Cell C expects to unveil Virgin deal soon
Reuters
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MOBILE operator Cell C expects to unveil a joint venture deal that would give Britain’s Virgin Group a foothold in the country before the end of the month.
Cell C said talks were making progress to form a joint venture with part of the Virgin empire, which would give the world-famous Virgin brand a long-coveted foothold in Africa’s biggest market.
"Discussions with Virgin to form a joint venture service provider in SA are progressing well and we expect to be able to make an announcement in this regard before the end of September," the company said in a statement.
Analysts say the tie-up could pave the way for more foreign mobile operators and service providers to enter the lucrative local market by piggybacking on existing operators, which could yank down high call tariffs.
"I think Virgin will try and leverage its brand rather than cutting prices aggressively, but this deal will open the way for more virtual operators, which will eventually cut prices," said Citigroup telecoms analyst Rhys Summerton.
Virgin pioneered the concept of a so-called mobile virtual network operator (MVNO), under which it avoids hefty investment by piggybacking on partner networks, and Branson has long angled for a foothold in South Africa’s booming cell phone market.
Unlisted Cell C, which itself piggybacked on bigger rival Vodacom’s network until it built its own infrastructure, said Virgin would act more like an enhanced service provider, since MVNOs were still illegal in South Africa’s recently liberalised telecoms industry.
Cell C spokesman Jonathan Newman declined to say how much Virgin would invest in the 50-50 joint venture or when it expected to launch.
Newman said a stock market listing was still a possibility in 2-3 years time for the Saudi-backed company, but said nothing had been confirmed.
In results released to bond investors two days ago, Cell C said it increased its subscriber base to 2.49 million in the second quarter from 2.17 million and swung to a core profit.
Earnings before interest, tax, depreciation and amortisation (EBIDTA) increased to R87,7m in the quarter ended on June 30 from a loss of 3.5 million in the year-ago period.
But its net loss widened to R286.1mfrom R55.1m due to higher financing charges and its market share dipped to 10,5%.
Newman told Reuters revenue in the second half would exceed that of the first half, and said the company was aiming to increase EBITDA to 9%-10% of sales the full year, versus a negative margin in 2004.
One analysts who asked not to be named said he believed Cell C, which launched in 2002, should have sacrificed profit for market share for longer.
"I think they should have really invested to get market share up to 25% and stuck with a negative EBIDTA for longer," he said.
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