Wednesday, January 26

Vodacom to acquire stake in Vumatel and Vodafone Egypt

SIMON BROWN: I’m chatting with Shameel Joosub, CEO of Vodacom. Today they announced two major agreements. Shame, I appreciate the time. The first deal is to buy the Egyptian mobile operator from parent company Vodafone, a deal for just over R40 billion. Egypt is a great market. I was doing some research. It has a population of 100 million and the Egyptian operator is the dominant operator in that market.

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SHAMEEL JOOSUB: Very much, Simon. It’s a really good acquisition for us and I think it’s a game changer in many ways; Vodafone Egypt has a 43% market share and it is also a good high margin business. So it’s also a very good opportunity for us to differentiate our geographic income.

SIMON BROWN: How much does it cost now? I want to talk about banking in a moment, but in terms of the traditional type of telecom, voice, SMS data, how similar is it to the South African market in the sense that we are actually quite a mature market and something on the move? Much further away from SMS, away from voice and into data?

SHAMEEL JOOSUB: It’s very similar. I think 46% of your income now comes from data. So it is very similar in many characteristics to the South African market and therefore with high smartphone penetration, which of course gives you the opportunity to do things like super apps and this kind of thing as well. Very convincing in that sense, but also a great opportunity, each client spends around 2.8 gigs per month. So like South Africa, a great opportunity to grow that.

SIMON BROWN: The other point, and I mentioned it, is banking, delving into banking in Egypt. In South Africa we sit here with a very advanced banking system and telecommunications companies are certainly operating in that space. Researching in Egypt, it seems that their banking is less advanced and certainly many Egyptians are not in the traditional type of banking sphere, which I imagine is a great opportunity for Vodacom and financial services.

SHAMEEL JOOSUB: Very much a great opportunity for us to introduce the M-Pesa or VodaPay platform in Egypt. We see that as one of the great synergies and great opportunities in the future. It is a market where 80% of the market is unbanked, so it is a great opportunity. Vodafone Egypt has a leading market share in that regard, so I think [it’s] a great opportunity to come in and present our full platform of services and more, and take advantage of the capabilities and experience that we have built.

SIMON BROWN: You mentioned super apps and maybe I don’t understand them. My sense of a super app is like Tencent in China, which people think of as a messaging app. It is, but it is also everything beyond that. I can order my taxi. I can buy things, I can sell things, I can play inside it. Is that part of that structure? It almost becomes the phone in a sense when the phone is online.

SHAMEEL JOOSUB: Very much, Simon. You would have seen that three weeks ago we launched the VodaPay super app, the Alipay app, in South Africa. It’s the first time it’s done outside of Asia and to be honest it’s a huge success. It’s going very, very well. We are very excited. It has 55 partners, downloads increase exponentially every day. So it is far exceeding our expectations and we are very, very happy with what we are achieving with the super VodaPay app that we launched three weeks ago.

SIMON BROWN: If we look broadly at Africa, obviously Vodacom started in South Africa, and its competitor MTN has been much more global. But Vodacom has been quietly taking over parts of Africa. You have East Africa, you have North, obviously you have South; you started here. Is it going to be the same or is South Africa still largely the dominant market for you?

SHAMEEL JOOSUB: What this transaction does is that it also diversifies our income dependency in South Africa below 50%. So I think that’s transformative [in terms of] geographic expansion. So it doesn’t just depend on one market.

I think what’s also encouraging is that it gives us access to 500 million people in our footprint, which is 40% of Africa’s GDP. We have fewer markets [with] well-capitalized market leadership in all of our markets. I think it’s because we focus on fewer markets and make sure we get the results. That is the modus operandi that we are implementing and I believe that Egypt gives us the opportunity to do so.

SIMON BROWN: Fewer markets, bigger markets, and a dominant player in those markets.

Let’s move on to the second deal you announced: buy from Vumatel and Dark Fiber Africa, DFA. A bit more complex process here. Basically, you will put some of your fiber-to-the-home and fiber-to-business assets into a new company, InfraCo …[5:15?Check]. And with that you also get Vumatel, the largest fiber-to-the-home service in South Africa, and Dark Fiber Web, which largely consolidates the comeback, but also customer-facing in terms of fiber to the home. within South Africa.

SHAMEEL JOOSUB: It talks a lot about our purpose, and our purpose is to connect people. Essentially, I think we’ve been under-indexing on the fiber part. So we decided to buy Vumatel, a premium fiber vehicle in South Africa, and contribute our assets and make it a bigger vehicle. I think everything opens up the opportunity for fiber to the home, and what we really like is that it also speaks to our transformation agenda, which is to reach fiber and bring fiber to secondary towns and fiber to municipalities. That becomes a big part of the game going forward. We are combining our assets with the assets of Vumatel, and the capital contribution will ensure that we can grow more fiber to the home.

Today, there are 1.2 million households out of the roughly 2.5 million in South Africa, but there are 16 million households that still need fiber alone. I think it is a great opportunity to grow in the future.

From DFA’s perspective, fiber to base stations will be a big driver for 5G in the future and data consumption via mobile. So by doing that in a form of shared infrastructure, we’ve been DFA’s anchor tenant for many years, almost from the beginning, actually. I think it makes sense for us to contribute our assets as well, open access and, in a shared way, use the open access mechanism to look to build more fiber at the base stations, which will reduce the underlying cost of transportation. our data, which is a big, big area of ​​focus for us. And then of course, as you roll out fiber to the base station, that opens up opportunities to connect businesses and also to empower Vumatel along the way and other fiber players as well.

SIMON BROWN: I get you on that when you walk past them. If you live in an urban area, you probably have access to fiber, which much of our country does not have.

One last question. The Egypt acquisition consists of 80% shares, 20% cash. If I add the 6 billion rand with the Vumatel / DFA deal, that’s about 14 billion rand. I checked his results by the end of March. You had almost R16 billion. Basically, are you going to write a check? You certainly don’t need debt.

SHAMEEL JOOSUB: We currently have more debt on our balance sheet, around R26 / 27 billion of debt. Indeed, what that gives us the opportunity to do now is issue shares, and with that we will also consolidate around R21 billion of additional debt, including the debt that, of course, is still in Vodafone Egypt. So that will add a lot to our debt in the two deals. Over time, we will seek to make up for it. But it will transform the growth of the company to double-digit growth on a consistent basis. So we think the profile of the company will change quite a bit in the future.

SIMON BROWN: I take the point on that. It transforms from a mature market in South Africa to a huge and very different prospective market in Egypt. We leave it there. Shameel Joosub, CEO of Vodacom, I really appreciate the time.

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