Fitch Solutions, a unit of the Fitch Group, said the proposed tie-up between MTN and Telkom is likely to face regulatory headwinds and does not see the deal going through in its current form.
MTN and Telkom announced last month that they were in a discussion about a merger but cautioned that those discussions were at “an early stage and there is no certainty that the transaction will be consummated”.
The companies said MTN intends to acquire “the entire issued share capital of Telkom in return for shares or a combination of cash and shares in MTN”.
“The upheaval in market dynamics that would occur in the event of MTN’s acquisition of Telkom will stimulate a substantial level of regulatory scrutiny and consequently we believe that a deal in its current form (MTN’s total acquisition of Telkom) will be denied by the Competition Commission,” Fitch said in a research note.
“At the time of writing, the commission has not yet received formal notification that a transaction is to take place and discussions between the two telcos are in their early stages. We suspect these discussions will involve attempts to structure the deal in a regulatory-friendly manner, although the form this could take is currently unclear. As a result, it is unlikely that we will see any deals reached in the near term.”
Fitch also estimates that should the deal go through, MTN’s market share would increase to 48.4% with the acquisition of Telkom’s 16.9 million subscribers it reported for the year ending March 2022.
“This would transform MTN into South Africa’s dominant operator, usurping the position of current market leader Vodacom – we estimate its market share currently sits at around 36.8%.”
Sunday World reported last month that several ministers in the economic cluster had raised objections to the mooted deal.
For the deal to go through, it would need buy-in from the government, which has a 40% stake in Telkom. Another significant player is the Public Investment Corporation (PIC), which manages public servants’ pensions.
The PIC has exposure on both sides, owning a 14% stake in Telkom, whose CEO is Serame Taukobong, and a 22% interest in MTN Group, which is headed by Ralph Mupita
Fitch said another pull factor for MTN to take over Telkom is that it would gain access to Telkom’s spectrum holdings.
“The primary appeal here being the latter’s [Telkom’s] 22MHz of spectrum in the 3.5GHz band that it acquired during the long-awaited 5G spectrum auction that occurred in March 2022. Spectrum in the 3.5GHz band is critical for deploying 5G and is therefore key to generating additional value in mobile operations… Moreover, collecting Telkom’s spectrum would also give MTN superiority in spectrum holdings after Vodacom emerged from the auction as the biggest spender.”
The fiscus raked in R14.4-billion from the auction in March – R6-billion more than expected. MTN spent R5.2-billion and Vodacom R5.4-billion, while Telkom forked out R2.1-billion. Rain spent R1.4-billion, Cell C R288.2-million and Liquid Intelligent Technologies R111-
million.
Follow @SundayWorldZA on Twitter and @sundayworldza on Instagram, or like our Facebook Page, Sunday World, by clicking here for the latest breaking news in South Africa. To Subscribe to Sunday World, click here.
