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Cell C open to negotiations amid talk of China Mobile interest

Samuel Mungadze
By Samuel Mungadze, Africa editor
Johannesburg, 08 Oct 2019

Debt-burdened telco Cell C is willing to talk to anyone wanting to stabilise the company, it says, responding to ITWeb following speculation that China Mobile is interested in courting the mobile operator.

On Sunday, a source with knowledge of the matter told ITWeb negotiations are taking place between Cell C and China Mobile, saying a deal is imminent.

The development comes after Cell C last month reported a .

The mobile operator says it will engage anyone with the view of turning the company towards viability.

 “We cannot comment on behalf of China Mobile who may be in negotiations with various mobile operators around the world.

“Cell C will keep the door open to any conversations that will assist the company’s future viability,” it says.

Cell C CEO Douglas Craigie Stevenson recently told ITWeb that Cell C is not considering a merger.

Lixiang Baumann, country head at China Mobile International’s South African office, hadn’t responded to ITWeb’s requests for comment by the time of publishing.

Blue Label Telecoms, which holds a 45% stake in Cell C, could also not be drawn to discuss the matter.

“We do not comment on speculation,” the company told ITWeb.

This is despite co-CEO Brett Levy telling journalists two weeks ago at the company’s results presentation that he wasn’t certain whether Blue Label’s Cell C shareholding will be maintained or reduced.

“We are fully confident that Cell C will be a sustainable company. And in the next recapitalisation, it will be a good company,” Levy said.

Other Cell C shareholders include 3C Telecommunications with 30%; Net1, which owns 15%; while 10% is held by Cell C management and staff.

Troubled telco

Cell C has been under pressure for some time. The operator has been facing a cocktail of problems, including freezing jobs, declining revenue and debt management challenges.

Adding to its woes are the three downgrades by rating agency Standard & Poor’s this year over its debt.

In April, the agency lowered Cell C’s issuer credit rating to CCC- from CCC+, placing it deeper in trouble territory.

In June, the operator was, once again, downgraded after it renegotiated terms of its R1.4 billion debt, and in August, it received a downgrade for the third time for its debt profile.

As those party to the negotiations remain mum, analysts say China Mobile may be a right fit for the local telecoms market, as it would bring strong experience in terms of managing a modern mobile operation.

This is not the first time Cell C has been the subject of speculation. A few years back, it was rumoured SA’s third mobile network operator may have been an acquisition target for French multinational telecoms company, France Telecom-Orange.

China Mobile has been pursuing expansion in Africa for some time. A year ago, the world’s largest carrier opened its South African office in Johannesburg.

At the time, China Mobile said: “It is hoped that South Africa can be the gateway for China Mobile to strengthen the Southern African market while further influencing the entire African market.”

Strong experience

Telecoms analyst Dobek Pater of Africa Analysis says a China Mobile/Cell C deal would introduce a strong operator into the local market, in terms of experience and finance.

“This should intensify the level of market competitiveness in SA, especially as China Mobile would probably seek to expand its services into adjacent markets, with a new range of services and is likely to expand its own mobile infrastructure.”

Pater, however, cautions: “This will depend on the shareholding China Mobile may acquire in Cell C. If it acquires majority shareholding and/or has management (and possibly board) control of the company, it will be able to execute its strategy.

“China Mobile would bring strong experience in terms of managing a modern mobile operation but it would still need to adapt its experience to an extent to African conditions. We have seen in the past Airtel (Africa) trying to deploy its operational model from India in Africa and failing to achieve the expected results.”

According to Pater, China Mobile could possibly bid for its own 4G and 5G spectrum in future auctions.

“This could increase the level of infrastructure competition, although China Mobile could try to work more closely with other operators in terms of infrastructure-sharing. However, it would still need to compete against two very strong competitors (MTN and Vodacom) and a strengthening Telkom Mobile.”

Communicated strategy

Investment analyst Peter Takaendesa of Mergence Investment Managers says if the China Mobile news is true, then it would be after different objectives than return on investment.

“Cell C’s recently communicated strategy of moving away from significant network investments does not sound like the strategy a big international buyer would be interested in.

“China Mobile has not been a player in our region and I’m not sure why they would prefer to enter the market with a small player such as Cell C, given their size. The SA market is largely mature and Cell C’s international shareholders, Oger Telecom, have significantly reduced their shareholding to a small minority as they failed to turn it into a sustainable business.

“Would China Mobile come all the way to South Africa to be an MVNO [mobile virtual network operator]?”