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JOHANNESBURG (Reuters) - South Africa's Vodacom Group (VODJ.J) said on Monday it was in exclusive talks to buy the unlisted local unit of India's Tata Communications (TATA.NS) in a potential $590 million deal that would give it a large fiber optic network for high-speed Internet.
Acquiring Neotel would be a major boost to Vodacom's ambitions to grow its data business in Africa's largest economy.
Vodacom, a unit of Britain's Vodafone Group Plc (VOD.L), is the most popular mobile carrier in South Africa, but has little presence in fixed-line and fiber-optic services, both key to winning business clients.
"The benefit they would gain is an expanded client base in the fixed-line market segment," said Dobek Pater, an analyst at consultancy Africa Analysis. "They would gain access to fiber footprint and spectrum, and probably some additional skills to augment their current skills base."
Vodacom CEO Shameel Joosub said the company would aim to deliver more high-speed Internet to homes and businesses. Neotel has access to more than 15,000 km (9,300 miles) of fiber-optic cable, with over half of that in major urban areas, he said.
Neotel, which has mainly small and medium-sized businesses as its clients, has invested some 7 billion rand ($695 million) in developing infrastructure, Pater said.
South Africa's fixed-line market is dominated by former utility Telkom SA (TKGJ.J), which is still part-owned by the government and has plans to roll out broadband Internet in rural areas.
Vodacom said it was looking to acquire 100 percent of Neotel and any shareholder loan claims. It did not give a potential value for the deal.
However, Tata Communications said in its latest annual report it had paid 922.4 million rupees ($14.8 million) for an extra 2.5 percent stake in Neotel, which would value it at about $590 million and bring Tata's stake to 67.32 percent.
Neotel's other two shareholders are CommuniTel, a partnership that includes Telecom Namibia, and a black empowerment shareholder, Nexus Connexion, according to Neotel's website.
Neotel said CommuniTel holds 12.5 percent. That would put Nexus' stake at 20.18 percent, according to Reuters calculations.
Neotel posted a 17.7 percent annual rise in quarterly revenue to 812 million rand ($80.6 million) in the three months to June. Tata, in comparison, has posted losses in four straight years to March 2013.
Africa's biggest telecoms operator MTN (MTNJ.J) said last month that talks to acquire a Neotel stake had fallen through.
Vodacom shares finished down 1.2 percent at 124.45 rand, compared with a 0.8 percent decline by Johannesburg's benchmark Top-40 index .JTOPI. ($1 = 10.0775 South African rand)
Additional reporting by Devidutta Tripathy in New Delhi; editing by David Dolan and Mark Trevelyan