Are better days ahead for Cell C, the mobile operator that’s struggled for decades to compete with better-resourced rivals Vodacom, MTN and Telkom? I believe so.
Indeed, after multiple recapitalisations of its balance sheet, led by its largest shareholder, JSE-listed Blue Label Telecoms, South Africa’s fourth-biggest mobile operator appears to be turning the corner.
It’s still early days, but Cell C’s latest interim financial results — disclosed during Blue Label’s results presentation last week for the six months to end-November 2024 — paint a more encouraging picture than we’ve seen in the past.
Blue Label has a 49.5% “participatory interest” in Cell C but is in the throes of increasing this to a controlling stake — though the change of control has become bogged down at the Competition Tribunal for reasons that aren’t entirely clear.
The tribunal has said it had to incorporate intervention applications from MTN, Vodacom, retail group Pepkor and Cell C’s empowerment shareholder CellSAf, into its schedule, and that this took time. However, the applications — except for Vodacom’s, which was denied — were concluded in July and August last year, so it’s not clear what’s taking so long. The Competition Commission had recommended last April that the transaction be allowed to proceed.
Blue Label shareholders have long suffered for the decision to buy 45% of the mobile operator in 2017 for R5.5bn. The deal was widely regarded as unwise. Blue Label’s share price got the blues, and languished below R5 for years. But since August 2023, when the share price bottomed at around R2.80, it has appreciated by more than 150%.
Cell C owes Blue Label R2.6bn. Its total liabilities are still eye-wateringly high at R17.1bn (as of end-November 2024), but Cell C’s management team has expressed confidence that it can trade its way out of this debt without a further costly recapitalisation.
Blue Label disclosed last week that, in the six months to end-November, Cell C reported a net loss before tax of R111.1m, a big improvement on the loss of R336.7m in the same period in 2023. Revenue ticked up slightly to R6bn, while earnings before interest, tax, depreciation and amortisation — a measure of operating profit that’s closely watched by investors in telecommunications — jumped from R419m to R783m. Cash on hand doubled, while the gross margin shot up 23%.
Key to this nascent turnaround was Cell C’s decision to adopt an “asset-light” model. This has entailed shutting down its radio access network — the bit that connects subscribers to their nearest cellphone tower — and leaning on partners (and rivals) MTN and Vodacom, with which it was never able to compete on infrastructure given its limited spending power.
Cell C CEO Jorge Mendes has assembled a good management team and relaunched the brand. He has deployed complex technology called a “multi-operator core network”, or Mocn (pronounced “mock-in”), that will allow the company to make much more efficient use of its partners’ networks. He has also launched new consumer product propositions and focused on stepping up customer service. Cell C will soon launch a 5G network along with new fixed-wireless broadband solutions that compete with fibre.
Four cellular operators are better than three, provided the market can sustain this number
The company’s decision to effectively outsource management of its network is paying off: Cell C has moved up independent network quality rankings and its signal is now available wherever MTN and Vodacom have coverage.
A stronger Cell C is beneficial for South Africa. A company that has the financial wherewithal to compete, albeit strategically and not through an all-out price war, is ultimately good news for consumers, as it will help keep its bigger rivals in check.
Four cellular operators are better than three, provided the market can sustain this number. Ultimately, it’s probably good for Vodacom and MTN too, because additional competition should translate into less unwanted focus from the competition regulators, who have taken a keen interest in the sector in recent years.
Mendes says the new Mocn deployment has allowed Cell C to create a virtual representation of its network on top of either Vodacom or MTN infrastructure. This has given it better control over where it directs user traffic, allowing it to lower costs and be more efficient. “This is very exciting and is a different place to where we were 24 months ago on the technology side,” Mendes says.
There’s a still long road ahead for Cell C as it looks to extricate itself finally from the debt hole that threatened to pull it under. However, it is beyond doubt that the company is now at least pointed in the right direction.
* McLeod is editor of TechCentral
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