Cell C gets green light to transfer control of spectrum and network licences

The Independent Communications Authority of South Africa (Icasa) has greenlit the transfer of control of Cell C’s spectrum, network, and operating licences to Blue Label Telecoms.

Cell C first applied to transfer the licences to its biggest shareholder, Blue Label Telecoms subsidiary The Prepaid Company (TPC), in late 2023 to comply with regulations.

Rumours that the communications watchdog had approved the transaction resulted in significant share price growth for Blue Label Telecoms in the past week.

Over the past five days, its share price increased by 12.52% to R6.20. Blue Label Telecoms confirmed the approval in a statement published on SENS.

“Blue Label is pleased to announce that Cell C has successfully obtained approval from Icasa for the transfer of control of the relevant telecommunications licences held by Cell C to The Prepaid Company, a wholly owned subsidiary of Blue Label,” it said.

Icasa held public hearings about Cell C’s transfer of control application in September last year.

Cell C will remain the licence owner once the transaction has concluded and will continue to offer the licenced services.

The approval of Cell C’s licence transfer to Blue Label Telecoms removes one of the final hurdles to Blue Label taking control of the mobile operator. The Competition Commission greenlit the change in April 2024, recommending that the Competition Tribunal approve it.

Blue Label already holds a 63.19% economic interest in Cell C, but its voting power and control was capped at below 50%.

“Following approval, TPC, a subsidiary of Blue Label Telecoms, will acquire an additional 4.04% of Cell C shares from Cedar Cellular Investment 1, increasing the TPC’s shareholding from 49.53% to 53.57%, thereby attaining a controlling stake,” said Icasa.

In January 2024, Cell C revealed that The Prepaid Company had agreed to provide further financial support to Cell C. In return, TPC’s non-controlling stake would increase.

“The Prepaid Company has injected funding of R5.5 billion into Cell C, settled creditors’ claims, and granted Cell C a R1.03 billion loan,” Cell C said in a letter signed by regulatory executive head Themba Phiri.

“The Prepaid Company provides significant financial support to Cell C.”

The transfer of control application includes Cell C’s individual electronic communications service (I-ECS) and network service (I-ECNS) licenses and its radio frequency spectrum licences.

The radio frequency spectrum licences include its 2,100MHz, 900MHz, and 1,800MHz spectrum.

One of its oldest shareholders, CellSAf, objected to the proposed deal. Director and company secretary Nomonde Mabuya told MyBroadband that it did not support the proposed transfer.

She said CellSAf was not consulted about the transfer of control and that Cell C submitted the application without its knowledge.

“This licence transfer matter was never discussed with us. The first time we learned about it was when we saw the ICASA government gazette published on 6 December 2023,” said Mabuya.

She said it was particularly concerning that the matter had kept silent despite CellSAf regularly engaging with Blue Label Telecoms executives.

CellSAf submitted its objection to the licence control transfer to Icasa on 29 December 2023.

Mabuya is concerned that Blue Label is stripping other shareholders of Cell C’s key strategic assets, including its spectrum licence.

Cell C previously assured that the transfer of control application was a purely administrative issue and that Icasa makes a distinction between ownership and control of a licence.

The mobile operator explained that it was legally obligated to transfer control of the licence due to amendments to the Electronic Communications Act in 2014.

A 2020 court ruling then clarified that a change of control among shareholders of a licensed entity equates to a change of control of licence.

Specialist telecommunications regulatory law firm Ellipsis noted at the time of the ruling that Icasa had taken several licensees to task for making shareholding changes without first applying for a change of control.

These cases were referred to Icasa’;s Complaints and Compliance Committee, which ordered offending licensees to undo their shareholding changes.

However, Ellipsis also highlighted then that there was no definition for “control” in the ECA.

To clarify this, Icasa issued a document titled Memorandum Regarding Control on 31 March 2021.

It explained that it would follow the Competition Act’s approach when considering control, which includes one party owning more than 50% of the shares of another.