Telkom could sell Openserve stake – but who’s buying?

Telkom CEO Serame Taukobong has told TechCentral in an interview that the company is giving serious consideration to selling a stake in its infrastructure subsidiary, Openserve.

Openserve, a wholesale business that sells capacity to other companies, including Internet service providers, operates the largest fibre network in South Africa – connecting cities and towns as well as homes and businesses.

Although Taukobong has ruled out selling the whole of Openserve — telling investors on Wednesday that the business is a “core asset” — he said Telkom is open to the idea of selling a strategic stake in the business.

Telkom’s willingness to offload a stake in Openserve comes as Vodacom nears finalisation of a deal to buy into Openserve rival Maziv, the parent of Vumatel and Dark Fibre Africa.

That transaction is still being scrutinised by the Competition Commission. If approved, it will see Vodacom acquiring 30% (with the option of up to 40%) in Maziv.

Analysts have speculated that MTN’s move to buy Telkom was in part motivated by Vodacom’s acquisition of the Maziv stake. This is because, through the Maziv deal, Vodacom is set to become a major player in the fibre broadband market, creating the real risk that MTN will be left behind in what is a fast-growing and important segment of the telecommunications market.

Taukobong told TechCentral that Telkom has seen “interest” in Openserve from several quarters, including infrastructure companies, pension funds and private equity players. There have been no formal discussions, however.

Legal separation

He said a listing on the JSE for Openserve is unlikely, at least in the near term, given that market conditions are not particularly favourable for new listings.

The remarks by the Telkom CEO come less than two months after the company completed the legal separation of Openserve from the rest of its business, meaning Openserve is now a subsidiary rather than a division of Telkom.

Taukobong said at the time of the separation, which had been in the works for some time, that it would “promote and drive autonomous ability and market visibility”.

Openserve was created in 2015 under the direction of former Telkom CEO Sipho Maseko. At the time, Maseko told TechCentral that a “deep functional separation” between Telkom and Openserve was about removing a “critical stumbling block” in the way of Telkom’s path to success.

Could MTN, which recently walked away from early-stage talks to buy Telkom, be tempted to take a minority equity stake in Openserve instead? That’s not known. But Taukobong told investors on Wednesday that Telkom is open to further conversations with MTN about a transaction.

MTN walked away from the talks with Telkom a month ago, apparently not happy with Telkom’s willingness to engage with a separate proposal from mobile broadband operator Rain. Informal talks between Rain and Telkom are ongoing, and both parties have agreed to make a decision by year-end about whether those discussions are going to become serious or whether they’ll part company.

“The strategic rationale [for a deal] remains intact, and we are open to further conversations if MTN comes back [to the table],” Taukobong said of the possibility of re-opening discussions with MTN.

Read: Telkom open to rekindling MTN talks

Meanwhile, Telkom is continuing in its efforts to unlock shareholder value elsewhere in its business. Taukobong said the company is in advanced discussions about a partial or complete sale of Swiftnet, its masts and towers business. Those discussions are at the stage of a “deep due diligence”, he said, with an announcement possible soon.

Read: Telkom to complete legal separation of Openserve

Telkom is also still interested in finding a strategic equity partner for its IT services subsidiary, BCX. “We are still looking locally and internationally for a partner,” he said, adding that early-stage discussions are taking place and that Telkom may be in a position to update the market at the end of the current financial year, which is in March 2023.  – © 2022 NewsCentral Media

Get TechCentral’s daily newsletter