Vodacom to buy Neotel for ZAR7bn; reports 8.3% rise in FY sales

19 May 2014

The South African mobile services provider Vodacom has announced that it is to buy the country’s second national operator (SNO) Neotel for ZAR7 billion (USD676 million). Neotel, which is currently majority-owned by Tata Communications of India, offers a range of fixed line and internet services and is a good complement to Vodacom’s existing cellular business. As well as looking to provide converged fixed-mobile services, Vodacom is also keen to utilise Neotel’s wireless broadband frequencies for a deployment of 4G Long Term Evolution (LTE) technology. Neotel is the second-largest fixed line operator in the country and has 15,000km of fibre-optic cable, including 8,000km of metro fibre in Johannesburg, Cape Town and Durban. Neotel is also authorised to use 2×12MHz in the 1800MHz band, 2×5MHz in the 800MHz band and 2×28MHz in the 3.5GHz band. The acquisition will be funded through available cash resources and existing credit facilities. The transaction is subject to the fulfilment of a number of conditions, including applicable regulatory approvals, and is expected to close before the end of FY2015 (ending 31 March 2015).

Vodacom said in a statement: ‘The combination of Neotel’s and Vodacom’s networks will improve overall network availability and reduce the cost to serve customers. The combined business will also be ideally positioned to accelerate broadband connectivity in line with the South African government’s broadband targets, enabling Vodacom to take a leading position in the fibre-to-the-home and fibre-to-the-enterprise segments of the market.’

Meanwhile, Vodacom Group has reported an 8.3% increase in revenues for the full year to 31 March 2014 to ZAR75.71 billion, while EBITDA jumped 8.2% to ZAR27.31 billion and net profit rose 3.3% to ZAR13.67 billion. Service revenues from international operations reached ZAR13.895 billion, up by 23.4% year-on-year, while South African operations generated a total of ZAR48.316 billion, representing a 0.3% increase on the ZAR48.159 billion reported in FY2013. The firm added seven million net new users over the past twelve months to take its total subscriber base to 57.5 million, which includes 31.5 million in its domestic market – up 8% year-on-year – and 26.0 million across Tanzania, Democratic Republic of Congo (DRC), Mozambique, Lesotho and Nigeria.

Shameel Joosub, Vodacom Group CEO, commented: ‘Vodacom again performed well this year with good results from our International operations and South Africa returning to growth… Network investment is the key to continued sustainable reductions in the cost to communicate. In South Africa we invested ZAR6.9 billion in our network, adding 1,081 new 3G sites. Our 3G network now covers 91.9% of the population. We invested a further ZAR3.9 billion in our International operations’ networks, increasing the number of 2G sites by 25.5% and 3G sites by more than 53.4%. Looking forward, we intend to increase capital investment by around 20% to approximately ZAR13 billion in the new financial year as part of our massive investment programme.’

South Africa, Tata Communications, Vodacom Group, Vodafone Group, Vodacom South Africa, Neotel (South Africa),

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