Cell C, Virgin Mobile: great partnership or lost cause?
The third-largest network in SA presented positive results, announcing that it has grown its subscriber base to 3,4m active users – each spending around R157 per month (ARPU).
According to Cell C its revenue has grown to R3,6bn over the last six months, with a gross profit of R1,3bn. This signifies a yearly growth of 23 % which bodes well for Cell C CEO Jeffrey Hedberg.
The network has also said that it is on track and ready to meet the targets they set for themselves: namely doubling their subscriber numbers and revenue by 2010.
All looks rosy for Cell C and Hedberg, but questions remain about Virgin Mobile's struggle to crack the SA market and Cell C's partnership with the company.
Virgin Mobile struggling?
Recent media reports insinuated that Virgin Mobile is not the silver bullet Cell C may have hoped for. There are even suggestions that Virgin Mobile may severely dent Cell C's financial performance.
The Business Day reported that achieving a net profit should be a focal point for Cell C. The article states that "Hedberg may not see that as top priority, but his shareholders will. It cannot look to its 50-50 joint venture with Virgin Mobile to help out there, as Cell C has consolidated the venture's loss, further denting its own performance.
"Virgin launched in typical brash Sir Richard Branson style, promising to free consumers from the tyranny of MTN and Vodacom. Consumers barely raised a collective eyebrow, and loss-making Virgin Mobile has emulated Cell C with a strategic rethink of its own."
There were also reports that Virgin Mobile's previous CEO, Sajeed Sacranie, left at the end of last year due partly to the company's poor performance. But has much changed?
When asked for actual performance figures, Virgin Mobile became very defensive.
According to Virgin Mobile's Nicolas Maweni, it is extremely unfair to ask the company about details like the number of active SIMs, average revenue per user (ARPU), their number of data subscribers, the company's growth rate and even their planned growth over the next year.
In the telecoms and cellular arena the number of subscribers, ARPU and a provider's growth rate are basic indicators of a company's success (in addition to revenue and profit of course), but Maweni argues that these figures are not relevant measurements of Virgin Mobile's success.
Virgin Mobile's reluctance to play open cards regarding these indicators may be a sign that they are not doing as great a job as expected at targeting the higher income market Cell C has entrusted them with. Cell C has tasked Virgin Mobile with capturing the LSM 8 – 10 market while it focuses on LSM 3 – 7.
There is also a strong feeling that Virgin Mobile may have underestimated the brand strength of Vodacom and MTN. Virgin Mobile was expected to ride on its strong worldwide brand, but it seems that Richard Branson's usual antics did not do much to impress local consumers.
Virgin Mobile's uphill battle against Vodacom and MTN are clearly visible in the Business Times' latest Top Brands survey where it received a "brand relationship score" of only 1,5% against Vodacom's 49% and MTN's 40,4%. For a product which relies partly on strong brand awareness for its success it does not bode well for the new entrant in the cellular market.
Virgin Mobile's Maweni downplays the company's battle with Vodacom and MTN, saying that they do not see the two mobile giants as competition. This message may not have filtered down to consumers yet as they clearly see Virgin Mobile as merely one more alternative in the mobile market.
Updated business plan
Despite uncertainty regarding their performance figures, Virgin Mobile says that they are doing well and that the company is showing strong growth.
Maweni pointed out that the company now has 10 flagship stores, and plans to open another three by the end of the year. Maweni further said that the company employs 380 people and that they are looking for at least 100 more.
According to Cell C, the board of Virgin Mobile South Africa (VMSA) has approved an updated Virgin Mobile business plan "and we could say that VMSA is meeting the targets of that new plan."
Cell C is, however, not placing all its eggs in one basket and is looking at new opportunities in the local mobile telecoms sector.
"Partnerships and MVNO's are key to Cell C's growth strategy and plans. We are continuously exploring opportunities and relevant channels to reach and extend our target market," said Shenanda Janse van Rensburg, Cell C's executive head of corporate communications.
It is still not certain whether Cell C will regret its partnership with Virgin Mobile, but what is clear is that it is spreading its wings and may form additional partnerships to try to take on Vodacom and MTN.
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