Into Africa: Vodafone gets Ghana Telecom

Emeka Obiodu/Ovum
21 Aug 2008

Vodafone has finally triumphed in its quest to take a majority stake in Ghana Telecom, opening a new chapter in the mobile giant's expansion plans. In fact, by chasing the deal the company has thrown down the gauntlet and has indicated its readiness to compete for both the big and the not-so-big assets.

The Ghanaian parliament has finally approved Vodafone's takeover of 70% of Ghana Telecom, paving the way for its first foray into West Africa.

Vodafone is to pay $900 million for the stake, and has pledged to invest a further $500 million in network infrastructure in the country. In return, the global mobile giant gets Ghana's incumbent fixed-line telco and the third largest mobile operator, Onetouch.

For Vodafone, the deal is a major turning point. In recent times, the company has seemingly set its sights on the big global markets where a combination of high growth and a sizeable addressable market can guarantee good returns. It has recently waded into Turkey, China and India - the much smaller Ghana market hardly matches the same profile.

But therein lies the point. As the pool of high-quality acquisition targets contracts, Vodafone is using the Ghana deal to set out its vision for the future and its readiness to compete on the African turf.

The deal has effectively ended any speculation of a pact between Vodafone and Vodacom on expansion in Sub-Saharan Africa. By entering Ghana, Vodafone has taken its first steps into West Africa, signalling to France Telecom that competition is at hand.

Apart from the geographical significance, the deal plunges Vodafone into Africa's fixed telecoms market. For a traditional mobile specialist like Vodafone, running a fixed network in Africa is not going to be an easy proposition.

With the likes of MTN and Zain reluctant to wade into fixed services on the continent, France Telecom had seemed to be the only multinational telco prepared to buy into African fixed telecoms. Vodafone has now followed suit, and by buying an incumbent it will have to grapple with poor fixed infrastructure and political innuendos.

In the light of these undertakings, Vodafone must be commended for its boldness in pushing ahead with the deal. Ghana is the ideal test-bed for a push into Sub-Saharan Africa. The country is English-speaking, relatively stable and growing steadily. Vodafone can thus leverage its global expertise and deep pockets to drive growth in the market.

Vodafone has been fairly generous with its offer, although we initially commented on the company's hastiness in announcing the deal before placating Ghanaian parliamentarians.

Quite why the deal is bad for Ghana, as claimed by opponents, is not clear. Vodafone's offer values the company at $1.3 billion. For that price, it gets Ghana Telecom's 1.4 million mobile customers (about 17% market share), 380,000 fixed line customers and 15,000 broadband clients.

Vodafone also said it will take over the Ghanaian government's fibre networks. In comparison, Nigeria's Nitel, which operates in a much bigger market, was valued at $1.5 billion when it was sold to a local conglomerate in July 2006.

With the Ghana deal done, Vodafone will certainly shift its focus onto new targets. Already the mobile giant is reportedly in talks about upping its stake in Poland s Polkomtel and resolving the impasse with its co-shareholders. Beyond that, new opportunities will continue to beckon, and the new CEO, Vittorio Colao, will soon need to convince the company s shareholders about the viability of a new acquisition.

Emeka Obiodu, senior analyst at Ovum

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