, which will augur well for the South African telecom industry and Neotel's customers."

Speaking on behalf of Nexus, Kennedy Memani, said: "We welcome this transaction with Liquid Telecom and RBH. It will see the sale of Neotel to new shareholders who have the vision, expertise and funding to continue to grow the company and to allow it to reach its full potential in South Africa and across the African Continent. We are confident that customers and employees will benefit from the transaction and from the resulting stability and business expansion."

'A perfect fit'

Liquid Telecom has continued to focus on reinforcing its fibre network capacity in Africa. In November 2015 the company announced plans to invest R250-million in new fibre for South Africa's Northern provinces, with Rudnick confirming that the wholesale capacity would be available to mobile and fixed-line operators, other service providers and businesses.

The new fibre would be integrated with Liquid Telecom's existing fibre network in South Africa, which stretches from Pretoria to the border with Zimbabwe and then with its pan-African fibre network and connect onto the main subsea cable systems landing in Africa.

Neotel has been the subject of interest from mobile network operators in South Africa including MTN and Vodacom.

In May 2014 mobile network operator Vodacom agreed to a R7-billion deal to purchase Neotel, but in March 2016 the deal had fallen through reportedly as a result of what Vodacom described as "regulatory complexities".

Local industry analyst and CEO of Strategy Worx, Steven Ambrose says in the South African context, the original idea behind Neotel was to bring about more competition and create an environment where South African's had choice in telecommunication - but this has not transpired as originally intended.

He explains that Telkom's dominance in the market and the rise of mobile technology changed the landscape, to the extent that Telkom and the Second Network Operator were almost made redundant from a connectivity and voice point of view.

"Telkom with all its advantages was able to stay abreast of the revolution in connectivity because they had such a monopoly... and the rise of data just carried Telkom along. To a far lesser extent that also happened with Neotel, but it never really got anywhere and it was just too much money to invest. I think Tata, the majority shareholders, lost appetite in a market that had low returns, was tightly if not completely over controlled, lack of government direction and ability to regulate spectrum, and all other sort of things. This has definitely taken its toll on external investment in the sector ...," said Ambrose.

From an African point of view Liquid Telecoms has been clearly focused on fibre in Africa, and slowly but surely extending their reach.

"The one major asset that Neotel has got is about 15 000km worth of fibre, mostly inter-city, and sort of backbone fibre-type product throughout South Africa, which fits perfectly with where Liquid Telecoms are and where they are going. They are not kidding when they say they will supply an African-fibre network... it just makes sense, for them to try to build that network in South Africa now would cost them far more than it will buying Neotel, along with allied and associated assets such as spectrum. I think it's an excellent fit," says Ambrose.

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