INDIA BUSINESS WORLD - AUGUST 2006
THE MONTH THAT WAS...

TATAS SET TO PICK 26% STAKE IN SOUTH AFRICAN TELECOM VENTURE

THE TATAS are picking up 26% stake in a new telecom company in South Africa , InfraCo, where the remaining equity will be held by the South African government. The JV will be the third network operator in South Africa , and will, apart from offering long-distance services within the country, build and operate marine telecom infrastructure for international long-distance traffic. The investment will be routed through Tatas' long-distance arm VSNL, which already owns Tyco, one of the largest players in the ILD space. The JV, when it becomes operational, will enhance VSNL's share in the ILD market.

The deal also marks the Tatas' second telecom venture in South Africa . VSNL already has a 26% stake in SNO Telecom, which has a licence to provide all telecom services except mobile telephony. The Tatas have already announced an investment of about $250 million in SNO Telecom, which is slated to launch services by the month end and become the country's second fixed-line service provider.

Sources close to the development that in the first phase, InfraCo would require about $350 million just to launch operations. Of this, the South African government would provide $225 million, VSNL about $60 million, while the balance would be funded by debt. Investments for the next phase are yet to be mapped out, sources added.

When contacted, the Tata group spokesperson declined to comment. Explaining the rationale behind the JV, an industry source explained: “Infra-Co will buy out Eskom's telecom infrastructure and lease bandwidth exclusively to SNO Telecom at cost plus 4%. SNO will therefore be able to cut operational costs massively and compete head-on with Telkom — South Africa 's only fixed-line operator at present.