Africa’s biggest mobile operator, MTN Group, is close to acquiring a stake in Nigeria’s only surviving Code Division Multiple Access (CDMA) network Visafone Communications for an unspecified sum, Reuters said on Friday, citing two unnamed sources.
“The deal is done. We’re almost putting ink to paper,” a source close to the deal was quoted to have said.
Visafone was set up eight years ago by one of Africa’s richest men Jim Ovia, growing its subscriber base to 2.2 million at the end of 2014 from the 30,000 it ended its first year with. It is the only CDMA service provider in Nigeria at the moment; 12 received licences from Nigeria Communications Commission (NCC) in 2011.
Why is MTN buying?
In a relationship that could be regarded as largely symbiotic, the South African telco is looking to strengthen its grip on its most important market on the continent by investing in Visafone.
Although details of the deal have not been disclosed by either of the firms, it is believed that MTN is investing in Visafone’s data services. Nigerians have shown their preference for GSM over CDMA for voice services (active mobile CDMA lines, which stood at 7.1 million in January 2011, dropped to less than 3.4 million by December 2012), it is therefore very unlikely that any investment by MTN will be geared towards Visafone’s voice business.
The South African group’s 60 million users in Nigeria as of December 2014 make up 27 percent of its entire subscriber base across 22 countries, including a few in the Middle East. Its Nigerian unit is also the biggest revenue contributor, responsible for more than one-third of its total turnover. MTN Group 2014 results from its Nigerian operations showed impressive data revenue growth of 28.3 percent, which contributed 18.6 percent of total revenue. This was due to an 18.1 percent increase in data users and increased smartphone penetration, making an expansion of its data services an attractive prospect.
Why is Visafone selling?
Despite being the most suited for broadband and data services, CDMA technology platforms have faced stiff competition from more established rivals.
The capital intensive CDMA business is eating deeply into Visafone’s finances, forcing it to owe Zenith Bank, its sister company, over N345 million. It is also struggling to compete well in a voice business dominated by GSM networks operated by top-tier firms like Globacom, Airtel and MTN. Further challenges by data business LTE service providers such as Swift Nigeria, Smile, and Spectranet have placed the company on the brink. However, the new deal will lift some of the burden off Visafone’s shoulders, and offer some needed cash injection.