Telkom CEO Sipho Maseko says that if Vodacom’s bid to buy Neotel is given the green light by regulators, it could make for “formidable” competition.

Vodacom, which is South Africa’s largest mobile network with over 30 million subscribers, last year made a bid to buy fixed-line operator Neotel for R7-billion.

A Vodacom-Neotel merger would mean more competition for Telkom in South Africa’s fixed-line arena. In the deal Vodacom is also expected to acquire more spectrum, which could help the company boost its mobile broadband service offerings.

However, the Competition Commission has yet to make a decision on the Vodacom-Neotel deal. And Vodacom said in its annual results statement earlier this year that “the delay in receiving regulatory approval for the acquisition of Neotel is disappointing” and that "this transaction has been with the authorities for approval for almost a year now”.

Fin24 asked Sipho Maseko in an interview on Monday what it would mean for Telkom if regulators do give the go-ahead for the Vodacom-Neotel deal.

“It will make them (Vodacom) a formidable competitor,” Maseko told Fin24.

"But as I said, you can... (get tears) in your eyes and be morose and miserable about it, but actually that is the nature of the market.

“There is going to be competition. The bigger question is how do we begin to respond as a company to those sort of competitive changes in the marketplace, so that we retain our relevance and set ourselves on a path to glory,” Maseko told Fin24.

Other telecom companies such as MTN and Cell C are opposing the Vodacom-Neotel deal.

Last year, MTN said the transaction should be blocked. Cell C also raised concerns with the Independent Communications Authority of South Africa that Vodacom could become a “super-dominant” operator if it buys Neotel.

Meanwhile, Telkom was reported last year as saying that Neotel’s wireless spectrum should be reallocated to other operators.

Fin24 asked Maseko whether he is in favour of the Vodacom-Neotel deal.

"It's not even a question of being in favour of it or not; it's a global trend that's unavoidable where consolidation in the market has to happen,” Maseko told Fin24.

“The economics are such that if you don't have a strong balance sheet, you don't have strong cash flows, you don't have scale - you won't survive.

"So, consolidation is an inevitable mega-trend in the sector. And it's driven by a number of things: it's driven by convergence; it's driven by how consumers are now looking at consumer services - not just telco services.

"So for us therefore it is not a question of whether we welcome it; it's an inevitability and we need to then see what is Telkom's best positioning in so far as this convergence... will be," Maseko told Fin24.

Telkom has also positioned itself in the market in terms of acquisition deals.

Last month, the Competition Commission gave the green light to Telkom’s R2.6bn bid to buy local IT services company Business Connexion (BCX). The Competition Commission recommended to the Competition Tribunal that the merger be approved with conditions.

The deal is expected to extend Telkom’s enterprise reach in South Africa and the rest of Africa.

"They (Vodacom) have gone for Neotel; we've gone for BCX because of the way in which our strategy is evolving and you know I hope they (Vodacom) wish us luck and we wish them (Vodacom) luck,” Maseko told Fin24.

Maseko made these comments to Fin24 after Telkom reported stronger revenues in its annual results announcement on Monday for its financial period ending March 2015.

The company reported that its group net revenue increased 3.1% to R26bn while its earnings before interest, taxation, depreciation and amortisation rose 15.1% to R9bn.

Meanwhile, Maseko also told Fin24 that plans are in place to separate Telkom’s business functions more clearly along three focus areas - retail, wholesale and enterprise. This change is expected to take a number of years and forms part of Telkom’s second stage of its turnaround process.

To date, Telkom’s turnaround plan has involved restructuring with regard to its Direct Stores, call centres, IT Legacy Systems and internal printing, supply chain and properties.