Blue Label Telecoms, a major shareholder in South African mobile operator Cell C, has announced its intention to acquire an additional 4.04% stake in the struggling telco through its subsidiary, The Prepaid Company.
The deal, which is subject to regulatory approvals, would increase Blue Label’s ownership in Cell C from 45% to 49.04%.
However, the plan has faced opposition from another Cell C shareholder, CellSAf, which owns 25% of the shares and claims that it was not consulted about the deal. CellSAf has also accused Cell C of mismanagement and poor governance and has threatened legal action to protect its interests.
Blue Label’s co-CEO, Brett Levy, has expressed optimism that the deal will go through smoothly and that it will benefit both Cell C and its customers. He said that the deal does not mean that Cell C is giving up control to Blue Label but instead that it is getting additional support and liquidity to stabilize its financial situation.
Cell C’s CEO, Jorge Mendes, has also clarified that the deal is not a takeover but a recapitalization that will reduce Cell C’s debt burden and improve its operational efficiency. He said that Cell C will remain an independent and competitive player in the South African mobile market and that it will continue to offer innovative and affordable products and services to its subscribers.
Read also: Cell C completes recapitalization arrangement that lowers its debt
Cell C’s Financial Challenges
Cell C has been facing financial challenges for several years, as it has struggled to compete with the dominant players, Vodacom and MTN, and the fast-growing Telkom. Cell C has a market share of only 12%, compared to Vodacom’s 40%, MTN’s 32%, and Telkom’s 15%.
Cell C’s revenue declined from R13.95 billion in 2020 to R13.3 billion in 2021, and it reported a net loss before tax of almost R2.5 billion. Cell C also has a debt burden of R7.3 billion, which it has been unable to service on time.
In January 2022, Cell C announced that it was considering downsizing its workforce to reduce costs and improve flexibility in operations amid several challenges. Cell C said that it was engaging with its employees and unions to explore various options, including voluntary severance packages, early retirement, and redeployment.
Cell C also said that it was implementing a turnaround strategy that involved optimizing its network infrastructure, enhancing its customer experience, and expanding its distribution channels. Cell C said that it was confident that its strategy would enable it to return to profitability and growth in the medium to long term.
The Impact of the Deal on the Mobile Market
The deal between Blue Label and Cell C, if approved, could have significant implications for the South African mobile market, which is already undergoing some changes. Recently, MTN announced that it was selling its 20% stake in IHS Towers, a pan-African tower company, for R11.8 billion to focus on its core markets and reduce its debt.
Meanwhile, Telkom has been growing its mobile subscriber base rapidly, thanks to its aggressive pricing and data offerings. Telkom has also been investing in its network coverage and quality and has launched its own 5G service in selected areas.
The deal could also affect the ongoing discussions between Cell C and Vodacom regarding the extension of their roaming agreement, which expires in 2025. The roaming agreement allows Cell C to use Vodacom’s network infrastructure to provide voice and data services to its customers. However, some industry participants and regulators have criticized the agreement, arguing that it lessens market competition and innovation.
The deal could also have an impact on the spectrum allocation process, which has been delayed for several years due to legal and regulatory hurdles. Spectrum refers to the radio frequencies that mobile operators use to transmit voice and data signals. Spectrum is a scarce and valuable resource that can improve the quality, speed, and coverage of mobile services, as well as lower the costs of network deployment and maintenance.
The Independent Communications Authority of South Africa (ICASA), the regulator of the telecommunications sector, has been planning to auction off some spectrum bands to mobile operators as well as to a new entrant called the Wireless Open Access Network (WOAN). However, the process has been stalled by various court challenges and disputes over the terms and conditions of the auction.
The deal between Blue Label and Cell C could affect the supply and demand of spectrum in the market and the operators’ competitive dynamics. It could also influence the outcome of the legal battles and the negotiations between ICASA and the industry players.
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The Future of Cell C
The deal between Blue Label and Cell C, if successful, could mark a new chapter in the history of Cell C, which was launched in 2001 as the third mobile operator in South Africa. Cell C has faced many challenges and changes over the years, but it has also made some achievements and innovations, such as introducing per-second billing, prepaid data bundles, and WhatsApp bundles.
Cell C’s future will depend largely on how well it can execute its turnaround strategy, how effectively it can leverage its partnership with Blue Label, and how favourably it can position itself in the evolving mobile market. Cell C will also have to contend with the uncertainties and opportunities presented by the COVID-19 pandemic, the spectrum allocation process, and the technological advancements in the sector.
Cell C’s CEO, Jorge Mendes, has said that he is confident that Cell C has a bright future ahead and that he is committed to leading the company to success. He said Cell C has a loyal and diverse customer base, a dedicated and talented workforce, and a substantial and supportive shareholder in Blue Label.
He said that Cell C’s vision is to be the leading mobile service provider in South Africa and that its mission is to connect people and enrich their lives. He said that Cell C will continue to pursue its values of customer centricity, innovation, excellence, and integrity and that it will strive to deliver on its promise of “The Power is in Your Hands”.