Red + blue = gold
ALTHOUGH IT REMAINS to be seen whether Saudi Oger will be able to consummate its desired deal with fixed line incumbent Telkom, one thing is sure: its 60%-owned mobile telecoms subsidiary thinks the red (Cell C) and the blue (Telkom) would make a good fit. An upbeat Cell C CEO Jeffrey Hedberg said at its recent results presentation that although he was an operational guy and had no bearing on the deal machinations, he believed it would be good for Cell C. “It would provide us with scale – in terms of distribution and in terms of our balance sheet,” Hedberg said.
Telkom has, for more than a year, been reconsidering its mobile strategy and recently admitted to analysts that its stake in Vodacom was little more than an asset – there wasn’t much scope for synergies between the two. Pressure is mounting on Telkom to unlock value or face the wrath of the investment community. In that light, Telkom said (in a Sens announcement earlier this month) it had received two non-binding expressions of interest from Saudi Oger, though neither was a firm offer. It had not received offers from any other players, Telkom also said.
But although it turned down Saudi Oger’s first advances, it will be under pressure to put its second expression of interest to shareholders, who weren’t pleased after not being consulted the first time around.
Meanwhile, a previously embattled Cell C is starting to look a more attractive potential partner. Aside from its R670m swing in operating profits last year, it has recently significantly upgraded its network and now claims more than 5m active subscribers, with around 600 000 of those using its mobile Internet services.
Hedberg put a turnaround plan in place more than a year ago, admitting that Cell C had been struggling to differentiate itself by going back to the basics of delivering voice and some data services over its Edge-enabled network. It was also considering 3G, but wouldn’t invest in the technology if it didn’t make commercial sense or provide its customers with new applications.
Hedberg now says that from being a company that doubted itself, it had delivered. “This team has stepped up to the plate.” Hedberg himself seems to have been key to that. However, he declined to be drawn on the length of his contract with Cell C. “I’m here for as long as they need me.”
Among the executives brought in in October last year to add weight to the Cell C team is chief financial officer Fabrizio Mambrini, from Saudi Oger in Turkey. Cell C says his responsibility is to improve profitability and increase operational efficiencies. Hedberg says Mambrini had already played an important role in improving margins.
The earnings before interest, tax, depreciation and amortisation (EBITDA) margin increased from 4,8% to 13,8% in 2007, as EBITDA profits increased by 236% to more than R1bn over the previous year. Operating profits rose from a negative R349m in 2006 to a positive R321m in 2007.
Although an EBITDA margin of 13,8% is still low when compared to Vodacom and MTN’s EBITDA margins of 34% and 34,8% respectively, SA’s third cellphone operator is always at a disadvantage, and its turnaround has arguably only just begun. But it will be interesting to watch just how high Mambrini can improve margins (but a Telkom deal, it seems, would help).
Also joining in late 2007 was Nadia Bulbulia, a former Icasa councillor and an appointment that should add considerable volume to Cell C’s voice on the regulatory front. Hedberg says its efforts in legal and regulatory were among the five pillars of his turnaround strategy.
Other companies that have successfully used former Icasa people in their regulatory team include Internet Solutions (Siyabonga Madyibi) and MTN (Nkateko “Snakes” Nyoka).
Of Cell C’s 2006 appointments, there’s former Capgemeni London analyst Harri Rauhala as chief strategy officer, human resources officer Mike Campbell and Pierre Obeid, chief technical officer. Obeid’s been with Cell C since 2001, prior to obtaining its licence.
Cell C recently used Huawei for the upgrade of its core network, shifting from its previous single vendor focus with Nokia Siemens. Hedberg says Cell C is very pleased with the outcome, which had helped improve capacity on its network.
It saw a huge spike in traffic mid-2007 due to its highly successful Woza Weekend offering, which rewards customers with free weekend minutes. That offering was key to enabling Cell C to differentiate itself, Hedberg says.
Finweek
Loading ...