Vodacom, a unit of Britain's Vodafone, said the deal will help the company to "accelerate broadband connectivity" in South Africa, which has been lagging behind emerging market-peers.
Neotel, which majority-owned by India's Tata Communications has been in business for seven years, operating mainly in urban areas, in a sector which is still dominated by state-backed provider Telkom.
Vodacom group chief executive Shameel Joob said the 100 percent buyout fitted the company's business aim of growing its data business, where the company has seen growth in recent years.
In February, the Johannesburg-listed firm reported a 40-percent jump in revenue from data, boosted by an increase in smart phone Internet access.
It said 7.2 million customers in its main market, South Africa, were using smartphones.
The company also has operations elsewhere in Africa Mozambique, Nigeria, Lesotho, Tanzania and the Democratic Republic of Congo.
The transaction was still to be approved by competition authorities.
Tata Communications last week reported a net loss of Rs. 123.19 crores for the quarter-ended March 31, 2014. The company had posted a net loss of Rs. 5.20 crores for the corresponding quarter last fiscal.
The company's total income from operations rose by 18.6 percent to Rs. 5,219.31 crores for the reported period compared to Rs. 4,400.46 crores in the year-ago period, the company said in a filing to the BSE.