Cell C's move to shut down several of its franchise stores across SA could be a way for the company to cut back on costs, says an analyst.
The country's third mobile operator has been drowning in debt, while trying to make a crack in the incumbent operators' market shares.
Over the last few weeks, the company has initiated several cost-cutting initiatives. These include the revelation that it is in discussions to sell its national network of base stations to two possible international businesses: American Tower Corp and Eaton Telecom.
Cell C has now announced it will shut down certain franchises. However, the company says the process has been implemented “to improve its current sales and distribution channel”.
“Within the new model, some of the existing franchisees will stay on and manage a larger number of outlets, some new parties will be introduced and some franchisees will no longer have a contractual agreement with Cell C,” explains newly-appointed CEO Lars Reichelt.
Spiwe Chireka, ICT industry analyst at Frost & Sullivan, believes this is part of a cost saving strategy on Cell C's part. She says the current franchise model does not really make sense for the operator.
According to Chireka, Cell C's primary target market is the lower end of the market segment. “Chances of customers returning to stores within 18 to 24 months of having been there are very slim,” she adds.
Chireka says the decision could see the firm move toward third-party distributors instead of having its own dedicated stores. “Their focus would be on airtime sales and you don't need a franchise for that, especially with e-distribution systems.”
However, she points out that people will still need the services the franchises could offer, even though the internal cost saving could work. “They do need an alternative, because a sound distribution model is a key competitive differentiator,” she adds.
Cell C declined to indicate how many of the franchises would be shut down.
Chireka says there may be another reason Cell C is moving towards a different distribution model. She notes the operator could be reacting to the changes in tariffs and a new competitive market.
She adds that, with the recent tariff reductions, providers are likely to tackle the distribution channel in order to maintain margins, since their other option is to raise subscription costs.
“If we look at MTN and Vodacom and what they are doing, we know that profitability is really slow and so you have two options: either increase revenue or cut costs. So this is us seeing mobile operators beginning to react to tariff reductions and a decline in short-term revenue,” she concludes.
The company has yet to announce its new sales and distribution structure.
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