Neotel sale rumours swirling again

A weekend newspaper report suggests interested parties have been given this week to file formal bids for the telecommunications operator.


A Neotel fibre manhole in Johannesburg

Although Tata Communications has twice rubbished talk that it has any intention of selling its controlling stake in Neotel, the market was again awash with speculation at the weekend that some sort of deal may be on the cards.

The Sunday Times newspaper quoted unnamed sources as saying that formal bids to buy Neotel were due in this week. Vodacom and MTN are understood to have had discussions with Neotel and its shareholders over the past few months. Reports have also suggested that Dimension Data may be in the running, though the IT services company Middle East & Africa CEO Derek Wilcocks has told TechCentral previously that no talks were taking place.

It remains unclear whether a deal, if it happened, would involve a sale by the Indian-headquartered Tata Communications or whether some sort of joint venture is on the cards to exploit Neotel’s radio frequency spectrum assets.

The Sunday Times said “watertight disclosures” were “keeping a lid in the process”.

Six weeks ago, Tata Communications spokesman Rozzyn Boy rubbished speculation that the Indian company intended to sell Neotel. “We don’t have any plans to sell Neotel, no,” she said. “I’ve seen the rumours that are circulating, but those are only rumours and we won’t comment on them.”

In March, TechCentral first became aware of market speculation about a possible deal involving Neotel and Vodacom, MTN or Dimension Data. Neotel was licensed about eight years ago as South Africa’s second national operator to take on Telkom’s then-monopoly over fixed lines.

If MTN and Vodacom are the two companies in the running to buy a stake in Neotel or to enter into some sort of joint venture with it, it’s clear they’d be interested in two assets. The first is Neotel’s extensive intra-city and metropolitan fibre-optic infrastructure; the second is its access to radio frequency spectrum that can be used to build next-generation mobile broadband networks.

Neotel is the only operator in South Africa that has access to the so-called “digital dividend” band around 800MHz, which is ideally suited to delivering 4G services, especially outside dense urban areas. It also has access to chunks of spectrum around 1,8GHz and 3,5GHz. Both Vodacom and MTN have significantly stronger balance sheets than Neotel, which would allow them to exploit the spectrum assets more fully. Neotel has only 150 000 small business and residential customers.

Neotel revealed in late May that it intended launching 4G services in Gauteng in the third quarter of 2013. However, the network would be limited in scope, with only 50 base stations at launch, CEO Sunil Joshi said. It would use the 1,8GHz band, in which Neotel has two 12MHz blocks.

MTN and Vodacom are desperate for access to additional spectrum so that they can build national 4G networks. However, allocation of two high-demand bands, 800MHz and 2,6GHz, has been delayed for years, in part because of the extensive delays in South Africa’s migration from analogue to digital terrestrial television.

Neotel’s minority shareholders are Nexus Connection and Communitel.  — (c) 2013 NewsCentral Media

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