Vodafone’s hope of expanding into Africa’s fast-growing mobile phone market was dealt a blow yesterday when a £5 billion deal to gain control of its South African joint venture collapsed.

The company had been in talks for several months about raising its 50 per cent stake in Vodacom, the mobile phone company that it co-owns with Telkom, South Africa’s dominant telecoms operator.

Vodafone had hoped to use the business as a base to expand in Africa. Telkom called off the talks after failing to agree on price with a third party, MTN, its South African peer, which was to have bought Telkom’s fixed-line assets.

Vodafone insisted that the door remained open. It is thought to be hopeful that another company – potentially from private equity – could buy Telkom’s fixed-line assets.

The failure of the negotiations marked a significant setback for the group. Vodafone has long coveted control of Vodacom, which has operations in South Africa, Mozambique, Lesotho, Tanzania and the Democratic Republic of Congo.

Arun Sarin, Vodafone’s chief executive, said recently: “We would like to be in Africa to a greater extent. We would then run our African expansion from South Africa.”

Figures from Portio, the specialist telecoms sector research company, indicate that only 14 per cent of the continent’s 900 million people possess a mobile phone. It expects the subscriber base in Africa to reach 378 million by the end of 2011. Competition in many countries, it points out, is still limited, with 60 per cent having only one or two operators.

Telkom’s 50 per cent stake in Vodacom had been valued by analysts at about 75 billion rand (£5.3 billion), although Mr Sarin had been willing to settle for less than full ownership.

Telkom said that “as discussions with Vodafone regarding Telkom’s investment in Vodacom were subject to agreement being reached with MTN, Telkom shareholders are advised that discussions with both MTN and Vodafone have been terminated”. The decision to end talks with MTN had been triggered, it said, “primarily by matters related to the anticipated costs and benefits . . . of the transaction”.

While no talks were under way, the group said that it had received “certain expressions of interest” from other parties.

Vodafone said that it remained keen to do a deal. “We remain interested in increasing our ownership in Vodacom at values that meet our mergers and acquisition criteria,” a spokesman said.

Executives involved in the deal said that a “period of quiet reflection” would follow.

As growth in its core Western Europan markets has slowed, Vodafone has increasingly turned to fast-growing emerging markets where many users are leapfrogging fixed-line services to take up mobile phones.

Recent deals have included a £2.4 billion acquisition of Telsim in Turkey and its $11.1 billion (£5.4 billion) takeover of Hutchison Essar, India’s fourth-biggest mobile phone operator.

The group is eyeing further deals in markets including Asia and Eastern Europe. It recently opened an office in Hanoi to keep track of Vietnam’s privatisation projects.

A Telkom deal would have had huge political ramifications, reshaping the country’s telecoms industry. It would have spelt the end of Telkom and created a new national champion in the form of the enlarged mobile/ fixed-line giant MTN.

Vodacom’s interim results for the six months to September 30 showed that total customers increased by 22.6 per cent to 31.6 million, of which 23.3 million are in South Africa.

Profit after tax increased by 17.5 per cent to R3.7 billion on revenues up 17.2 per cent to R22.8 billion.

Greater network mobility

Users of mobile phones will be able to take their number to a rival network within two days, under new rules expected to be published by Ofcom today. The move comes after fears by the telecoms watchdog that consumers are being deterred from changing their mobile phone operator by a slow and complicated transfer process.

Ofcom has faced pressure to introduce the change from both consumer groups and 3, the fifth-ranked mobile operator, which claims that it is losing out as a result of the slow and frustrating system. Eventually users should be able to take their number to a rival network within two hours.

Consumers may have to wait two years for that change to come into effect. Some mobile operators, such as O2, have condemned the expected change, saying that some consumers could be “duped” into signing up to a rival operator.

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