French telecommunications giant Orange, a subsidiary of France Telecom, is in talks to buy SA IT service company Business Connexion (BCX), three separate industry sources have told TechCentral. Neither company is commenting, but it raises the question of whether the deal, if it were to happen, would make sense.

Brian Neilson, research director and head of telecoms consulting at BMI-TechKnowledge, says “possible synergies could exist” and Orange and BCX have “complementary footprints, customer bases and service offerings”.

He says BCX has battled to gain traction in the African continent outside SA and a deal with Orange would give the company a way in. “BCX could also provide Orange with managed services on behalf of various Orange operations.”

Neilson says BCX could be a useful IT outsourcer for Orange. Also, he says, “BCX is a huge Cisco distributor, so it could provide hardware in addition to managed services”.

He likens the potential deal to the recent acquisition of SA technology group Dimension Data by Japan’s Nippon Telegraph and Telephone (NTT) Corp. “Apart from gaining a large SA business, Orange would gain a range of services it doesn’t have,” says Neilson.

Kaplan Equity Analysts MD Irnest Kaplan says he hadn’t heard anything about of a deal between the two companies but says if it were to happen, it could make sense because “mobile operators are increasingly trying to get into whichever areas will give them growth”.

“We know fixed-line operators globally are in decline or seeing declining growth,” Kaplan says. “We also know mobile operators in developed countries are struggling with saturated markets and pressures on voice pricing. The result is the likes of [Germany’s] Deutsche Telecom investing heavily in IT businesses like T-Systems.”

Kaplan says given that BCX accounts for about 10% of the local IT services market, Orange’s decision must be strategically rather than financially motivated, particularly as the company reports in euros, making the potential deal a relatively cheap one for the French company.

He believes the main motivating factor for Orange would be BCX’s location and its skills. He says BCX’s involvement with content delivery networks might also be appealing for Orange.

“There’s a company called Limelight Networks that has become one of the top three content delivery networks in the world with 30 intelligent data centres distributing content for the likes of Nokia, Microsoft and Nike. BCX is the exclusive strategic partner for LimeLight in SA.”

Kaplan suggests Orange might regard BCX as a valuable acquisition for its African mobile operators, particularly as the local company has been vocal about its plans to expand into Africa.

“BCX is more than just a local IT service provider,” he says. “It has some really good technologies and research underway and perhaps Orange sees the potential in this, particularly for the price. I don’t think there’s a natural or obvious connection between the companies, but that’s often the case with these deals — there’s something that no one else has yet spotted and Orange wants to capitalise on this.”

Kaplan says recent rumours — unconfirmed — of Orange looking to buy Cell C would make a deal with BCX make even more sense, particularly in light of the growing popularity of offering converged services by creating deals between telecoms and IT companies.

“Cell C is affordable,” he says. “Both Vodacom and MTN are too big, but with proper branding Orange could potentially increase Cell C’s market share.”

Kaplan says Orange acquiring BCX alone wouldn’t allow for this convergence as the latter isn’t really an operator or Internet service provider. But, he says, perhaps BCX is part of a larger, longer-term acquisition roadmap. — Craig Wilson, TechCentral