Vodacom and Neotel have finally confirmed what the market has known for some time: that they are in discussions regarding a potential acquisition by the mobile operator of Tata Communications-controlled operator.

The two parties say the talks, which are now “exclusive”, revolve around Vodacom taking a 100% stake in Neotel, whose other shareholders include Communitel and Nexus Connection. Reports have suggested the deal value could be worth north of R5bn.

“The finalisation of the transaction is subject to the successful conclusion of commercial negotiations and receiving the requisite regulatory and corporate approvals,” the companies say in a joint statement.

Rumours have swirling around Neotel for months, with talk that MTN and Dimension Data had also considered making an offer for the company, which has access to a network of fibre-optic infrastructure and access to radio frequency spectrum that can be used to deliver broadband services.

The deal is likely to attract close regulatory scrutiny given Vodacom’s size in the market – it controls 50% of the mobile market and is increasingly positioning itself as a provider of converged wireless and fixed services, especially in the business market.

“This transaction, if concluded, would stimulate greater competition in the South African fixed telecommunications sector and accelerate the provision of high-speed data links,” the companies say in their statement. “It would also result in the combined entity being able to offer an expanded product range and, as a consequence, enhanced customer choice.”

If the deal is concluded successfully, Vodacom intends putting “significant investment into the combined entity to provide high-speed fixed connectivity to many more businesses and consumers”, says group CEO Shameel Joosub.

“By further building on the capabilities within Neotel, we would also aim to develop entirely new services such as fibre to the home and business. Neotel has access to over 15 000km of fibre-optic cable, including 8 000km of metro fibre in Johannesburg, Cape Town and Durban,” he says.

“Spectrum is also an important consideration as the combined entity could use this resource more efficiently, and in doing this we can keep pace with South Africa’s rapidly growing demand for mobile data. This transaction is all about providing greater choice and better infrastructure for South Africa’s businesses and consumers.”