Why Vodacom should buy TopTV

Telecoms analysts believe that for Vodacom to consider buying pay-tv company TopTV, should not be seen as far-fetched.

Vodafone, which has a 65% stake in Vodacom is believed to be mulling over the acquisition of Germany’s largest cable player Kabel Deutschland (KDG), which would see the firm increase its play into the TV market.

And TopTV may be offered at a good price.

Bargain

In November, the cash strapped TopTV said it would adopt the provisions of business rescue as per the new Companies Act (under Section 129) in order to stay afloat financially while it searches for an equity partner.

On Digital Media (ODM), the company that runs TopTV, also sent out a letter to creditors warning them that they would not be able to pay debts for the next six months.

Mobile + TV bundle

Ian Duvenage, consulting manager for business consulting firm, Frost & Sullivan Africa says leading global companies have been playing in the television space for some time and are selling bundled offerings very successfully – BT Global being an example. Deutsche Telekom also has an IPTV offering, the analyst noted.

“It might be an opportunity for Vodacom to purchase TopTV in South Africa,” he said.

In the South African environment, Duvenage opined that it might be a good time for Vodacom to consider this investment in TopTV as the available bandwidth is rising, and more connected devices are being used in homes around the country.

“This could be a great platform to build, as it will enable delivery of other material to devices going forward, like using this as part of their mHealth offering,” he said.

“It is something we may consider in the longer term but we have no immediate plans,” Vodacom said when asked if the group had explored the possibility of adding TV to its current offering  as part of a bundled service.

But what of  SA and technology?

Duvenage believes that video compression technology is reaching a stage where it would be possible to deliver video to mobile phone/tablets, competing with the DStv Drifta offering.

“Vodacom have very strong relationships in the sport industry (current sponsorships), thus focusing on a couple of categories of sport could convert targeted groups/fans to the TopTV offering,” the analyst said.

Duvenage pointed out further that BT paid £738 million for the rights to 32 Live Premier League football games per season for three years in the UK, starting in 2013.

“Proper integration of the TV and mobile offering becomes possible – with updates, key stats and figures being sent out – that could lead to bulk advertising campaigns across different delivery channels,” Duvenage said.

Vodafone connection

Vodafone TV already offers 100+ Live channels, “and making some of that content available locally could allow them to become a very dominant TV provider in the country, and potentially the rest of Africa, through their current footprint,” Duvenage said.

Spiwe Chireka, program manager of telecoms at research and advisory firm the International Data Corporation (IDC) says that the purchase of TopTV can work for Vodacom through its affiliation with Vodafone, which could provide access to working business models.

Data delivery platforms

“It appears the short-term strategy for Vodacom is to drive data usage, but it is not clear on what content the company intends to use as a vehicle to achieve this. That said, it is not far-fetched at all that the company would consider snapping up an existing TV provider such as TopTV,” Chireka said.

However, the analyst stressed that Vodacom has already tried a venture into the television sector.

In 2007, the operator launched DStv Select. In 2011, however, MultiChoice took over the running of the DStv Select bouquets, previously administered by Vodacom.

“I suspect at that time it was devices, etcetera, that caused the offering to not be a major buzz in the market. Furthermore, it appears its partner at that time – DStv – has decided to go it alone through its Walka offering.”

“That means multichoice is no longer a viable partner,” Chireka said.

M&A or bust

According to the IDC, Vodacom would likely avoid starting a TV operation from scratch.

“Vodacom will definitely not be looking to make the same mistake as Telkom Media by trying to set up its own mobile TV unit. An M&A makes sense, especially via a challenger to Multichoice like TopTV,” Chireka said.

The analyst said it would be critical to make devices available, whether in the form of smartphones or mobile TV units, while a well defined revenue model from such a partnership would also be important.

In the quarter ended 31 December 2012, Vodacom said that smartphones are a key strategic growth driver with active smartphones increasing 29.2% to 5.8 million devices.

More on Vodacom and TopTV

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Why Vodacom should buy TopTV