Johannesburg - Telkom’s possible acquisition of Cell C would result in a stronger competitor to Vodacom and MTN.
This is according to Boyd Chislett, the managing director of soon-to-be-closed mobile service provider Altech Autopage.
Telkom [JSE:TKG] on Monday issued a market update in which it confirmed its intention to buy Cell C after reports about talks between the two companies surfaced earlier this year. Dubai-based Oger Telecom has a 75% stake in Cell C.
"I think consolidation - everyone talks about it - is always inevitable,” Chislett told Fin24.
“A Cell C and Telkom tie-up ... is a credible expected tie-up in the industry that is going to provide meaningful competition to MTN and Vodacom,” Chislett said.
Both Vodacom and MTN each have around 30 million and 29 million subscribers respectively.
Chislett further said that Cell C, which is South Africa’s third largest network with 22 million users, has done an “excellent job competing” and at winning over subscribers. The problem is at what cost, questioned Chislett.
“You're acquiring a subscriber with significantly reduced ARPUs (average revenue per user), higher exposure to default and bad debt and you've got 16, 17, whatever the number, billions of rands sitting on the balance sheet in terms of shareholder equity,” said Chislett of Cell C.
‘Still a good time for telecoms’
Chislett’s comments about consolidation and possible stronger competition from a Telkom-Cell C tie-up come after he responded to a question from Fin24 about the state of South Africa’s telecoms industry.
Autopage, which is owned by the Altron Group and which sells phone contracts, is eyeing a possible shutdown in February 2016, pending approvals from the Competition Commission and Competition Tribunal.
The move comes after Altron announced earlier this year that the planned shutdown of Autopage comes amid impacts of the ongoing mobile termination rate reductions, as well as continued industry and consumer deflationary pressures.
Despite Autopage’s shutdown and job cut announcements from the likes of both Telkom and Cell C this year, Chislett is still upbeat about the sector.
"When one looks into opportunity to enter into markets or to take advantage of those opportunities, I think now is probably one of the best times to do so, provided that you don't have to invest heavy amounts of capital into the business, because this is where opportunities are actually abound now. So, I don't think it's a bad time,” Chislett told Fin24.
"I think if you look at how Vodacom have performed, you've just got to look at their interims recently released, you’ve got to look at the interims released last year. Their actual growth, year-on-year in South Africa is about R1.5bn in terms of revenue and that's with the mobile termination rate reduction, so it can work.
"So, I think using that as a reference point, no it's not a bad time to get into telecoms. I think what you did yesterday, you can't keep doing tomorrow. It's a huge, huge challenge in this industry that we keep replicating the same mistakes and the same things we do and things have to change,” Chislett said.