Vodacom, Vodafone(s vod)’s South Africa-based unit, is buying the fixed-line upstart Neotel for 7 billion rand ($676 million). Negotiations between Vodacom and Neotel, which is majority-owned by India’s Tata Communications, have been going on since September of last year.
Seven-year-old Neotel is the big fixed-line competitor to the incumbent provider, Telkom, and it will give Vodacom both a next-generation fiber network and valuable mobile broadband spectrum. According to a Vodacom statement on Monday, the deal will lead to new “unified communications” (mobile fused with fixed-line) services for the enterprise and help Vodacom push on with fiber-to-the-home deployments. Rival mobile carrier MTN has already kicked off that particular race with recently announced plans to deliver high-speed fiber services to wealthy gated communities.
Vodacom already offers 4G/LTE mobile broadband services using 1800MHz spectrum, “refarmed” from its original purpose of delivering 2G mobile services. The Neotel buy will give it more spectrum in this band, along with 3.5GHz spectrum that Neotel has been using for WiMax and — most importantly — spectrum in the 800MHz band.
Because 800MHz is a relatively low frequency, it propagates over relatively long distances and is also better than higher frequencies at penetrating buildings. It is therefore extremely valuable for rolling out 4G, particularly in a country where a lot of people live in the middle of nowhere, and will have been a central plank of this purchase.
The deal is pretty much in line with the strategy of Vodafone and others elsewhere in the world — witness Vodafone’s takeover of fixed-line outfit Kabel Deutschland in Germany for another example of marrying mobile and land-bound operations. In South Africa, it may have the added bonus of creating a stronger rival to Telkom, which remains part government-owned and which still has excessive market power, keeping communications prices higher than they should be.