100 000 clients
Founder Richard Branson said Virgin had worked at supersonic speed to crack a local market that many people thought was oversaturated and impenetrable.
“We are growing from strength to strength and we are here to stay,” he said. During its birthday week, part of the fees paid by new subscribers will be used to buy blankets for the homeless.
Local MD Peter Boyd said Virgin had managed to “carve a handsome niche for itself” in the crowded market and had firmly established itself as a serious player. However, when it issued its subscriber numbers for the first time last month, it had won only 100000 customers — a tiny fraction of SA’s estimated 38-million users. Boyd said that was in line with its targets after having revised its business plan six months into its activities.
Virgin Mobile has committed to invest R500m in SA in the next five years. It will need to focus much of that spending on attracting new customers to reach the economies of scale needed to turn a profit. Its business is a joint venture with Cell C, which has yet to make a profit despite being active for six years.
While Virgin is offering free text messages between its users for a limited period, Cell C has gone further by making all calls between Cell C users free during weekends. It hopes the tactic will boost its sales 25% by 2010, up from 3,34-million today.
Last week, Moody’s Investors Service downgraded Cell C’s credit rating, warning that it was “very close to a default” on $805m of bonds as it may fail to generate enough cash to pay the interest next year.
Cell C’s chief financial officer, Muhieddine Ghalayini, denied that, saying it could meet its future debt repayments by tapping into an unused loan facility of R600m or calling on the financial backing of its largest shareholder, Saudi Oger. Cell C’s first quarter loss almost doubled to R369,5m as debt repayments surged, and CEO Jeffrey Hedberg partly blamed the cost of the joint venture with Virgin for the dip.
BMI-TechKnowledge analyst Richard Hurst believes SA’s market is nearing maturity with 38 million Sim cards in use, and likely to hit 44-million this year. After that, growth should taper off, and new subscribers would be low- income people in rural areas.
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