Cell C in R1.2?billion write-down

2015-01-25 19:00

Major shareholder impairs its investment in mobile operator, but CEO José dos Santos says he is optimistic about the company’s future

A R1.2?billion write-down of Cell C by a major shareholder has again raised questions about the future of the company – but the cellphone company’s CEO, José dos Santos, insists it isn’t going anywhere.

Saudi Telecom Company, which indirectly owns a significant stake in Cell C, has impaired its investment in mobile operator Cell?C’s Dubai-based parent company, Oger Telecom, by R1.2?billion.

Oger Telecom owns about 75% of Cell C and Saudi Telecom Company owns 35% of Oger, making its effective shareholding in Cell?C about 26%.

On Tuesday, Saudi Telecom Company released its assessment of the fourth quarter of 2014, in which it reported a R1.2?billion impairment of its investment in Oger Telecom and attributed this to a write-down of its investment in Cell C.

Reuters reported that Saudi Telecom Company’s group chairperson, Abdulaziz al-Sugair, said the company was “evaluating options” over its international portfolio. It did not give specifics.

In an interview with City Press on Friday, Dos Santos said he was neither concerned about the chairperson’s remarks, nor about the impairment.

“Their results are their results, but for us it doesn’t affect us at all,” Dos Santos said during an interview at Cell C’s offices in Johannesburg.

“I mean, Saudi Telecom Company just has a shareholding in Saudi Oger, but I wouldn’t read anything into [the remarks]. It’s normal to make statements like that, especially when looking at what is happening around the world generally.”

Cell C is the third-biggest player in South Africa’s mobile market and its results have generally been kept under wraps – the last time it disclosed any results was in 2010.

But Dos Santos said it would unveil its latest financial results in the coming weeks – and he was optimistic about the numbers.

Cell C shook up the market with a price war soon after former CEO of Vodacom Alan Knott-Craig was appointed in April 2012.

Knott-Craig stepped down in 2014 for health reasons and Dos Santos stepped in.

The operator had grown its subscriber numbers to about 19?million by December 2014 from about 9?million when Knott-Craig joined.

By comparison, Vodacom has about 32?million subscribers and MTN about 25?million.

There has been speculation that Cell C’s continued price war to gain subscribers has weighed heavily on its financials, and its parent company Oger Telecom pumped about R1.5?billion into the operator in 2013 to keep it afloat.

In 2014, the operator, along with rivals MTN and Telkom, retrenched mostly management staff.

“I hate to use the term ‘retrenchments’, but what we did last year was to realign our focus and our strategy, and what we need to do,” said Dos Santos.

“It was about 300-odd people that we parted ways with, but it was more really putting the business forward into the third year of what we always said was a five-year strategy, and it was also to become more efficient.”

Knott-Craig once publicly said that Cell C might need to consolidate with another company or be bought out by a bigger company to survive, but Dos Santos has a slightly different view.

“I don’t believe that is what is going to happen to Cell C,” he said. “I’m more for consolidation of network infrastructure and lowering of input costs, where we have an open-access network and then operators compete on products and services. That’s the type of consolidation I support.”

Despite his desire to consolidate network infrastructure, Cell C is fighting the R7?billion acquisition of fixed-line operator Neotel by Vodacom.

This acquisition will give Vodacom access to Neotel’s spectrum, which will allow Vodacom to grow its 4G network and give it a competitive advantage in the market.

Dos Santos said he wasn’t worried about one company buying another.

But he said the acquisition would give Vodacom access to valuable spectrum – and that, according to the Electronic Communications Act, is meant to be issued on an equal basis, either through auction or sale by the regulator.

He said if Vodacom’s deal with Neotel went through, then the regulator must compel Vodacom to allow other operators to lease infrastructure from Vodacom.

Cell C recently faced the ire of an angry customer who put up a banner on Joburg’s Beyers Naudé Drive outside the World Wear Shopping Centre slamming service at the operator’s Sandton City branch.

“We’ve been building a culture over here for the past two years where the customer is the centre of everything that we do. It doesn’t mean we will get it right all of the time, but we get up, learn from it and move on,” Dos Santos said.

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