Vodacom and MTN’s planned deals compared

Two of the largest telecommunications deals in South Africa’s history are on the cards, with Vodacom set to buy a big stake in CIVH and MTN in discussions to buy Telkom.

In November 2021, Vodacom signed a deal to buy a 30% stake in Community Investment Ventures Holdings (CIVH), which owns Vumatel and DFA.

CIVH is majority owned by Remgro and is the holding company of Dark Fibre Africa (DFA) and Vumatel, which, in turn, is managed under the newly formed FibreCo.

Vumatel, DFA, and Vodacom will transfer their fibre assets into FibreCo, headed by former Vumatel CEO Dietlof Mare.

Vodacom has the option to acquire an additional 10% stake in FibreCo to increase its shareholding to 40%.

The deal’s value is around R13.2 billion and includes an initial cash consideration of R6 billion, Vodacom’s fibre assets worth R4.2 billion, and a secondary purchase of around R3 billion.

The deal fits in well with Vodacom’s strategy to grow its non-mobile revenue which consists mainly of financial services, enterprise offerings, and fixed broadband access.

The deal is expected to take between 12 and 18 months to conclude and must still be approved by the Competition Commission.

In July, MTN advised shareholders that it has entered into discussions with Telkom to buy its entire issued share capital.

The market welcomed the announcement as a merger between MTN South Africa and Telkom makes sense.

It will create a telecommunications powerhouse with tremendous scale to challenge Vodacom’s dominance.

One of the biggest assets MTN is after is Telkom’s extensive fibre assets which are held under Openserve.

Openserve operates South Africa’s largest fibre network and is Vumatel’s biggest competitor in the fibre-to-the-home market.

Openserve had passed over 890,000 homes with fibre, with 414,847 homes connected, closing in on Vodacom’s 1.5 million homes passed and 450 000 homes passed.

MTN’s 5G rollout also requires more fibre, including links to all towers and an extensive backhaul network. Openserve’s extensive fibre network is a perfect foundation to build from.

If MTN buys Telkom, it can unlock value for Telkom shareholders and accelerate fibre rollout in South Africa.

However, the deal will face significant regulatory scrutiny, especially around the concentration of ownership in the mobile telecoms industry and Telkom’s spectrum.

Ellipsis founder and regulatory expert Dominic Cull expects the transaction between MTN and Telkom to focus on the operators’ fibre assets, similar to the Vodacom/CIVH deal.

“The moment we start talking about merging MTN and Telkom’s mobile units and spectrum, we run into regulatory red flags,” he said.

Something which can make it easier to acquire Telkom’s fibre is the separation of Openserve from the rest of the business on 1 September 2022.

MTN and Telkom have not provided details on the structure of a potential deal, but we can assume that there is the political will to make it happen.

Telkom versus CIVH

Although MTN has not signed a deal yet, it is interesting to compare Telkom and CIVH to see what MTN and Vodacom will be buying.

The table below shows the latest financial and operational data about Telkom and CIVH, focusing on their fibre assets.

Telkom versus CIVH
Valuation Telkom CIVH
Market Cap/Valuation R24 billion R30 billion
Financial Data Telkom CIVH
Revenue R42.8 billion R6.0 billion*
EBITDA R11.9 billion R3.6 billion
Headline Earnings R2.8 billion R0.03 billion
Capex R7.5 billion R3.6 billion
Net debt R14.1 billion R14.7 billion
Operational Data Telkom CIVH
Mobile customers 16,936,464 0
Broadband subscribers 584,189 0
Mobile sites 7,313 0
Towers 3,916 0
Carrier neutral data centres 10 0
Data centre co-location 2 914 racks 0
Mobile spectrum 192Mhz 0
IT business customers 1,345 0
Productive tower portfolio 3,916 towers 0
Openserve versus CIVH
Financial data Openserve CIVH
Revenue R13.5 billion R6 billion*
Revenue growth (annual) 0% 26%
Capex R3.5 billion R3.6 billion
Capex intensity 26% 60%
EBITDA R4.2 billion R3.6 billion
EBITDA margin 31% 60%
Operational Data Openserve CIVH
Fibre network 169,000km 43,800km
Homes passed with fibre 890,000 1,500,000
Fibre subscribers 414,847 450,000
Connectivity rate 47% 30%
Fibre to base station 20,000 8,655
Enterprise business services 22,000 41,368
*Estimate based on Vumatel and DFA’s revenue in previous financial year.