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Tata-led Neotel takeover in South Africa under regulator scrutiny

Neotel was established by a Tata-led consortium in 2006 as South Africa's second fixed-line operator to rival government-owned Telkom's monopoly.

(Photo: Reuters) (Photo: Reuters)

The proposed buyout of Neotel, the Tata-led telecoms operator in South Africa, is not aimed at taking over the lucrative spectrum licenced to it, the country's leading cellular company Vodacom told telecoms regulator ICASA.

The deal came under scrutiny at Independent Communications Authority of South Africa (ICASA) for two days as various stakeholders commented on the deal, which some said would result in Vodacom gaining an unfair competitive edge over its rivals.

Neotel was established by a Tata-led consortium in 2006 as South Africa's second fixed-line operator to rival government-owned Telkom's monopoly.

Three years later, Tata Communications took control of Neotel by buying a 30 per cent stake previously held by parastatals Eskom and Transnet.

At the time, Neotel chief executive Ajay Pandey said the Tata transaction would further allow Neotel to leverage on Tata Communications' proven and vast global network of tried and tested technologies in countries such as India, with similar telecoms landscape to South Africa.

"It allows us to continue bringing global best practice to the South African market to position our country more effectively in the international economic context," Pandey said.

Vodacom representatives told ICASA that the seven-billion rand acquisition of Neotel would be done without exercising control over its allocated radio frequency spectrum.

Legal counsel for Vodacom, Steven Budlender, argued that the deal was not a transfer of Neotel's spectrum licences, but only of ownership of Neotel's business by Vodacom.

Budlenderr said control of the licences would remain with Neotel, and if Vodacom wanted the spectrum, it would enter into a separate arrangement with Neotel.

This was countered by competitor Cell C, which said the business could not be taken over without the licences also being transferred.

Legal counsel for Cell C Graham Mackinnon told the regulator that Vodacom's acquisition of Neotel would entrench Vodacom's dominance in the market.

But Vodacom chief executive Shameel Joosub said the deal would drive down broadband prices and allow Vodacom to extend fibre-to-home connections to a million homes within three years.

Since its inception, Neotel has rolled out vast networks to link many areas of South Africa, which is what many believe Vodacom wants to gain access to.