Rumours that Indian-owned cellular network operator Bharti Airtel may be looking to buy Cell C have been discounted by analysts who say SA's smallest operator is always vulnerable to such speculation.
Last week, speculation about Bharti Airtel's intention towards Cell C was fuelled by industry sources close to the company. The rationale behind the alleged proposed tie-up was that a deal would make sense after Bharti Airtel had snapped up Kuwaiti-owned Zain for $10.7 billion in March.
“It makes sense because SA, which is probably the most lucrative African market, is missing from the Zain network,” an industry source says.
However, Cell C, which is due to release its annual results by the end of this week, has refused to comment on market speculation or rumours. “Neither do we comment on shareholder issues,” the Cell C statement says.
Cell C, which has just less than seven million subscribers out of a total market of around 44 million, has been the subject of similar takeover rumours in the past, with supposed potential buyers including France Telecom-owned Orange and SA's own Telkom.
Arthur Goldstuck, MD of research firm World Wide Worx, says that - while a possible purchase of Cell C by Bharti Airtel may seem to make sense from a geographic point of view - it may leave the Indian group vulnerable in a financial sense, and so would not be a good idea.
“Zain is on the back foot in almost all its African markets. To buy Cell C, which is in the process of revamping its network and burdened by heavy debt, would not be strategically wise,” Goldstuck says.
Although not listed, Cell C has a corporate bond issue to the value of R5.7 billion in the international capital markets. In 2007, international ratings agency Moody's downgraded the bond to below investment grade, but changed its mind in 2008 and upgraded it again.
Moody's says the decision to upgrade Cell C's ratings reflects both Cell C's improved operating performance and Moody's attribution of greater expected support from its main shareholder, Saudi Oger.
Last year, Cell C stated it generated revenue for the year of R8.6 billion, an increase of 14% from the 2007 year, and achieved EBITDA of R812 million. It said then that it had 6.4 million subscribers.
This year, Cell C is investing R5 billion to expand its network coverage and rollout a high-speed broadband offering using HSPA+ technologies with download speeds of up to 21Mbps.
Goldstuck says that, although Cell C is the smallest of the three mobile network operators in SA, market commentators often underestimate it.
“With its customer base, it is one of the largest companies in SA, with only MTN and Vodacom beating it, and the four major commercial banks having equal or larger customer bases,” he says.
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