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Cell C sale the operator's best bet

Bonnie Tubbs
By Bonnie Tubbs
Johannesburg, 19 Feb 2015
Cell C cannot escape the consolidation wave washing over SA's telecoms landscape.
Cell C cannot escape the consolidation wave washing over SA's telecoms landscape.

SA's "consumer champion" Cell C, which has about 20 million, primarily low-end customers, is a prime takeover target for an international player with a strategic interest in the country, and a sale of the operator is likely its best bet for survival.

This is according to industry watchers, in response to ongoing talk around the likelihood of a buyout of Cell C - majority owned by Oger Telecom - by another giant, either in the local or international ICT pool.

Cell C is 75% owned by Dubai-based Oger Telecom, which is in turn 35% owned by Saudi Telecom - one of the top three Arab telecoms companies in the world.

Yesterday, Bloomberg reported Cell C - SA's third mobile operator with 12% market share - was "exploring options" that included a sale to domestic competitors. Cell C was working with global investment firm Goldman Sachs on the review, said the publication, citing "two people familiar with the matter".

Independent analyst Paul Booth says Goldman Sachs would have been brought on board in an advisory role.

Strong indicators

Although the rumour mill has long been kept going by talk of Cell C being bought out, analysts note recent indicators are stronger than ever, and talk now may be more than a rumour. Last month, Saudi Telecom impaired its investment in Cell C by R1.2 billion.

Meanwhile, Oger said yesterday it was "fully committed to Cell C and its growth plans", adding the $450 million equity it has pumped into the business over the past 24 months bears testament to this.

"We are pleased with the progress made by the company over the last two years, and Cell C continues to have sufficient resources to meet its near-term obligations." Cell C CEO Jose Dos Santos remains optimistic about the company's future, saying shareholders are pleased with the path it has been following.

Inevitable direction

Analysts say Cell C cannot escape the consolidation wave SA's telecoms landscape is engulfed in.

ICT expert Adrian Schofield says business logic in SA favours consolidation - and this is increasingly becoming something regulation cannot change.

Market leader Vodacom is looking to buy Neotel, while MTN and Telkom are working on a deal that would mean reciprocal tower use. Telkom has also put in an application to buy Business Connexion. These negotiations are at the mercy of SA's regulation system.

Booth says there is no doubt, with all the consolidation going on in SA, that Cell C needs a partner.

Ovum analyst Richard Hurst says there could be any number of reasons Oger would want to sell Cell C, despite the market share growth Cell C has seen over the past two years. "While gaining market share is certainly key for the operator to sustain its business, a new strategy may be needed to take the operation into the next level of sustainability."

BMI-TechKnowledge director Brian Neilson says, while one less player would clearly be worse for the consumer, it is equally not in the consumer's interest for Cell C not to be bought, if the company cannot keep operating at a loss.

Likely candidates

French telco Orange is the most likely candidate for a buyout of Cell C, according to commentators. The company has taken a number of steady steps to entrench its presence in SA and has made no secret of the fact that it is eyeing the local terrain to add to its already significant African portfolio.

Booth says Orange is the biggest sniffer, but a dark horse could also be Vox Telecom. The fact that Cell C has enlisted the services of an international firm for advisory purposes, however, points to international interests, he says.

"There are a number of international players who have had eyes on the market for some time, like BT and AT&T. Then there are other African players [apart from Orange] like Airtel, Zain and Millicom.

Neilson says a new foreign entrant, perhaps a China Mobile for example, may also be prepared to take a long-term view to buying Cell C.