Cell C weighs up its options
A SUAVE LOOKING Pierre Obeid, Cell C's chief technical officer (CTO), is on time for a scheduled interview in the lobby of the Princess Towers – one of Barcelona's cushy hotels.
He takes to his seat and promptly asks for the interview to proceed. Other than his captivating oratory and a deep French accent, it's hard to ignore Obeid's striking resemblance to Jerome Kerviel, the famed Société Générale employee whose rogue trading antics make for a fascinating Hollywood script. Except for the fact that Obeid was educated in France, where he obtained both his engineering degrees. But he's quick to dissociate himself from any French connections.
The sheer size of Kerviel's exposure, on which the losses tripled when Société Générale frenetically unwound its position, draws parallels to Cell C's cash-guzzling business, which five years after launch has failed to ring up a hard-core profit. "I'm Lebanese," Obeid protests. But he does of course understand what a spell of bad publicity can do to an organisation like Cell C. He spent the better part of last year fending off damning publicity from debtrating agencies Moody's and Fitch regarding the company's precarious debt position. Thanks in part to a strategic turnaround attributed to the Jeffrey Hedberg-led management team, talk of a financial meltdown at the cellular group has fizzled.
But complaints of an unreliable network and a high drop call rate won't just fade away. The lack of high-speed services for intensive data users is equally a concern, prompting some consumers to label the group as a one flavour cellular service provider. Obeid leaps to his group's defence: "Our drop call rate – at 0,59% – is one of the best in the world and fares relatively well against accepted global standards of 2%," he says, adding that Cell C now carries 86% of its traffic on its own network with the balance of 14% catered for by a roaming agreement with a rival cellular operator.
"None of these complaints stick. I would not be surprised at all if our competitors were peddling such perceptions." But in the cellular industry perception is reality – a factor that Vodacom has exploited to its advantage using its advertising theme "best network" to lure more subscribers to its network. "It's important for the competition to adhere to strict advertising moral standards. For us at Cell C the kind of subscriber growth we are experiencing since launching our turnaround strategy about two years ago indicates that we are firmly on a growth path."
For the six months to end-June 2007, earnings before interest, tax, depreciation and amortisation rose by 36% to R346m, but the company's net loss position hardly blinked. Boasting an estimated subscriber base of 4,8m, he says the company has over the last 12-18 months seen a significant increase of over 75% in traffic, year-on-year for the year to end-December 2007. In December 2006, it carried 404,5m minutes of use (MoU) compared to 698m in December 2007. Obeid ascribes this milestone to the uptake of Woza weekend, a customer loyalty programme the company launched in April 2007.
While admitting that Cell C could not match Vodacom and MTN's prowess in the corporate data space, Obeid was ultra defensive: "Our biggest problem in the past is that we wanted to be everything that our competitors were. That they have deployed 3G networks should not compel us to do the same."
He argues that SMS will for long remain the killer data application for mobile operators in emerging markets and that was reflective in the data requirements of the LSM 3-9 market – the bulk of which makes up Cell C's subscriber base. Statistics, Obeid insists, indicate that consumers do appreciate the company's basic data offerings. In January 2008 the company's data volume almost increased twofold from 3,4 terabytes in January 2007 to 7,6 terabytes in January 2008. One of the many options on the cards could see the company join in the corporate data fray. "Margins are considerably higher when you move up the value chain but with self data provisioning made possible by the ECA Act, we are weighing our options."
Unless the growth bandied about translates into a profit, the company will for the foreseeable future continue to attract the attention of stakeholders. "I'm aware of the challenges the company is facing, but they are not insurmountable. Though I can't be precise, we are confident of breaking even soon."
Finweek
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