Bidding war on the cards for Telkom’s Openserve

Telkom’s prized fibre business is set to welcome a minority partner after the company opened the door for a bidding war for Openserve.

So high is demand that the group is to start a formal process to solicit outside investment in SA’s largest fibre network operator.  

“Various initiatives are under way with the goal of realising value through the sale of a minority stake in the 100%-owned Telkom subsidiary,” the group said on Tuesday as it reported third quarter earnings. 

“Telkom has been receiving a number of unsolicited approaches for this business and is currently undertaking a market-sounding exercise to test the breadth of interest for this deemed to be core business of Telkom.”

Telkom said Openserve has passed more than 1-million homes with its fibre network. Openserve began operating as a stand-alone entity from September 2022 as part of an effort to realise value from Telkom’s sprawling structure.

With enough interest, a formal process will be launched by the end of the 2023 financial year in March, the group said.

The industry has been experiencing a wave of consolidation worldwide as companies look to combine forces instead of going it alone in building expensive telecom infrastructure. Local players, aware of these realities, are building their own deals to stay ahead.

Dominate market

Excitement around local fibre deals has been building since Vodacom and Remgro’s CIVH announced a R13bn merger of their fibre businesses in November 2021. That deal is nearing completion with only competition commission approval holding back its progress. 

Vumatel and Openserve dominate the local fibre market, with more than 50% market share in homes passed and connected, according to Analytico’s 2022 SA Fibre Report

MTN, which made a bid to buy 100% of Telkom in July, withdrew its offer after rival operator Rain made its own approach to merge with the fixed-line operator. It has been widely accepted that MTN was mainly interested in the deal over the large fibre trove. 

According to Fitch Solutions — a unit of Fitch Group, a global financial information services company — the main attraction of Telkom is its extensive wholesale fibreoptic network housed in Openserve.

“Telkom operates by far the longest network in SA with more than 170,000km of fibreoptic cables and this network is growing.”

Telkom reported on Tuesday that the number of homes passed and homes connected has increased 27.6% and 31% year on year, respectively, for the quarter. The operator also claims the market’s highest fibre-to-the-home (FTTH) connectivity rate of 46%.

“These factors make Telkom an attractive asset for acquisition,” says Fitch. 

While interest is positive, Telkom begins its market-sounding process amid economic uncertainty. Unlocking value and finding deals have been made all the more difficult as a global economic downturn has resulted in plunging valuations across the technology and telecom sectors.

Telkom had been expected to list its masts and towers unit, Swiftnet, on the JSE for R13bn in early 2022 but the plan was abandoned as the group realised it could only get about two-thirds of that amount.

gavazam@businesslive.co.za