The venture capitalist and major investor in South Africa’s wireless broadband startup Rain, Michael Jordaan, has said on Tuesday that consolidation in South Africa’s telecommunications market is inevitable. His remarks, during a webinar hosted by PSG, come two weeks after Rain and Telkom walked away from talks about a potential combination of the businesses.

Jordaan, speaking to webinar host Alishia Seckam, said he is unable to comment on why Rain’s talks with Telkom didn’t lead to a transaction. However, he said: “While the Telkom merger hasn’t come off, it doesn’t mean it can’t happen in the future.

 “Consolidation in the telco industry is going to happen. In most markets, you have two or three big players,” Jordaan said.

It is likely that the industry’s smaller players – which, to his mind, include Telkom – will need to consolidate to take the fight to the industry’s two biggest players, Vodacom and MTN. Other than Telkom, Rain and Cell C will likely need to play a role in such consolidation, he predicted.

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On 11 January, Telkom and Rain have walked away from a transaction that could have seen the JSE-listed telecommunications operator buying the wireless broadband upstart.

MTN Group and Telkom had been in preliminary discussions about a deal of their own, but the former walked away when the latter indicated it was willing to engage in a discussion with Rain about a deal. Although MTN had said it was not after exclusivity in the talks, company insiders said they felt that having Rain involved in the discussions would unnecessarily complicate what would already be a difficult deal to get done.

‘Logical alternative’

“After initial discussions, but prior to any due diligence, the parties have decided that a suitable transaction is not possible at this time,” Telkom said about the termination of the talks with Rain.

Rain had pitched a deal as a more logical combination than one involving MTN and Telkom.

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“It is a logical alternative to simply selling to MTN and would also be consistent with the pro-competitive policies of government. The merger would bring together the considerable infrastructure and mobile businesses of Telkom and the successful, new-age 4G and 5G businesses of Rain,” Rain has said previously.

“Telkom continues to execute its strategy to unlock value for shareholders and will provide an update on progress in this regard in due course,” Telkom said on 11 January, without elaborating.

Kelechi Deca

Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry