Is MTN courting Liquid Telecom?

MTN has signed an agreement with Liquid Telecom triggering speculation that the boss of Africa’s largest mobile phone operator Sifiso Dabengwa was finally ready to spend some of the group’s R31 billion cash pile.  Dabengwa has the option of spending a small fraction of it to buy an operator with a much-needed fixed-line network footprint across the region. He could also go for the parent company. By Gugu Lourie

Africa’s mobile phone powerhouse, MTN seems ready to tackle the continent’s market’s next frontier – fibre-to-the-home (FTTH), fibre-to-the-business (FTTB) and fibre-to-the-kerb (FTTx).

The mobile operator, which is losing market share in South Africa, also faces challenges in other key markets of Nigeria and Iran.

It seems logical MTN would be keen to take on fixed-line incumbents on their home turf and across the continent in search of new revenue streams, which would include FTTH, FTTB and FTTx.

On Monday MTN announced that it had teamed up with Liquid Telecom, an independent data, voice and IP provider in eastern, central and southern Africa.

This development will allow the new partners to access each other’s fixed and wireless networks in African countries, where one party may not yet have presence.

The partnership covers wholesale, carrier-to-carrier, high speed broadband, enterprise and fixed data services across Africa.

The agreement with Liquid Telecom gives MTN the ability to service its multinational enterprise customers in Burundi, DRC, Tanzania and Zimbabwe.

While, Liquid Telecom will now have a presence in Benin, Cameroon, Congo Brazzaville, Ghana, Guinea Bissau, Guinea Republic, Ivory Coast, Liberia, Nigeria, Sudan, South Sudan and Swaziland.

With such synergy it remains puzzling why MTN didn’t make a full offer to buy Liquid Telecom.

To the ordinary observer it makes sense for MTN to buy Liquid Telecom outright.

The continent’s mobile powerhouse has enough cash to pull off such an acquisition, which could amount to few billion.

Liquid Telecom was valued at more than R8.4 billion ($640 million) in January 2014 when Econet bought 8.6% stake in the business for $55 million.

MTN’s acquisition of Liquid Telecom could be a true earnings-enhancing transaction.

MTN and its investors are likely to benefit from Liquid Telecom’s infrastructure.

Liquid Telecom says it has built a network like no other in Africa.

“One that delivers benefits for all of our customers, from the biggest corporate to the man on the street” says the company on its website.

Nonetheless MTN under the stewardship of Sifiso Dabengwa seems to be focusing on sweating existing assets rather than going on a big spending spree in search of new growth.

Under Dabengwa’s leadership, MTN has injected R4.3 billion into Africa Internet Holdings to pursue e-commerce opportunities in Africa and the Middle East.  In 2014, MTN also acquired 50% plus 1 Afrihost’s shares for R408 million.

This is a huge departure from his deal maker predecessor Phuthuma Nhleko, the current chairman of MTN.

In 2010 Strive Masiyiwa the founder of rival mobile phone operator Econet Wireless predicted that (Dabengwa) was not “going to be expansionist. Those days are done.”

The deal with Liquid Telecoms seems to confirm Masiyiwa’s prediction that Dabengwa was not keen on buying bigger assets.

Liquid Telecom is owned by Econet Wireless Group, a privately held firm and one of its units, Econet Wireless Zimbabwe is listed on Zimbabwe Stock Exchange.

Still questions arise about the Liquid Telecom deal. Could the MTN move be the first step towards preparing for a possible takeover of Liquid Telecoms?

Maybe the current agreement is some sort of courtship that has led to an engagement and after a period of testing the waters marriage is a real possibility.

The fact that Liquid Telecom is strategic for the deployment of data across the African market, which is obviously hungry for it, makes it a very attractive bride.

Asked if this theory was in any way accurate, MTN didn’t respond immediately. Perhaps the bigger heads there were trying to find a proper answer to this vexing question.

When the reply eventually came, MTN’s enterprise business unit head of global sales Elia Tsouros said: “As with all our partnerships, this one was in line with the overall MTN Business strategy”.

Tsouros added: “Our partnership with Liquid Telecom is mutually beneficial and seeks to extend the footprint and offering of both companies, into markets where we currently do not have operations, in order to better serve our clients.

 

“MTN does not comment on speculation, in line with internal corporate governance, as well as JSE requirements.”

Asked if it will also make sense for MTN to look for similar partnerships across African markets, Tsouros was non-committal.

 

“We are continuously looking at developing and nurturing partnerships that will enhance our current offering and enable us to deliver tailored solutions to customers in our dynamic markets.”

That said, the mobile phone operator based in the leafy suburb of Fairlands in Johannesburg is seeking to diversify revenue streams into ecommerce and fibre space.

When it comes to fibre, the acquisition of Liquid Telecom gives MTN an edge over its competitors, especially Vodacom, which has key markets in Tanzania and the Democratic Republic of Congo.

MTN could also consider purchasing Econet Wireless. It could retain Econet Wireless’s entrepreneurial founder Masiyiwa as a non-executive member of the MTN board.

Only time will tell.

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