Vodafone Group Plc, the world’s biggest mobile-phone company, may expand in Africa, including through acquisitions, using Vodacom Group Ltd. as its gateway to the continent, the unit’s chief executive officer said.

Vodafone, which controls Johannesburg-based Vodacom, will participate in Africa’s market consolidation as prices of acquisition targets fall, Pieter Uys, the CEO of the South African company, said in an interview on May 19. The largest provider of mobile-phone services to South Africans will become Vodafone’s springboard into sub-Saharan Africa, he said.

“If you look at the world there aren’t many growth opportunities around; Africa is one of them,” Uys said. “All markets in Africa offer potential for consolidation.” Vodafone “has committed to use us” to enlarge its sub-Saharan business and “support us” on potential acquisitions, he said.

Newbury, England-based Vodafone has sought assets in emerging markets, making acquisitions in India, Turkey and Qatar to make up for slumping demand in its main European markets. In November, it agreed to buy an additional 15 percent stake in Vodacom from Telkom South Africa Ltd. for 22.5 billion rand ($2.66 billion), ending a 50-50 partnership and raising its stake to 65 percent.

Telkom South Africa’s remaining 35 percent stake was sold to investors and shares in Vodacom started trading in Johannesburg on May 18. Vodacom has operations in South Africa, Tanzania, Lesotho and Mozambique. Through its Gateway Communications Ltd. purchase in August, it offers satellite services in 40 African countries.

Quicker Decision-Making

The Vodafone-Telkom South Africa partnership slowed down decision-making at Vodacom, leaving it behind MTN Group Ltd., which grew to become the continent’s biggest provider of mobile services.

“In the old days there was always conflict between Telkom and Vodafone,” he said. When opportunities were presented to the board, “they had so many issues about who is going to do what and how we are going to structure the deal. By the time we agreed, the opportunity was gone.”

With Vodafone now in control, its size and brand allow it to buy companies in Africa, participating in the consolidation of markets, many of which have too many providers, he said. In the Democratic Republic of Congo, for example, there are as many as nine operators, he said.

“You cannot have a country with nine operators,” Uys said. “It’s not sustainable.”

Vodacom has between 35 percent and 38 percent of the Congo market, with about 4.2 million subscribers at the end of March, he said. Mobile penetration, or the proportion of people with mobile phones, in the Congo is about 12 percent, Vodacom says.

Rich Prices

“Some of these players have built networks to position themselves for a sale in the future, but now in these difficult times that future time has been pushed out,” he said. “Business plans have become more difficult to achieve.”

Purchase prices at between “15 and 20 times” earnings before interest, tax, depreciation and amortization are “ridiculous,” he said. The deteriorating economy means price tags on potential targets may fall, he said.

Vodacom has 5 million unique Internet users in South Africa, the company said this week. It has 39.6 million “customers” over all, 27.6 million of whom are South African.

On May 4, MTN said it passed the 100 million subscriber mark. Users in Nigeria, Africa’s most-populous country, increased 12 percent between December and March 31 to 25.9 million. It had 17.4 million subscribers in South Africa, and about 18.3 million in Iran. MTN used its South African base to expand into the 21 countries in which it now operates.

Nigerian Opportunity

“We were never exposed to growth in Nigeria,” Uys said. “It is competitive there but through Gateway at least we are doing business,” there and “we understand the market, so when that opportunity presents itself, in whatever form, we are already there. We can act,” he said.

Gateway will allow Vodacom to bid for licenses for WiMax, a microwave technology that can be used for high-speed transfer of voice or data, he said, adding that if there’s a WiMax license for sale, “we will grab it.”

Uys said the new Vodafone control is good for Vodacom.

“If you asked me 12 months ago I would have been more hesitant,” Uys said of his enthusiasm to be CEO of a listed subsidiary of Vodafone. “But I really like the management that is there now.” Uys said he has known Vodafone CEO Vittorio Colao for 10 years.

Discussions between the two companies on procurement and co-branding in new markets are underway, and Vodacom would “consider” re-branding itself, he said. “If it makes sense, yes we will do it.”

Source:Bloomberg