That South Africa is the next engine to drive mobile usage growth has already been amply demonstrated by the amazing growth figures and the interest shown in the region's largest domestic communications entity MTN by two of its largest peers in India and other companies. If further clarification is needed of the fact, Vodafone's interest in increasing its stake in South Africa's Vodacom will serve to provide one. (See: Reliance Communications in acquisition talks with MTN after Bharti withdraws)

UK-based Vodafone, the largest telecommunications company in the world by annual revenue (China Mobile beats it in terms of subscriber numbers) has reportedly offered Rand18.75 billion ($2.5 billion) for a 12.5-per cent stake in Vodacom, its 50:50 joint venture with Telkom South Africa Ltd. The latter, in turn, is controlled by the government and Public Investment Corporation who own 38 per cent and 15 per cent respectively.

In filings to the New York and Johannesburg Stock Exchanges, Telkom said it has received a "non-binding" proposal from a subsidiary of Vodafone on 30 May.

"Telkom received a non-binding proposal from a wholly-owned subsidiary of Vodafone Group Plc to acquire a portion of Telkom's stake in Vodacom Group (Proprietary) Ltd (Vodacom) subject to, inter alia, the company unbundling its remaining stake in Vodacom to Telkom shareholders," the filing said.

Last week, Vodafone while announcing its annual results, had expressed its interest in buying stake in Vodacom.

The offer follows local investment house Mvelaphanda saying it wanted to pick up Telkom's fixed-line operations for R90 billion, followed by announcements that it may consider buying the entire company. However, both these offers are conditional that Telkom relinquishes the remaining 37.5 per cent by unbundling those shares to Telkom's shareholders.

In the aforementioned filing, Telkom said that it has received a letter from a consortium comprising Mvelaphanda Holdings (Proprietary) Ltd, affiliated funds of Och-Ziff Capital Management Group and other strategic funders, saying it was considering making an offer for the entire issued share of the firm.

"The letter makes it clear that the offer will only be made if a number of pre-conditions are met including, inter alia, confirmation by the Telkom Board that it will unbundle Telkom's entire 50 per cent stake in Vodacom as part of the offer," the filing added.

The discussions with Vodafone which started on 14 May are independent from the approach made by the consortium, it added.

Vodafone does not want to buy 100 per cent of Vodacom as it would quickly have to resell part of the South African operations to black investors in an empowerment deal that would probably happen at a discount.

The transactions could see Vodacom being unshackled from parent company Telkom and listed as a separate entity through interlinked bids worth R108 billion to sever Telkom's fixed-line assets from its cellular operations.

As to the merits of the individual bids, Vodafone is obviously at an advantage. For one, it already has experience running the company, or half of it. Moreover, its offer is also more generous.

Telkom's shares leapt R21 to temporarily hit R158 yesterday, with the 15 per cent spike valuing it at R82.2 billion. Yet one analyst said the combined assets were worth far more, so the trading price showed that investors were not convinced the deals would reach fruition.

Analysts believe Vodacom to be worth about R120 billion, valuing Telkom's half-share at R60 billion. Based on that assessment, Vodafone is already offering a generous mark-up, with its bid of R18.75 billion valuing a 50 per cent stake in Vodacom at R75 billion.

That accounted for practically all of Telkom's market capitalization of about R80 billion, showing that the combined entity was clearly trading at a massive discount. Therefore, massive unlocking of value can happen by listing Vodacom as a listed entity.