In a breakthrough that will finally allow Vodacom to compete with rival MTN on the African continent, Vodacom's 50%-owner, UK-based Vodafone, has given an "in-principle" commitment to alter its shareholders' agreement to remove "impediments to Vodacom's growth".

Nomazizi Mtshotshisa, chairwoman of Telkom, which owns the other 50% of Vodacom, will meet Vodafone this week to discuss a new shareholders' contract. Telkom has already drafted a new shareholders' proposal that will be put to Vodafone.

Until now, Vodacom's expansion has been impeded, particularly in Africa, because of the shareholders' agreement that prevents the company from expanding outside southern Africa. The reason for the agreement was that Vodafone had designs of its own on Africa, and did not want opposition from Vodacom.

Vodacom has simply had to look on as rival MTN tied up many lucrative deals further north. MTN not only has a thriving business of 9,6-million subscribers in Nigeria, but it also gets 52% of its profit from outside southern Africa.

Although Vodacom tried recently to launch its business in Nigeria, this was only because Vodafone had provided an exemption to the shareholders' agreement.

"We are meeting with Vodafone this week to discuss how to amend that shareholders' agreement. They have agreed already," Mtshotshisa said at Telkom's annual general meeting on Friday. She said it had "been agreed with Vodafone that we will amend the shareholders' contract so as to not impede Vodacom's growth".

Telkom's new draft proposed a number of changes to the original contract "because there were a number of issues that were impeding Vodacom's growth". Beyond the proposal for Vodacom to be allowed to expand outside southern Africa, Mtshotshisa said she did not want to discuss Telkom's other proposals until she had met with Vodafone. "We have a draft and they have a draft," she said, confirming that Vodafone had already given an "in- principle" agreement to the changes.

The negotiations between Vodafone and Telkom are an important step, given the speculation that there had been frosty relations between Vodafone and Telkom. In a landmark deal last year, Vodafone paid an effective R16bn to buy another 15% of Vodacom from investment company Venfin.

This increased Vodafone's share of Vodacom to 50% from its earlier 35% but with both parties holding an equal share of Vodacom, reports of a boardroom tussle emerged between Vodafone and Telkom. Media speculation suggested recently that Vodafone was even looking at buying Telkom. Mtshotshisa said on Friday this was not the case.

She said that following the speculation, Telkom had approached Vodafone to ask it whether it was indeed looking to purchase Telkom. "They told us they were not, that they were happy with their half of Vodacom."

During the meeting, shareholder Arthur Lello said that if Vodafone was not keen to let Vodacom expand, then Telkom should buy out Vodafone's 50%. But Mtshotshisa said that about two years ago Telkom had approached Vodafone to buy its 50% stake in Vodacom in "informal discussions", and the UK company was not prepared to sell. She said Vodafone "still wants to be a player in Vodacom".

Business Day