Cell C ready for a fight
Cell C, which has always been seen as a laggard in SA’s cellphone industry, is finally starting to gain ground on its bigger, better-funded rivals: in the past year it has clawed away some market share from MTN and Vodacom.
Between June 2007 and June 2008, Cell C grew its subscriber base by 58%, to 5,4m. Analysts say that is good growth in an industry nearing saturation. But CEO Jeffrey Hedberg cautions that the expansion will moderate.
The growth was driven largely by its offer of free on-net calls over weekends (subject to conditions, such as the weekly purchase of at least R10 of airtime).
Revenue rose 17%, or R590m, between June 2007 and June 2008 and operating profit rose 36%. Earnings before interest, tax, depreciation and amortisation came in at R517m.
Cell C does not disclose its net profit. It is likely that debt repayments continue to push the company into the red. Hedberg says Cell C discloses only the numbers over which the management team has influence, as these best indicate its actual performance.
Analysts seem to like what Cell C has achieved under Hedberg, who took the hot seat from Talaat Laham in May 2006. “Cell C’s growth has been quite impressive,” says Fezekile Mashinini, a telecom analyst at research firm BMI-TechKnowledge. “Depending on how it accounts for churn, its growth dwarfs Vodacom’s growth of 1% over the same period.”
Mashinini points out, however, that Vodacom cleared out some of its nonactive Sim cards during the period, which depressed subscriber growth numbers.
He believes Cell C can continue winning market share from its rivals. “The battles it has won recently are just that — battles, not the whole war,” Mashinini says. “However, if it continues to win battles it could pick up another five percentage points in market share.”
Cell C’s prepaid and post paid Arpu — average revenue per user, an important industry measure — have both climbed.
Prepaid revenues surged 52% between the second quarter of 2008 and the same quarter a year ago, with Arpu rising 18% (R40/month to R47/month). Postpaid revenue grew 10%, while Arpu rose 12% (R356/month to R398/month).
There was, however, a big decline in Cell C’s community service telephone (CST) business. Hedberg attributes this to the downturn in the economy — the poor, whom the community phones serve, are being forced to cut their telephony spend, he says. “The CST business is a little troubling.”
More pleasant news for the company is that ratings agencies Standard & Poor’s and Moody’s both recently upgraded Cell C’s long-term debt ratings. The agencies have a more positive view of Cell C’s outlook, in part because of a recent offer by Saudi Oger, the controlling shareholder, to buy back its US dollar and euro high-yield bonds.
Hedberg says Cell C will continue to do things that irk its rivals, chipping away at their market share. This includes a plan to cut prices — something it will be able to do fairly aggressively if the Independent Communications Authority of SA intervenes, as expected, in the wholesale call-termination market.
The authority wants to force down the fees mobile operators charge one another to terminate calls between their networks, something which will benefit Cell C as the smallest operator.
The company also has plans to compete more effectively in wireless broadband. It has been criticised in the past for not having a 3G data network.
“There has been a lot of questioning of our data strategy, so we are looking at it,” Hedberg says.
The company has not decided what to do yet, or what technology to choose — it is considering 3G, WiMax and others — and it may also look to roam at least partially on another operator’s broadband network.
Hedberg says Cell C will provide details of its broadband data strategy before the end of the year.
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