Telkom likely to get BCX nod: analysts - TechCentral

Telkom likely to get BCX nod: analysts

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Telkom’s second attempt in seven years at acquiring Business Connexion (BCX), the listed IT services group, will probably get the nod from South Africa’s competition authorities, analysts believe.

Telkom on Thursday announced it had made a R2,7bn all-cash offer to buy out the JSE-listed IT services company. In 2004, Telkom bid R2,4bn to buy BCX, but the deal was scuppered by the competition regulator on concerns it would lead to less competition in the information and communications technology (ICT) sector.

BMI-TechKnowledge MD Denis Smit says the landscape has changed sufficiently for Telkom to attempt another “bite of the apple”.

Two things have have changed that will probably lead to a positive outcome, Smit says. “The Competition Commission has seen changes, with the appointment of a new commissioner, and the market conditions in terms of convergence have changed quite a bit since the first deal.”

The environment Telkom operates in today and the state of the company are quite different to seven years ago. When Telkom first offered to acquire BCX, it was fairly dominant in the telecommunications industry. Today, it is in a much weaker position, and the regulatory authorities should be more sympathetic because of that, Smit says.

Smit is of the view that Telkom’s first offer in 2007 should have been approved and believes it was a mistake that it wasn’t. “I think this time around the deal will go through, but I am certain that it will be opposed by quite a few industry players.”

He adds that this sort of consolidation is overdue and needed because it will lead to bigger and stronger competitors. “We are already seeing it with Vodacom and Neotel, and MTN and Telkom on the mobile side.”

World Wide Worx MD Arthur Goldstuck concurs with Smit’s assessment that the regulatory bar for Telkom will be set lower this time than it was in 2007.

“Telkom is not the company it was then, having sold its Vodacom shares, and being far less formidable a player,” Goldstuck says.

“Several of Telkom’s competitors are succeeding in becoming broad-based solutions companies, in effect giving them a tremendous advantage over Telkom as voice becomes a less profitable environment,” he says.

Arthur Goldstuck

Arthur Goldstuck

“It’s become much clearer that a telecoms operator can no longer survive as a telco alone. Vodacom and MTN have both made huge investments in business services, while big BCX competitor Dimension Data has obtained a big daddy in Japan’s NTT Corp. It seems almost unfair, in this environment, not to allow Telkom to buy in BCX-type capabilities.”

Goldstuck adds that the decision to block the 2007 deal seemed more political than for competition reasons. “We argued in favour of the deal at the time as we saw it as a necessary move for Telkom. The climate seems to be more favourable to Telkom this time.”

According to Goldstuck, the tie-up, if it is allowed to proceed, will mean a more formidable competitor in the ICT sector, one that has the ability to play in many more spheres, forcing everyone else to become more competitive. “It could also spark acquisitions or mergers by other companies.”  — © 2014 NewsCentral Media

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