Telecom giant, MTN, is in talks to buy South Africa’s incumbent operator, Telkom.

As South Africa's second- and third-largest mobile operators, if approved the deal would alter the competitive dynamics of the market substantially and would effectively create a duopoly in a market that currently benefits from a healthy level of rivalry between operators.

In the mobile segment, MTN’s position would improve dramatically.

Using the latest data (quarter 1, 2022) available from the operators, Fitch Solutions estimate that MTN’s market share would increase to 48.4% with the acquisition of Telkom’s 16.94 million subscribers it reported for the year ending March 2022. This would transform MTN into South Africa’s dominant operator, usurping the position of current market leader Vodacom.

“We estimate its market share currently sits at around 36.8%. As a result, South Africa’s mobile market would effectively approach duopoly status, with smallest MNO Cell C and the MVNOs unable to engage in meaningful competition with the primary players”, it added.

Demand for Telkom’s mobile services have shown consistent growth since the telco re-entered the mobile segment in 2010, and it was the only operator not to have recorded subscriber losses during the Covid-19 pandemic.

Telkom’s aggressive pricing strategy has served its growth accordingly and allowed it to secure subscribers at the expense of the other market players. Exposure to Telkom’s growth trajectory could reverse the volatile trend of customer acquisition and retention that MTN has faced over recent years.

MTN would also gain access to Telkom's spectrum holdings, the primary appeal here being the latter's 22MHz of spectrum in the 3.5GHz band that it acquired during the long-awaited 5G spectrum auction that occurred in March 2022.

Spectrum in the 3.5GHz band is critical for deploying 5G, Fitch Solutions said, and is therefore key to generating additional value in mobile operations, particularly at a time when robust competition has been driving down ARPUs.

Moreover, collecting Telkom's spectrum would also give MTN superiority in terms of overall spectrum holdings after Vodacom emerged from the auction as the biggest spender.