No to MTN, Afrihost deal

No to MTN, Afrihost deal

2014-06-10 07:21

IT HAS taken MTN SA about two years to conclude a deal to buy Afrihost – but when it was finally agreed, the deal failed to cause any ripples in the market and on social media.

Strangely, market watchers and the normally active Twitter and Facebook commentators remained in a slumber – literally sweeping this deal under the carpet.

In a vibrant market it would have been expected that hard questions would have been asked.

Instead, we were made to understand that the transaction was not material to MTN and therefore the details of the deal would not be disclosed to the market.

As a result there was deafening silence around the deal that will see the gargantuan mobile phone operator snap up an effervescent and innovative internet service provider (ISP).

What a shame.

In a letter to customers Gian Visser, Afrihost CEO and founder, announced that MTN was buying 50% plus 1 of Afrihost’s shares. The existing shareholders, including management, would retain the remaining shares of the company.

Afrihost, a pioneering South African ISP, was the brainchild of best friends Visser, Brendan Armstrong and Peter Meintjes, who had a dream of building a company free of corporate shackles that would delight their clients with “excellent service and amazing products”.

Oh boy, they did delight customers. The trio was later joined by Greg Payne, Internet Solutions’ former chief operating officer, who helped formalise the company structure and maximise its strengths.

In September 2009, Afrihost entered the broadband ADSL market, via an initial offering of R55 per gigabyte that failed to attract a significant number of signups.

At the time it seemed the business was headed for the scrapheap of failed ventures, but the trio decided to use their advertising budget to subsidise their product and re-enter the market aggressively at R29 per GB versus rivals' R70 per GB.

The response was amazing.

Their new offering took the broadband community by storm.

To take the business forward in 2012, Afrihost piggybacked on MTN, providing its loyal customers with one of the country’s biggest and fastest growing networks.

Revolutionary mobile data service

A year later, Afrihost launched a revolutionary mobile data service by giving away more than R22m in value to its clients. It slashed Capped DSL data prices to less than R4 per GB.

In fact, Afrihost turned mobile broadband upside-down by providing the customers with a choice of affordable prices. It said at the time it was “doing away with all the contractual nonsense”.

Allaying concerns about the deal with MTN, Visser said: “Afrihost is like my fourth child. But just like children, businesses grow up and enter different phases of their life. Our child has grown up and as loving parents we need to help her flourish in the next exciting phase of her life.”

In essence only one thing changes, Visser pointed out: “We have a big brother standing by our side, shoulder to shoulder, supporting us in our dream and goal to become the absolute best company in South Africa.”

That said, clearly the devil is in the detail with regard to this transaction.

Strangely, the big brother (MTN) that is about to own Afrihost – subject to regulatory approval – has spent the last few months opposing the reduction of high communications prices in contrast to what has set Afrihost apart from its rivals, including mobile operators.

Afrihost has been a “real champion of the consumers” when it comes to bringing mobile broadband prices down.

If South Africa’s regulators give the deal a nod, MTN will acquire a great company in the ISP space with a good customer track record.

So, let me ask a few relevant questions about the proposed transaction.

But I must declare upfront that I am not privy to terms of the transaction and the real rationale from MTN’s perspective.

First, why should the regulator give the deal a go-ahead?

Second, what makes this deal so special and is MTN the correct big brother with a strong balance sheet to take over Afrihost?

Thirdly, should consumers be worried about mobile phone oligopolies taking over adjacent industries – for now, let’s park aside the need for convergence and address this.

On the first question, mobile phone operators have milked customers for years on voice telephony, so why should they be given a chance to do the same through buying ISPs such as Afrihost that already have a proven track record of providing affordable broadband access?

On the second question, besides MTN providing Afrihost with a world class network, what have they done to bring broadband prices down?

The last question should be left to be answered by policy makers.

However, the truth is that there’s good reason to believe that monopoly is itself a barrier to innovation.

So, let’s say no to MTN’s buyout of Afrihost.

- Fin24

*Gugu Lourie is a former correspondent for Thomson Reuters, Business Report, Finweek magazine and Fin24 (writing a blog titled 'Googled'). He is the editor of Views expressed are his own. Follow him on #twitter @LourieGugu

  • Joseph Shange - 2014-06-10 10:04

    The country is full of monopolies, if this was the US or UK maybe a bigger stink up would of been made about it. As South Africans we have always been used to one telephone provider, telkom.

      Bay Biscotti - 2014-06-12 06:29

      Yup, this was always on the cards, even though Gian and his crew initiated the project to be "free of corporate shackles". Such a shame! Oh well, guess it's time to bin Afrihosts and move on.

  • Real Realist - 2014-06-10 11:08

    MTN provided the internet service to Afrihost and it was pathetic a lot of the time. So no change!

  • Jian Reis - 2014-06-10 14:32

    I think you fundamentally misunderstand the word 'literally'.

  • Jacques Koorts - 2014-06-10 21:57

    Dude that is life. It is not necessary to cry about it in a blog. It is not the first time a company bought another.

      John Williamsii - 2014-06-12 00:28

      Ok so the consumers will cry? If he wants to write about it, it is his business. He's talking about maintaining lower prices for broadband. Or are you a monopolist? SA has some of the highest internet prices in the world. So you're clearly not for SA. Do you perhaps have a stake anywhere in this? Perhaps shares?

  • Leo Simango - 2014-06-11 15:08

    Acquisition is more the way with BIG companies, so far i'm certain about this, if there's a product that u intested in and there's a small company with that specific product why not secure it and extend yor vision from there. i support this 100%

  • Christopher Stephen Powell - 2014-06-12 06:32

    I couldn't agree more. I've been a very happy Afrihost customer for a few years now but I fear I will have to start looking around for a new service provider. MTN are the least customer-centric Comapny I've ever had the mis-fortune to deal with. They treat their mobile customers with utter contempt and their Call Centres and Retail Service Centres are worse than Govt. Gian has cashed in his pension and I wish him well but his customers will now pay a heavy price.

  • Louis J Harris - 2014-06-12 09:29

    "Strangely, the big brother (MTN) that is about to own Afrihost – subject to regulatory approval – has spent the last few months opposing the reduction of high communications prices in contrast to what has set Afrihost apart from its rivals, including mobile operators." Soon we will be paying R249.00 for 2 gigs from Afrihost because of this takeover. Afrihost call centre will not put me through to Visser, and they say they know very little about the deal. Already MTN's bad service is eating into Afrihost.

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