Cell C CEO wouldn’t do it differently
If Cell C CEO Alan Knott Craig had the opportunity to roll back the past two weeks and start the telecoms company’s highly publicised retrenchment process all over again – he would do it exactly the same way.
“I am 60 years old and have never retrenched anyone in my life – to start now is not pleasant,” he told a gathering at a Cape Town Press Club event last week. “But we couldn’t have done it differently. If you want cheap telephony you can’t have a bloated organisation.”
In the long run, he adds, cheaper voice and data costs will help generate more jobs than were lost.
Knott-Craig joined Cell C almost three months ago after four years of retirement. “When I left Vodacom in 2008 I was literally sick and literally tired. I’ve spent my time travelling South Africa. My ancestors have been here for 400 years but I had never travelled the country.”
After that, he concedes, he was bored. What to do? “I couldn’t go back to Vodacom.” MTN was too close to home, so he went to the smallest, and arguably the most entrepreneurial of SA’s operators, Cell C.
In a very short time he has introduced price reductions that the regulator has not managed in years.
Time away from the industry opened his eyes to a few things. “When you are in it sometimes you don’t see the wood for the trees. There were things that could have been done and should’ve been done.”
Costs were first on his radar screen. “The other operators have shareholders who have grown accustomed to fat dividends. Cell C has nothing to lose.”
First up was prepaid pricing. The pricing on prepaid phone calls was artificially set by the industry back in the mid-nineties. “The business model around the world was built around post-paid contracts. MTN, Telkom and our own shareholders were against the idea of a prepaid model.”
A compromise was reached. Prepaid billing would be allowed provided the tariff was set at a level that did not sabotage the contract business. The agreed rate was R3,60/minute. At the time, in 1996, it was predicted that the potential size of the prepaid market was about 50 000 customers.
“Now there are five billion prepaid customers around the world – and we pioneered it.”
But once the price was set, it pretty much stayed put – falling marginally to about R2,70. As a result at least 50% of the prepaid market does not use their phone to make calls, he adds. They send sms’s, ‘please call me’s’ and receive calls – because it is too expensive to make calls.
Cell C’s objective was to set a price that recovers its operating costs, but which does not try to recover already sunk costs of the network infrastructure. It is also dead simple for users to understand. “There are no smoke and mirrors – no half price calls if you phone at this time or that time. It is 99c per minute flat fee – and we bill on a per second basis. That is very important.”
Cell C sold 2,1m starter packs in the first week.
Alan Knott-Craig
Knott-Craig then turned his attention to international call charges. At R22/m it is not surprising that no one uses this service – they use voice-over-IP. “We looked into our costs and realised it is cheaper for us to place a call to London than over the road.” International calls to the UK, US, China, India and Pakistan – where the mobile termination rates are about US1c – are now 99c/minute.
The biggest cost in pricing a call, says Knott Craig is the mobile termination rate (MTR) – the fees that the telecoms operators charge other players to carry calls onto their networks. “These rates are eight times higher in SA than they are anywhere else in the world.”
Intervention by telecoms regulator Icasa has seen MTRs fall from about R1,25/minute to 40c next March. Knott-Craig believes they should fall further – to 25c/minute, and possibly even lower than that.
He has also tackled the established practice of bundling a contract with a cellphone. Cell C now offers contracts either with a phone or without a phone – and the contract duration can be as short as one month. “If you choose to take a phone with the contract the fees will be transparent – you will see exactly what you are paying for.”
Knott-Craig has always been confident, and driven. And his views haven’t always been mainstream or popular. His is one of a few voices to support the Cabinet’s decision to veto Korea Telecom’s attempt to buy 20% of Telkom. “Telkom has had foreign shareholders before, and that was not a pleasant experience for Telkom or the country. Most of the other network operators are foreign owned to some extent. Why anyone allowed the sale of an asset like Vodacom [to foreigners] is a mystery. Government is right to be circumspect.”
This confidence was what kept him going during the tough years of building a business that many people did not believe in. And once again, he is building a business – not trying to win a popularity contest.
Source: Moneyweb
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