Why Reunert bought ECN Telecoms

Mergers, Acquisitions and Financial Results

JSE-listed Reunert’s acquisition of ECN Telecoms will be good for both companies and for the industry, says ECN CEO John Holdsworth.

Reunert announced the deal on Monday, confirming speculation that ECN had been in discussions over a sale. The value of the transaction has not been disclosed and is subject to approval by the competition authorities.

The deal is meant to bolster the “converged voice and data capabilities” of Reunert subsidiary Nashua Mobile.

Holdsworth says using the combination of products available in Nashua Mobile and ECN will give both companies a chance to compete against incumbent players in the converged telecoms space.

Holdsworth says both he and the management team will stay on board the merged entity. “In most deals like this you would see a reduced headcount, but because of the synergies between ECN and Nashua Mobile you may even see an increased headcount.”

ECN, which is headquartered in Johannesburg and was founded in 2005, has an electronic communications network with points of presence in Johannesburg, Pretoria, Durban, Cape Town, Bloemfontein and Port Elizabeth.
The deal positions Nashua Mobile more strongly against rivals like Altech Autopage Cellular, whose sister company Altech Technology Concepts has built its own network to bolster the group’s converged telecoms offerings as wholesale call prices come down and competition in the sector intensifies.

ECN will not be integrated into Nashua, but rather remain a separate company within the stable. “We don’t want to dilute the talent within ECN, it needs to be left alone to do what it does best,” says Nashua Mobile CEO Andy Baker.

He says ECN handles 50m minutes a month on its network.

Nashua Mobile has a significant number of customers using its least-cost routing service (LCR). Baker estimates that LCR makes up about 20% of the company’s revenue, with 70 000 Sim cards billing about R1,2bn/year.

Baker says the company can now migrate its LCR base onto ECN’s network and convert them to a newly launched voice-over-Internet Protocol service.

Brian Neilson, director of research at BMI-TechKnowledge, says the deal makes sense. “The companies are complementary,” he says.

Neilson says ECN is in a good position to help Nashua Mobile reduce its exposure to the LCR market, which is coming under pressure after recent reductions in wholesale mobile call termination rates.

The deal is unlikely to reduce competition in the market, since the two companies play in different spaces, says Neilson. “Nashua Mobile has more of a channel focus, while ECN actually plays in the product-making game,” he says