Vodafone's Africa Plans Hit an Impasse

The British mobile giant continues to target emerging market assets, but its bid for a larger stake in South African Vodacom has been tabled

Vodafone's plans to bolster its position in the African mobile telecoms market by increasing its stake in Vodacom have hit an impasse after Telkom, which owns half of the South African mobile operator, pulled out of talks.

Vodafone, which owns half of Vodacom, is still keen to increase its stake in South Africa's largest mobile company as it scours the world for high-growth mobile assets to invest in. However, it is not anticipated that talks over a deal will resume immediately. Vodafone inc-reased its stake from 35 per cent to 50 per cent last year and has first right of refusal over Telkom's holding.

The deal had been dependent on Telkom, South Africa's incumbent telecoms operator, merging its fixed-line assets with those of its rival MTN Group, one of Africa's largest telecoms companies. However, talks between Telkom and MTN broke down. Vodafone said the two companies had failed to strike a deal due to "disagreements on value".

Analysts were surprised that the sale of the Vodacom stake was reliant on a deal with MTN over its fixed-line assets as Telkom had not indicated that was the case. Shares in Telkom fell 11 per cent after the break-up of the company was shelved and analysts said a round of cost-cutting looks likely.

Vodafone had been expected to buy out Telkom's share of Vodacom for £5bn but it later emerged it was likely to list a stake in the business while also selling on a small stake to black investors to comply with the South African government's black empowerment project.

Under the leadership of Arun Sarin, Vodafone has looked to target high-growth emerging market assets to offset the impact of higher regulation and price pressure in mature European markets such as the UK and Germany. Earlier this year, the company completed a £5.6bn buyout of India's fourth-largest mobile phone company Hutchison Essar and has also invested significant sums in purchasing operators in Turkey and Egypt while cutting costs in Europe.

Vodacom is an attractive asset for Vodafone as it provides a springboard for growth in markets across sub-Saharan Africa. It is the largest operator in South Africa with around 30 million users and a market share of nearly 60 per cent and it also has a substantial presence in Tanzania, the Democratic Republic of Congo and Lesotho. Mobile phone growth is expected to boom across Africa due to the lack of fixed-line telecoms infrastructure.

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