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Cell C 'on the back foot'

Nicola Mawson
By Nicola Mawson, Contributor.
Johannesburg, 26 Jan 2015
Cell C will forever be on the back foot because SA's mobile duopoly can afford to invest much more than it can.
Cell C will forever be on the back foot because SA's mobile duopoly can afford to invest much more than it can.

Cell C, which has about a fifth of all South African mobile subscribers, is on the "back foot" and "falling behind" in the mobile race, say analysts.

The third mobile operator, which is fighting "tooth and nail" against Vodacom's proposed buyout of Neotel - in a R7 billion deal - is also taking the Independent Communications Authority of SA (ICASA) on over last year's termination rate drop.

In addition, Cell C - which last year pushed out the maturity date of bonds worth EUR160 million (currently about R2 billion) - was last week written down to the tune of R2.1 billion by Saudi Telecom Company, which indirectly owns 26% of Cell C through Oger, the operator's majority shareholder.

At the same time, Cell C is set to invest R2.4 billion in high-speed broadband this year; a figure that is a drop in the ocean when compared to the investment by SA's mobile duopoly.

Not enough

Ovum analyst Richard Hurst says Cell C is "forever on the back foot" when it comes to taking on SA's "800-pound gorillas" MTN and Vodacom. He notes the reported R2.4 billion investment in its 4G network is much smaller when compared to the many billions the mobile duopoly invests.

Vodacom and MTN will have invested a combined R15 billion into their networks over the course of last year, as they seek to improve base station coverage and speeds. Last year, Cell C rolled out 442 towers across the country, and has an additional 158 sites being built in Gauteng, which should be turned on early this year.

Independent analyst Paul Booth says Cell C's investment is "not much in comparison to Vodacom" but does represent a start. He notes for Cell C to compete more effectively, it needs a stronger partner, which could be an international investor.

"Because of their size, Cell C's capex is not the same as the 800-pound gorillas that we know and love," says Hurst. He notes, as a result, Cell C is forced to use other company's infrastructure for backhaul purposes, which is why Cell C is against Vodacom buying Neotel as that would give Vodacom a leg up in the fibre-to-the-premises race.

Absa Investments analyst Chris Gilmour says Cell C needs to invest much more, especially at a time when MTN and Vodacom are putting serious fibre in the ground. He notes Cell C has not made public any plans it has to put fibre down, beyond its stake in FibreCo, which leaves it lagging when it comes to fixed connections.

Whingeing

At the same time, the operator is also taking ICASA to task over mobile termination rates as the regulator's final regulation is not as beneficial to the company as its initial suggestion. Hurst says it makes sense for Cell C to take ICASA on because termination rates could have an immediate benefit on the company. "It allows them to get their heads up a bit."

Cell C has gone to the South Gauteng High Court to get it to review ICASA's latest decision on termination rates. CEO Jose dos Santos says Cell C does not agree with ICASA's call termination regulations and, last month, it went to the court to get a copy of the record leading to ICASA's decision to promulgate the regulations.

Dos Santos explains the record is "all correspondence between ICASA and the network operators and other parties, ICASA's meeting minutes, reports from ICASA's experts, presentations and other documentation that shows what process ICASA followed and what information it relied on in making its decision".

He adds: "Once Cell C has received the full record and has studied it in detail together with its legal advisors, economists and other experts it will decide what further steps to take in this matter."

However, says Hurst, Cell C's constant "tooth and nail" battles could make the company look like a "bunch of whining people". Gilmour adds: "Cell C is falling behind without a shadow of a doubt."

Cell C was unable to respond to a request for comment.

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