Vodacom’s Neotel takeover May Mean Better Consumer Service

In May of last year Vodacom announced that the company would purchase Neotel for a price of R7 billion. The move may mean faster advancements in the telecommunications sector.

 

shaking handsOn the face of it, the situation may look like a giant market player taking over a competitor may decrease completion in the market, however this is not what is happening. Neotel and Vodacom have different markets for their services. As a result of the acquisition Vodacom will enter the small business fixed line connectivity sector which has been Neotel’s point of focus.

Vodacom will also be able to contend with the land line giant Telkom, and because the cellular provider has extended resources, Vodacom may be able to give Telkom a better run for its money than the Indian-funded Neotel has been able to. In addition to the purchase price, Vodacom has pledged that the company will significantly invest in Neotel in order to become a serious contender in the provision of fixed line services.

 

Public hearings by the Independent Communications Authority of South Africa (ICASA), are due to begin to discuss the terms of the acquisition. The decision reached by the ICA will either hamper or hasten the roll-out of high-seed fibre-optic connectivity, and next generation mobile services in the country. Opponents of the deal argue that it will not increase competitiveness, but instead centre a vast amount of power in the hands of Vodacom, which will be able to roll-out next-generation mobile services faster than would otherwise be possible, and therefore give Vodacom an advantage over its competitors. However, the consumer will benefit because of the earlier and cheaper availability of LTE/4G services.

 

Vodacom and Neotel both have a network of fibre-optic transmission cables. Vodacom connects the cables to mobile base stations, whilst Neotel’s fibre connects businesses. Combining the two networks will enable Vodacom to reach more homes and businesses, resulting in greater connectivity. The government highlighted extending the national broadband network as one of their key objectives so they will likely support the move.

 


Currently only 7% of South African households have a broadband connection. In developed nations, the broadband penetration is in excess of 75%. The government plans to increase broadband penetration to 50% by 2020 and 100% by 2030.