Could Naspers buy Telkom? - TechCentral

Could Naspers buy Telkom?

Duncan McLeod

Duncan McLeod

Six months after Sprint announced it was in talks to sell 70% of its equity to Japan’s SoftBank for US$20bn, Dish Network Corp, a US direct-to-home satellite pay-TV operator with 14m subscribers, has put in a bid of $25,5bn to buy the wireless communications firm.

It’s a move that may mark a wave of consolidation between pay-TV broadcasters and telecoms operators. As more consumers turn to the Web and to on-demand and Internet protocol television (IPTV) services, traditional broadcasters are facing a very real new threat.

Media consumption habits are changing. The concept of a family sitting around the television in the evening, passively consuming broadcast content, is dying. In its place, people are watching video from a growing number of online sources, from YouTube to Hulu and from iTunes to Netflix, and they’re doing it not only on big-screen TVs, but also on laptops, tablets and smartphones.

Interestingly, Sprint is a wireless-only carrier, having sold its fixed-line business in 2006. Because of the constraints of wireless technology and the higher costs involved, it has made more sense to offer streaming video and other content over fixed copper or fibre lines. That may be changing. With the advent of fourth-generation (4G) mobile networks, Dish appears to be betting that mobile infrastructure will be a big platform for delivering video.

The proposed deal raises questions about how the landscape could change in South Africa. The country’s pay-TV market is dominated thoroughly by Naspers’s MultiChoice, which owns DStv. Naspers boss Koos Bekker has long lamented the lack of widespread and cheap broadband in SA. Through MultiChoice, Naspers owns Internet service provider MWeb, which pioneered uncapped fixed-line broadband at more affordable prices. But because Telkom still has a monopoly over the copper lines into people’s homes, broadband line rentals have remained high and penetration low.

Though Naspers appears keener to expand its Web businesses in emerging markets than investing in infrastructure, it might make sense — theoretically, at least — for it to make a play for Telkom, which has 4m fixed lines in service and access to tons of 4G spectrum. Of course, as a retail consumer-facing organisation, it would probably want to sell the enterprise side of Telkom’s business.

Naspers could easily fund the deal. Incredibly, it has more cash in the bank — R8,8bn at the end of its 2012 financial year — than Telkom’s market capitalisation of R7bn. This means it could offer a 25% premium to Telkom’s share price, buy out the entire company, and still have change left over.

Of course, such a deal would face huge hurdles, not least from a government that thinks there’s sense in continuing to hold onto 40% of Telkom’s equity, but also from the competition authorities, which would surely think long and hard — as they should — about giving a monopoly player in broadcasting control over a company that still has a monopoly in residential fixed lines.

Of course, the whole idea might sound terrible to Naspers. Telkom is an unwieldy behemoth that needs to be restructured and downsized. And telecoms is a very different beast to the media business.

Still, the thought of a deal is interesting in light of convergence. Naspers, through MWeb, has shown a willingness to bring down broadband prices to get uncapped Internet access in the hands of more South Africans. If it had control over Telkom and took the same approach to getting fixed and wireless broadband to more consumers, South Africa would be the beneficiary. Imagine the triple-play opportunities: cheap broadband and telephony, coupled with IPTV and on-demand services.

Over the past decade, Bekker and his team at Naspers have overseen spectacular wealth creation. At Telkom, a succession of CEOs has done exactly the opposite. It’s a pity, then, that that a deal is pretty much impossible.  — (c) 2013 NewsCentral Media

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