Third mobile operator Cell C's recent bold moves have shrouded it in controversy, but deeper analysis suggests the operator is gearing up to be a true player in the market.
However, if this is the case, it raises questions about whether Cell C should still be considered small enough to qualify for asymmetric interconnect rates.
The operator has come under fire recently for a number of controversial issues, including the copyright look-a-like logo fiasco, the banning of its misleading “4Gs” terminology, and the criticism of its new network roll-out strategy.
However, Cell C has also made several big business plays.
These include the heightened focus on outsourcing and partnering for resources; its competitive new mobile broadband offering; the restructuring of its debt and, last week, the conclusion of a $430 million tower sale deal with American Towers.
The operator yesterday also revealed its involvement in FibreCo: a R5 billion investment by Cell C, Internet Solutions and Convergence Data in a national fibre network.
These big business plays are juxtaposed by Cell C's almost contradictory victory in which it qualified for asymmetric interconnect rates.
This leaves the door open for both Cell C and Telkom's mobile arm, 8ta, to request rates that are 20% higher in the first year, 15% higher between 2012 and 2013, and 10% higher from March 2013, which is the end of the glide period.
However, the industry has lashed out, saying Cell C can hardly be considered a new entrant as it has been in the market for 10 years now and should, therefore, have secured an established presence.
The company is now gearing itself for significant growth, but analysts are adamant Cell C still qualifies for asymmetric rates.
Asymmetry arguments
WWW Strategy MD Steven Ambrose argues that, despite the bold moves by Cell C, the company still deserves asymmetric rates with its bigger competitors.
“The dominance of MTN and Vodacom does currently constitute a significant market distortion, as they control an overwhelming portion of the market. Despite Cells C's long presence in SA, Cell C is still a very small player, with less that 10% of the market, and on this basis, it is justified that they and 8ta are able to benefit from asymmetric termination rates,” he maintains.
“The benefit is a rebalancing of the market and enhanced competition as the dominant players will do everything in their power to retain market share and compete,” argues Ambrose.
Independent telecommunications analyst Richard Hurst concurs: “If anyone has a case for asymmetric rates it is Cell C.” He argues that 8ta has less of a case, because technically it is the mobile arm of telecommunications giant Telkom.
Both analysts agree that the asymmetric victory, coupled with the big market moves by Cell C, means the operator's turnaround strategy is in full swing and CEO Lars Reichelt is doing a good job.
Strong leadership
“Lars Reichelt has brought a much-needed breath of fresh air to Cell C - his approach is bold, innovative, and decisive. The restructuring of Cell C, in order to make it a true player in the local mobile market, needed bold leadership, as its position of low mobile penetration, and high debt had made it extremely vulnerable,” offer Ambrose.
“The changes brought by Reichelt should position Cell C for sustained growth going forward, even in a mature market like SA. The timing of the turnaround was fortuitous, as the entrance of Telkom and the reinvigorated competition that it has brought, would have left Cell C in serious trouble if their turnaround had not been in full swing.”
Hurst agrees that Cell C is definitely making the right moves. He argues that it is expected that Cell C will be the more innovative and agile company of the other operators in the market. He adds that Reichelt is just the man to do it as he is a visionary and “next-step man”.
Denis Smit, MD of BMI-TechKnowledge, says: “They are in a massively better place compared to their old positioning. I think their strategy is very clever and I do think they are becoming a 'player'. They are doing the right things but the real test, as you say, is in the uptake and bottom line impact.”
Ambrose believes the opportunity for Cell C to be a significant player in the mould of MTN and Vodacom has in all probability passed.
“That being said, Cell C can still be a significant, if somewhat smaller, player,” he concludes.
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