Tatas to acquire 26 per cent in telecom JV with SA govt
The Economic Times — August 22, 2006

The Tatas are picking up 26 per cent in InfraCo, a new telecom company in South Africa. The remaining stake in the company will be held by the South African government. The joint venture will be the third network operator in South Africa, and apart from offering long distance services within the country, it will also build and operate marine telecom infrastructure for international long distance (ILD) traffic.

The investment will be routed through Tatas' long distance arm, VSNL, which already owns Tyco, one of the largest players in the ILD space. The JV, when it becomes operational, will enhance VSNL's share of the ILD market. The deal also marks the Tatas' second telecom venture in South Africa. VSNL already has a 26 per cent stake in SNO Telecom, which has licence to provide all telecom services, except mobile.

The Tatas have already announced an investment of about $250m in SNO Telecom, which is slated to launch services by the month-end and become the country's second fixed-line service provider. Sources told ET that in the first phase, InfraCo will require about $350m just to launch operations. Of this, the South African government will provide $225m, VSNL about $60m, while the rest will be funded by debt. Investments for the next phase are yet to be mapped out, sources added. When contacted, the Tata group spokesperson declined to comment.

Sources said that InfraCo won't start laying fibre from scratch, but will buy out the telecommunications infrastructure of South African electricity supply company, Eskom, for $100m. This will also provide the JV with thousands of kilometres of fibre optic cable installed along South Africa's power lines. Besides, InfraCo will also build additional long distance and international marine infrastructure.

As a result, the Tatas will have 26 per cent stake in both SNO Telecom and InfraCo, who together will control significant chunks of the telecom infrastructure in South Africa. Just last week, SNO had bought out the optic telecom network of Transnet, South Africa's largest transport and logistics company. Explaining the rationale behind the JV, an industry source explained: "InfraCo will buy out Eskom's telecom infrastructure and lease bandwidth exclusively to SNO Telecom at cost plus 4 per cent.

SNO Telecom will, therefore, be able to reduce operational costs massively and compete head-on with Telkom - South Africa's only fixed-line service at present." Analysts also point out that the JV may lead to a slew of complications in the South African telecom market on account of the different cross holdings involved. This is because the government, which currently holds 37 per cent stake in Telkom, will also own 74 per cent in InfraCo, with both companies competing in the infrastructure space.