South Africa: Vodafone CEO Backs Bharti's Interest in Zain

Mergers, Acquisitions and Financial Results

The head of Vodafone, the world's largest cellphone group by revenue, said last week that he would not lose sleep if Bharti Airtel succeeded in buying the African assets of Kuwait-based Zain, because competition from such a cash-rich operator would only be good for the customer.

Vodafone CEO Vittorio Colao told Business Day that the investment by Bharti would merely bring more consolidation to the telecoms sector in Africa and force competitors to be more efficient and aggressive in growing and retaining market share - with the customer being the ultimate winner.

In any case, Vodafone, the majority owner of Vodacom, SA's largest cellphone company by subscriber numbers, was already competing with Bharti in India, where it was making money and increasing market share, he said.

"The more we are, the more we will have advanced technologies and services, and costs will be lower for the customer as there will be more competition. Any investment in the telecoms sector is always good as long as it is for the long term," he said.

Cash-strapped Zain shareholders have accepted an approach by Bharti, India's largest cellphone company, to buy 15 of its African assets for a reported 10,7bn. The two companies are in exclusive talks that expire on March 25, by which time a binding offer is expected to have been made.

Bharti, which twice failed to merge with MTN, wants to use its low-cost model to grow in Africa, considered one of the few remaining frontiers for multinational operators facing competition in home markets.

Vodafone is one of the major players in Africa. It has networks in Egypt, Ghana, Kenya and South Africa, where last year it became the majority owner of Vodacom when the company listed on the JSE. Colao, who is in South Africa as part of a routine visit to Vodacom, said Vodafone was also eyeing expansion opportunities in Africa, but there was nothing specific being considered at present.

The group is expected to use Vodacom as the springboard to enter markets in sub-Saharan Africa, where it will face competition from operators such as Zain, MTN and France's Orange as well as companies from the Middle East.

But its footprint in Africa is still small and has operations in the Democratic Republic of Congo, Lesotho, Mozambique and Tanzania. It trails MTN, Africa's largest cellphone company, which yesterday posted a 9,2% increase in revenue to R11,9bn and an increase in subscribers of 28% to 116-million.

Colao said Vodacom, now the fourth-largest operation in the Vodafone group by revenue after Germany, Italy and Spain, was investing to expand particularly its data services in SA. Vodacom CEO Pieter Uys estimated the company's capital expenditure in this financial year was about R5bn.

Colao said data constituted the next major revenue stream for cellphone companies worldwide, and Vodacom was well placed to exploit growth in usage in its markets. "The future of data is incredible and once a customer is hooked to data, there is no going back. That is why Vodacom is and will continue to spend a lot of money on data because that is the next big thing."

Business Day