Telkom’s plan to “de-risk” its loss-making mobile business could lead to a transaction with rival MTN. The two operators are in sensitive discussions about a possible deal, two separate and well-placed sources have told TechCentral.

It’s not clear what form a deal between the two parties would take if it were to transpire, or what hurdles it would face at the Competition Commission. However, an industry expert says the regulatory hurdles to any deal between MTN and Telkom are likely to be significant.

Ironically, MTN considered an acquisition of Telkom in 2007, but backed away. More recently, Telkom entered into a national roaming agreement with MTN, allowing it to use the latter’s infrastructure in areas where it does not have coverage.

Maseko said several times during Telkom’s interim results presentation in Pretoria on Monday that the company was focused on “de-risking mobile” and revealed that the company was “in discussions with some parties with regards some possible options”. He did not say who Telkom was talking to.

He added that whatever deal was reached, it should reduce Telkom Mobile’s “capital appetite”.

MTN and Telkom may be pursuing a deal, at least in part, because of Vodacom’s exclusive talks to acquire Neotel, which is controlled by India’s Tata Communications.

Neotel has an extensive fixed-line infrastructure and IT assets, including data centres, and, crucially, also has access to radio frequency spectrum that can be used for building next-generation 4G/LTE networks. Vodacom and MTN both need access to new spectrum as they are being forced to redeploy their existing but already-streched spectrum assets for 4G.

BMI-TechKnowledge MD Denis Smit says that although a Vodacom, Neotel combination would face regulatory hurdles, a Telkom, MTN tie-up is likely to encounter even greater challenges. “From a Competition Commission perspective, a Cell C and Telkom [combination] would attract less regulatory attention.”

However, Smit says that Telkom Mobile’s current position in the market is “not sustainable”. Although a transaction with Cell C is more likely to get the green light, TechCentral understands that Telkom are not engaged in any formal discussions with the country’s third-largest mobile provider.

Smit says Telkom has access to a valuable chunk of spectrum — in the 2,3GHz band — which is well suited to building a 4G/LTE network. But he doesn’t see a deal that involves deep integration between MTN and Telkom passing muster.

He says, too, that it’s important to remember that spectrum licences are held by Telkom, not by Telkom Mobile. “Look at the size and scale of the two companies. MTN is massive compared to Telkom. Who would drive the strategy and have the influence? Would it make Telkom an acquisition target?”

Telkom Mobile, formerly known as 8ta, was launched in 2010 after Telkom disposed of its 50% stake in Vodacom to shareholders and to the UK’s Vodafone.

As the country’s fourth mobile entrant, however, Telkom Mobile has struggled to compete and is probably still years from turning a profit — if it is ever able to do so on its own.

In the six months ended 30 September 2013, Telkom Mobile lost R773m before interest, tax, depreciation and amortisation. That was a deterioration from the loss of R716m in the same six-month period in 2012. However, Telkom Mobile’s top line grew strongly, from R596m to R926m, on the back of strong demand for mobile broadband and for smartphones and tablets.

Telkom Mobile had 1,6m active subscribers at the end of September, up marginally from 1,5m a year ago. Telkom emphasised on Monday, however, that subscriber growth was negatively affected by its cleaning up of its subscriber base.