South Africa Weighs State Internet Company Merger

21 July 2017

Mergers, Acquisitions and Financial Results

South Africa is considering a merger of state-owned technology companies Broadband Infraco and Sentech to help to accelerate the rollout of high-speed internet to the population within three years, according to two people familiar with the matter.

The combined entity will be expected to extend broadband to rural communities that don’t yet have access, said the people, who asked not to be identified as the plans haven’t been publicly announced. Broadband Infraco is the country’s second-largest fixed-line operator after Telkom SA SOC Ltd., while Sentech has wireless broadband assets and operates signals for South Africa’s broadcasting companies.

The government is “pursuing the rationalization of state broadband assets to reduce the duplication of infrastructure and mandates of state-owned companies,” Siyabulela Qoza, a spokesman for the Telecommunications Ministry, said in emailed comments on Thursday. “It will help to fast track the expansion of access to modern communications infrastructure and services to more South Africans.”

“We are not in the position to provide information,” Sentech spokeswoman Milisa Kentane said in an emailed response to questions. Broadband Infraco didn’t respond to a request for comment.

South Africa’s telecommunications industry regulator announced the auction of new broadband spectrum last year to address a shortage of high-speed internet in Africa’s most-industrialized economy, although the move was later opposed by the Telecommunications Ministry and the two parties have been unable to reach a compromise. Wireless carriers including Vodacom Group Ltd. and MTN Group Ltd. are seeking spectrum to boost revenue from internet and data services as voice sales decline.

South Africa is one of the world’s stragglers in internet access with just 2.63 fixed-line broadband subscribers per 100 people in 2015 compared with 12.25 in Brazil and 30.66 in Japan, according to figures compiled by the World Bank.

Talks between Telkom and the government about buying Broadband Infraco fell apart last year when no agreement could be reached on price. Vodacom, the leader in the South African mobile market, has also expressed an interest in the company in its search for additional spectrum. The Telecommunications Ministry must start the first phase of its broadband program by August and begin spectrum licensing by December, Finance Minister Malusi Gigaba said on Thursday when he announced a 14-point plan to pull the economy out of a recession.

Source: Bloomberg