South Africa Said to Consider Partial Sale of Broadband Infraco

(Bloomberg) -- South Africa’s government will decide this week whether to part-privatize the country’s second-largest fixed-line operator, Broadband Infraco, as the company runs short of cash, according to two people familiar with the matter.

A sale process would interest Vodacom Group Ltd., South Africa’s largest mobile operator by customer numbers, spokesman Byron Kennedy said in e-mailed comments on Tuesday, without saying whether he was aware of government plans. Dark Fibre Africa, South Africa’s largest fiber company by network size, would also consider bidding for a stake, according to a person familiar with the matter, who asked not to be identified as the closely held company’s plans are private.

Telkom SA SOC Ltd., the country’s former landline monopoly 40 percent owned by the government, held talks with Infraco but couldn’t reach agreement, said spokeswoman Jacqui O’Sullivan, without giving further detail.

Broadband Infraco hasn’t made a profit since it was established in 2010 to deliver cheaper broadband to South African citizens, particularly in rural areas. The company has approached two state-owned development institutions, the Development Bank of South Africa and the Industrial Development Corporation, for additional funding, documents seen by Bloomberg show. Broadband Infraco made a loss of 91 million rand ($6.8 million) in the year through March, and its cashpile fell to 81.7 million rand by 30 June from 267 million rand 12 months previously, the documents showed.

The potential sale of a stake in of Broadband Infraco to a private company would follow a report commissioned by President Jacob Zuma that found that South Africa should consider selling stakes in state-owned companies to private entities to improve their finances and tackle operational failures. The government is considering merging two state-owned airlines and selling off a stake in the enlarged carrier to private investors, Finance Minister Pravin Gordhan said in his budget speech in February.

South Africa’s telecommunications industry regulator announced the auction of new broadband spectrum last month to address a shortage of high-speed internet in Africa’s most industrialized economy, although the move was later opposed by the telecommunications ministry. The country is one of the global stragglers in terms of broadband provision, with 3.21 subscriptions per 100 people in 2014, compared with the global average of 10.56, data compiled by the World Bank show.

Wireless operators including Johannesburg-based Vodacom are seeking new spectrum to add more wireless customers in a market that’s struggling to grow. The unit of Newbury, England-based Vodafone Group Plc had pursued internet provider Neotel Pty Ltd., though was eventually forced to abandon the deal amid regulatory pressure and legal action by competitors. Neotel was instead bought by Econet Wireless Group unit Liquid Telecom.

To contact the reporter on this story: Loni Prinsloo in Johannesburg at lprinsloo3@bloomberg.net. To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net, John Bowker