Vodacom wants to grow XLink

Major XLink Communications shareholder, Vodacom, wants to accelerate growth of this provider of wireless data machine-to-machine (M2M) services.

M2M services are also referred to as the Internet of Things (IoT) – a concept of connecting devices – ranging from
refrigerators, geysers and smart electricity meters to coffee makers – to the internet.

The intent to grow the business comes at a time when South Africa’s biggest mobile phone operator is struggling to find lucrative acquisitions targets on the African continent.

In 2007, Vodacom acquired a 35% shareholding in XLink and later upped its stake to 50.1% as a means of benefitting from opportunities in the M2M value chain. Pan African Equity Fund 1, which is a BEE partner of XLink, holds 25.1% of the business. The remaining 24.8% is owned by XLink management led by CEO Anton Leal.

XLink was founded in 2004. It pioneered GPRS-based electronic funds transfer (EFT) data communication solutions in SA and it is the largest carrier of EFT services across the Global System for Mobile Communication (GSM)
network.

Last week, XLink concluded a strategic non-exclusive distribution deal with UK-based and London-listed Cyan Holdings, a specialist in smart metering for electricity, gas and water, and lighting control.

Hymie Marnewick, XLink’s chief commercial officer, says: “Our position as a trusted adviser in the field of M2M solutions allowed us to recognise the strategic benefit of Cyan’s experience in next-generation economies, which makes their solutions ideal for our market.”

This Cyan deal will create more value for XLink, which stands to benefit from SA’s grid modernisation projected at
R128bn over the next decade, as predicted by the US Trade & Development Agency. Grid modernisation will obviously see an increase in demand for smart energy solutions, which in turn will create value for XLink, Cyan and other players.

For now, Vodacom says that it is a long-term XLink shareholder and will not comment on whether it is eyeing similar companies to the IoT service provider.

Vodacom spokesman Richard Boorman says: “We’re definitely looking to grow the business which could be organically or through other means.”

He wouldn’t be drawn into giving any further information.

That said, XLink is in a good market with growth opportunities.

McKinsey Global Institute predicts that the technology of machines connected to each other through the internet will create an economic impact of $2.7tr to $6.2tr (R32.67tr to R74.97tr) annually by 2025.

XLink is already making good returns. To date, XLink manages M2M solutions for more than 68 000 businesses in Africa, facilitating 35m M2M connections. M2M allows a variety of devices and machines – including utility meters, vehicle sensors, point of sales terminals, security devices, consumer electronics and many more gadgets – to talk to each other.

XLink says that it can remotely provide, track, maintain and monitor more than 125 000 SIMS and 80 000 units in the field. It has also expanded its business to provide special M2M solutions for clients that include Distell, Spar, Mr Price, Montecasino, Wimpy and petrol stations.

Taking into consideration the expected growth in the IoT, Vodacom is well positioned to buy out other shareholders
in the business.

However, Boorman says that Vodacom was comfortable with current arrangements that consist of a BBBEE partner and management.

Interestingly, XLink is self-funding – meaning the cellphone operator does not have to provide any funding for capital expenditure.

XLink continues to find new revenue streams.

Presently XLink’s technical support team is preparing to deliver to a leading provider of energy management systems
Cyan’s smart metering hardware and software, CyLec, for a 100-unit Proof of Concept project in SA. This is part of a deal signed with Cyan to distribute their smart energy communication technology, which enables the measurement and control of energy consumption for metering and lighting markets. This helps to increase energy security and reduce costs.

XLink team is aiming to deploy this project in the first half of 2015.

Vodacom, SA’s largest mobile phone operator by subscribers ahead of MTN, is 65% owned by the British mobile giant Vodafone, with 17% held by the South African government and the Public Investment Corporation.

XLink is likely to benefit from Vodacom’s expansion strategy.

Vodacom CEO Shameel Joosub seems set on finding more opportunities in countries where the cellphone operator
already has a presence rather than trying to enter new territories.

“We are also looking for in-market opportunities. So the big thing for us is that we capitalise on markets we are already in. That’s why it is not by accident that we have market leadership in all markers where Vodacom operates,” he said, citing Neotel as an in-market opportunity. “For me, look, if we take Neotel and capitalise it we can grow that business because of demand in fixed lines. You don’t have to necessarily add a new territory; you have to pick up opportunity that will help you to grow.”

In that regard, XLink is also another in-market opportunity that Vodacom is likely to drive due to the growth of M2M services.

In another development, Vodafone wants to make Vodacom the “Unilever of Telecoms” in SA. This is part of its global strategy and entails being a bigger telecoms operator that has fixed mobile and possible entertainment and enterprise services.

Vodafone chief executive officer Vittorio Colao says that he wants to make Vodacom “the company that everybody
wants, that everybody likes”.

He says that this ambition will happen in different ways in various countries.

“In some countries you buy a cable company and in other countries you buy Neotel, and in others you buy content, in one country distribution content and in others hosting. Maybe other African countries will be served by South Africa.
We don’t know, but the ambition is the same,” explains Colao.

He says that his company is aiming to be a player in total telecoms that serves individuals, families, companies and
public administration. Colao says that he is excited about opportunities arising from IoT, especially in a developing country like SA.

With the indirect backing of Vodafone, XLink is set to be the biggest IoT player in Africa.

• This article is also published in Finweek
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