South African mobile network operator Rain has formally requested to present the Telkom board with a proposal to merge the two companies.
The reason is to create a 5G powerhouse and strong third player to compete with the Vodacom and MTN, who are seen as a telco duopoly in that country.
This comes just weeks after Telkom announced that it had started talks with MTN for a potential merger or acquisition. The proposed merger by Rain is meant to rival that transaction and, according to the company, offer a more pro-competitive alternative than the former.
As numerous experts have pointed out, the MTN-Telkom deal is indeed likely to come across regulatory hurdles because of its possible anti-competitiveness. It will essentially create a duopoly in the country’s telco industry as the two companies are the second and third largest mobile network operators in South Africa, by subscriber base. Rain is number 4 on the list, making a merger between third and fourth much more palatable for regulators.
According to Rain CEO Brandon Leigh, the number of combined Rain and Telkom sites will be equivalent to that of Vodacom and MTN, and the avoidance of duplication would result in material capital and operational cost savings.
The company also believes that combining forces with Telkom could take the merged company to the next level and benefit both Telkom and Rain stakeholders as well as the general public.
As a 40% government-owned entity, it looks like Telkom has no choice but to consider Rain’s offer. Discarding it would create a political bad look for the ANC government as it could be seen to be partaking and endorsing anti-competitive practices by choosing to rather merge with MTN, creating a telco behemoth in the country.
The merger might not happen though.
A few hours after Rain’s proposal, South Africa’s Takeover Regulation Panel ordered the company to retract the merger proposal announcement, deeming it unlawful as the company had not sought prior approval from the regulator.
Telkom has also responded to Rain’s statement, stating that they have not received any offer from the mobile network operator.