Cell C in a fix over its sustainability

CELL C, South Africa’s third mobile phone operator, will continue to be faced with serious challenges over the next few months, which makes it more vulnerable to takeover bids.

The company provides thousands of direct and indirect jobs to South Africans, but there are now real possibilities of job losses as it restructures.

Under pressure from reduced mobile prices and competition, South Africa’s information communications and technology (ICT) companies have already started retrenchments.

Read: BCX denies full-scale retrenchments

Cell C, which continues to lose money despite enticing customers away from rivals MTN, Telkom Mobile and Vodacom, can no longer be the black cat in a price war it initiated and was assisted in by the industry ‘watchdog’.

Read: Telkom faces court action over planned job cuts

The company continues to receive and seek more shareholder equity injection and capital from banks, but indications are that this will soon dry up.

Despite having a market share of close to 20%, Cell C is really struggling to survive financially as a third mobile operator. It is still to deliver its first bottom line profit after being in operation for 13 years.

The durability of Cell C in this price war it initiated as a ‘Champion of the Consumer’ is questionable and has failed to deliver good returns.

The various promotions Cell C is engaged in were very expensive and ran into millions, if not billions, of rands. It seems the money spent on promotions to entice new customers away from competitors has not been recouped and workers are likely to pay a high price for this underperformance.

Crank up process to offer separation packages to some staff

Sources say Cell C has kickedstarted the process of streamlining its business and will consult the entire business with a possibility of providing some employees with mutual separation packages to address “inefficiencies”.

Monday September 22 was the last day for certain employees to take the offer of mutual separation, according to sources at Cell C, which is owned by Saudi Oger.

Mutterings of discontent are getting louder especially because the struggling company recently moved into new expensive headquarters in Woodmead.

“The money for the new building could have been utilised to make the company more competitive, rather than spending it on flashy offices. It is clear that the company executives have been positioning the business for a sale by dressing it up so nicely, but clearly buyers are not keen, and we are suffering,” said a source at the company.

The third cellular operator’s move to offer packages to redundant workers comes after the industry regulator, Icasa, announced last week that it plans to reduce favourable ‘termination rates’ smaller operators such as Cell C presently enjoy.

Termination rates are the fees operators pay to carry each other’s calls.

The reduction of these favourable rates will dilute Cell C’s income and leave it with no option but to trim its workforce.

The development means that jobs of hard-working employees at Cell C are on the line at a time when jobs market is depressed.

Cell C needs a lasting solution to its unending challenges

Though Cell C CEO Jose dos Santos has already dismissed the predicted demise of his company saying the firm will survive with or without asymmetry, things are not looking good for the Saudi-Oger owned firm.

In a way, Cell C needs a lasting solution to its unending challenges to provide real competition.

I know many industry pundits have written unnecessary obituaries about Cell C, but the fact that the company doesn’t have a strong shareholder with deep pockets is not helping.

One really wonders when a big company, such as French telecoms group Orange, Dimension Data, etc will make a bid for Cell C. They could simply ring-fence the company’s huge debts it has on its balance book.
Such a takeover would remove the burden from the shoulders of executives at Cell C, who have done a sterling job in steering the ship, to focus on disrupting the South African telecoms space.

But for now, Cell C will remain too weak to compete and too small to revolutionise the South African telecoms market.

Perhaps, as we all embrace mobile broadband, we can start to think of Internet Solutions as a possible competitor with very big pockets from its big brother, Dimension Data and Japan’s NTT.

 - Fin24

*Gugu Lourie is a former correspondent for Thomson Reuters, Business Report, Finweek magazine and Fin24 (writing a blog titled 'Googled'). He is the editor of techfinancials.co.za. Views expressed are his own. Follow him on #twitter @LourieGugu.

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