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November 6, 2005

Vodafone agrees Vodacom deal as speculation mounts over branding

Vodafone Group Plc, the world's largest mobile operator, has reached agreement for its increased stake in the largest mobile operator in South Africa, Vodacom (Pty) Ltd, as speculation mounts over that operator's future branding.

By CBR Staff Writer

Late last week, Newbury, UK-based Vodafone agreed to purchase the 35.5 million shares in VenFin Ltd, which is owned by the Rembrandt Trust (Pty) Ltd, at a price of ZAR 47.25 ($7.12) per share. VenFin’s principle asset is its 15% stake in Vodacom, and Vodafone plans to sell off the company’s other assets.

Vodacom has been a highly successful investment for Vodafone and the company is the established number-one mobile operator in South Africa, said Vodafone chief executive Arun Sarin. This transaction enables us to enhance and protect our position by increasing our stake in a high-growth business with good cash returns. There are highly attractive opportunities throughout Africa, and this move gives us greater opportunity for further expansion in the region.

Vodafone already owned 35% of Vodacom, but earlier last week announced it had been in exclusive negotiations with the Rembrandt Trust for its 15% holding, and now Vodafone effectively controls 50% of the South African operator. The remaining 50% of Vodacom is in effect held by the South African government because it is held by the state-owned telecom incumbent Telkom SA Ltd.

This deal has led to speculation in South Africa that Vodafone will now seek to ditch the Vodacom brand name, and rebadge the Vodacom service as Vodafone, especially as the roll-out of 3G services gathers pace.

However, Vodafone will have to tread carefully. Although it certainly wishes to acquire a controlling stake in Vodacom, it seems unlikely that Telkom will give up any part of its 50% holding. The problem is that Telkom’s stake in Vodacom is one of its most important and valuable assets, and with the incumbent still being majority owned by the South African government, Vodafone will have a tough fight on its hands to convince the South African state and local regulators.

The deal is part of Vodafone’s strategy to move into underdeveloped markets. At the end of October, Vodafone paid INR 67bn ($1.49bn) to re-enter the Indian market when it purchased a stake of just over 10% in Bharti Tele-Ventures Ltd, India’s mobile market leader. Prior to that, in March it paid $3.5bn in cash for the Romanian mobile phone group Mobifon SA, and rapidly growing Czech wireless operator Oskar Mobil AS.

Just days ago Vodafone also announced that it was selling its loss-making operation in Sweden to Telenor ASA for 1.035bn euros ($1.25m), figuring that the net cash proceeds of 970m euros ($1.17bn) would be a safer bet than battling on in a highly competitive and tightly regulated market.

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South Africa is an attractive market, as saturation levels are relatively low compared to western Europe. Only 57% of the South African population of 47 million own a mobile phone.

Vodacom is South Africa’s largest mobile phone provider. Its customer base grew by almost 40% in the last financial year, while revenue rose 20%. It has 17.2 million mobile customers in total (as of June this year), 14.3 million in South Africa, and the rest spread across its other operations in the Democratic Republic of Congo, Tanzania, Lesotho, and Mozambique.

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