Under-pressure Cell C loses 2.9m subscribers

Samuel Mungadze
By Samuel Mungadze, Africa editor
Johannesburg, 23 Mar 2020
Cell C CEO Douglas Craigie Stevenson.
Cell C CEO Douglas Craigie Stevenson.

Embattled mobile operator Cell C lost 2.9 million subscribers for the year ended December, but says the margin of its existing customers is better as a result of acquiring profitable customers.

Cell C posted further losses for the period under review, declaring a loss of R3.94 billion compared to a R7.36 billion loss in 2018.

Notwithstanding the losses, Cell C CEO Douglas Craigie Stevenson says the green shoots of the telco’s turnaround strategy, which was implemented from March 2019 onwards, are now visible.

He says the carrier’s turnaround strategy was focused on operational efficiencies, including cutting costs that do not translate into revenue-generating opportunities, minimising operating expenses and optimising traffic.

Additionally, Craigie Stevenson says the second pillar is a network strategy “which is an evolution of the capex-intensive, high fixed-cost infrastructure-based network to a variable cost opex model, and finally, improvement in liquidity and a new capital structure through a recapitalisation.

“Operationally, the business is stronger and a successful recapitalisation will secure the long-term sustainability of Cell C.”

Cell C has been enduring a bleak time because of its debt woes as well as lack of capital, which analysts warned is a toxic cocktail, which may lead to total collapse of the telco.

The operator recently defaulted again on payment of interest on its loans.

Cell C had missed its December interest payment on a R2.7 billion ($184 million) loan, as well as capital plus interest payments on loan facilities with Nedbank, China Development Bank Corporation, Development Bank of Southern Africa and Industrial and Commercial Bank of China.

Adding to Cell C’s troubles are the new recommendations on pricing by the Competition Commission, which directed mobile operators to cut their data prices.

Now, Cell C says despite the tough economic conditions, it has maintained its revenue levels throughout the past year.

It says revenue for the full annual period up to December 2019 remained steady at R15.2 billion compared to the 2018 figure of R15.67 billion with service revenue, which Cell C says contributes 94% to overall revenue.

According to the carrier, its second half of the year was better, with mobile increasing by 4% and wholesale revenue up by 17% (when comparing H2 to H1 of 2019).

“Although there was a decrease of 2.9 million prepaid customers – a 21% drop – in the 12 months to 2019, the margin on our existing customers is better as a result of acquiring profitable customers and not signing on a customer at any cost. Revenue from equipment sales, on a year-on-year basis, was 27% down as we moved away from subsidising customers at all costs. This enabled us to build a quality customer base with better margins and quality of service,” says Zaf Mahomed, Cell C CFO.

Cell C says more than half-a-billion rand (R522 million) was saved during the past six months and operating expenses was 18% lower when comparing the first half of 2019 with the last, with operating expenses for second-half 2019 at R2.4 billion.

Mahomed says: “There were several contracts and transactions that were reviewed or re-negotiated in order to streamline the business and ensure the costs incurred are business-beneficial. For example, the negotiation of the black [defunct streaming service] liability realised savings of R177 million.”

Furthermore, Craigie Stevenson says: “This set of results is based on our old model; we are confident that a new way of business based on the extended roaming agreement with MTN will lead to even greater strategic clarity and operating momentum.

“We are shifting from a build-and-buy strategy with high capital expenditure, to a roaming model. By effectively managing traffic, we ensure the network cost is aligned with the network revenue. It does not make economic sense to continue to invest in capital-hungry infrastructure and the business is now positioned to go into the next phase with our roaming agreement.”

Commenting on the future, Craigie Stevenson says Cell C is now an operationally sound business that is financially viable and competitive.

“The business performance allows for a successful recapitalisation to take place with a sustainable debt profile. We are optimistic the hard work of fixing the operations prepares us to conclude the recapitalisation and continue to be a customer champion delivering innovative service offerings.”