“One of the reasons that I’ve been buying Vodacom [shares] is rather because there’s high cash generation and very high dividend yield. This is a share that gives you a yield of over six per cent and generates a lot of cash,” Sasfin’s David Shapiro told CNBC Africa on Monday.
“They have been lagging in Africa and one of the big worries has been where’s it going to grow. If it grows into Africa and try to take on MTN or any of the other cell phone companies, we know it’s going to create lower margins.”
The potential acquisition will launch a massive competitive attack on communications company Telkom, which currently dominates the wireline and wireless telecommunications sphere South Africa.
The acquisition announcement, which was made on Monday, is reportedly worth 500 million dollars, and could place Vodacom at a strategic advantage over other local mobile network operators.
Neotel’s current spectrum allocation could also significantly expand Vodacom’s LTE network.
There is however no guarantee that Vodacom will gain Neotel’s spectrum from the acquisition deal. The analogue-to-digital migration currently underway in South Africa could also add a spanner to the works in terms of additional spectrum allocation.
The acquisition deal could nonetheless change the telecommunications dynamics in the country.
“Where Vodacom are, they’re not held down by any legacy issues, they don’t have to restructure, which Telkom has to go through,” Shapiro explained.
“Telkom’s got to go through major restructuring and refocusing of its business, whereas [Vodacom] can come in, take Neotel. This allows Vodacom now to expand into the business applications area.”
Neotel has an already established fibre optic cable network, which could give Vodacom a massive leap forward in terms of being able to supply fibre to homes and businesses.
“Whether they can now transport this into the rest of Africa is debatable, because you have to lay down a lot of cable, there’s a lot of fixed investment that goes into it. Neotel’s already done that, they’ve put down the cables so all that Vodacom has to do now is to get the benefit of that,” said Arthur Goldstuck from Worldwide Worx.
“MTN has a very powerful business division based on its fibre capacity. Vodacom doesn’t have that kind of capacity. Buying Neotel, it saves them having to invest probably more than they’re paying for Neotel in building the same kind of capacity.”