Didata’s big telecom gamble in South Africa

Mergers, Acquisitions and Financial Results

Dimension Data’s Internet Solutions (IS) is set to up the ante in South Africa telecommunications by pumping many hundreds of millions of rand into new fibre infrastructure as it steps up the fight with Telkom, Vodacom and MTN.

IS, the country’s largest corporate-focused supplier of Internet services, is investing a fortune in:

- Building fibre-optic lines to its 220 largest customers, thereby reducing its reliance on Telkom;

- Investing in the West African Cable System (Wacs), a new, high-capacity submarine telecom cable that will link SA with Europe;

- Constructing two new data centres, one in Johannesburg, the other in Cape Town, to cater for anticipated demand as broadband prices fall.

The data centres are secure, air conditioned facilities crammed full of servers that host online services and websites on behalf of clients. Many companies are choosing to outsource management of these services to data centre providers, which are better able to guarantee system up-time.

IS’s new investments will allow it to compete more aggressively with the incumbent network operators. IS, which was previously only entitled to provide services on other providers’ infrastructure, can now build its own network.

IS CEO Angus MacRobert is keen to take advantage of this to reduce the company’s reliance on Telkom. But it is also on a collision course with mobile operators MTN and Vodacom, both of which want to corner the data centre market. MTN recently acquired Verizon Business in a deal believed to be worth about R1,4bn; and Vodacom has launched Vodacom Business as a greenfield project.

Neotel is also investing more than R100m in two data centres. And Telkom, which has lagged in data centre services, has identified it as a critical growth area: it has restructured into three new divisions, one of which is data centre operations. Telkom has indicated it is keen to make an acquisition in the space.

MacRobert says there has been little let-up in demand for data centre services, despite the tough economy. “We sold more data centre capacity last year than in the previous 10 years combined,” he says. Growth has continued strongly into 2009, he adds. Though most of this can be attributed to a trend by companies to outsource, MacRobert says Eskom’s supply problems have also helped IS.

He is reluctant to reveal precisely how much IS is investing in new infrastructure, saying this information will be released with Didata’s interim results, expected in May.

MacRobert concedes that despite the big investments being made by IS, the company will remain heavily dependent on Telkom. He says relations between IS and Telkom have improved - previously, the two had a fractious relationship, with IS frequently accusing the fixed-line operator of abusing its dominant position. “Telkom has understood the need to have a clearly defined wholesale strategy,” he says.

Financial Mail