Telkom’s share price sank by 6,4% on Monday after the company announced it would no longer pursue a deal with rival MTN. This came after the Competition Commission said it would not support the transaction.
As investors fretted about the impact of the collapse of the talks, Telkom closed at R59,94/share after touching an intraday low of R58,56 in intraday trading.
In terms of the deal, Telkom would have outsourced management of its radio access network — the part of its mobile network that connects its base stations with end users — to MTN. The companies would also have entered into a bilateral roaming agreement in terms of which clients of each operator would have been able to roam on both networks.
Telkom’s share price has been treading water this year after enjoying a strong rally in 2013 and 2014. Year to date, the counter has lost 14,4%. Over the past three years, however, it has gained 202,6%.
MTN closed Monday’s trading session marginally higher at R197,45/share. So far this year, MTN has lost 10,8% of its value. Over three years, it’s added 26,4%.
Telkom CEO Sipho Maseko described the commission’s decision as “disappointing”, but said the company would not fight it as it wanted to avoid a protracted hearing at the Competition Tribunal.
“Over the past 18 months, our focused efforts to de-risk our mobile business have delivered a mobile division that is viable and sustainable. The mobile business will break even in this financial year and we are most encouraged by the stability that has been brought into our mobile environment. As previously communicated, we will continue to explore all avenues to further strengthen our mobile business.”
Maseko hinted last week that Telkom could consider a bid for Cell C, provided the price was right.
“I’d like to do something with them. At the right price, I’m a buyer,” he was quoted by Reuters as having said. He also said Telkom had a strong balance sheet, giving it the “flexibility to pursue … options”.
The Competition Commission decided to recommend that Telkom’s deal with MTN be blocked as it would “substantially prevent or lessen competition in the mobile services market”.
“The access to additional spectrum capacity by MTN will confer first mover advantages to it relating to network speed, capacity and mobile offerings. MTN would be able to gain a significant competitive and time advantage, offering network and services that cannot be significantly constrained by rivals, particularly given the market position of Cell C and Telkom Mobile,” the commission said.
It said the deal was likely to “entrench a duopolistic market structure dominated by Vodacom and MTN”.
“Such a resultant duopoly market structure is unlikely to serve customers well, particularly when considering that it is the smaller mobile operators that lower prices before the larger operators, MTN and Vodacom.” — (c) 2015 NewsCentral Media