It will cost Cell C over R223 billion to catch up with Vodacom and MTN’s networks

If Cell C wanted to catch up to the networks of Vodacom and MTN, it would have to invest R12.4 billion per year for 18 years – a total of R223 billion.

This is according to the operator’s own calculations, based on the assumption that Cell C would be able to build 400 new cellular sites per year and with the simplification that Vodacom and MTN would stop building more towers.

Cell C CEO Douglas Craigie Stevenson discussed this disparity between Cell C and its competitors during the company’s recent annual financial results presentation.

He said that it would be impossible for Cell C to maintain such a level of investment in its own network infrastructure.

For that reason, Cell C decided to get rid of its 5,500 cellular sites and instead partner with Vodacom and MTN to provide coverage for its customers.

The deals the company has with MTN and Vodacom are quite different, but Cell C has explained that ultimately they will be used to achieve the same goal — significantly reducing its capital expenditure to become profitable.

Cell C is migrating its contract and broadband customers to Vodacom, which means they can soon expect the same coverage and service levels as Vodacom subscribers.

At the same time, Cell C is building its own radio access network (RAN) on MTN’s infrastructure and is migrating its prepaid subscribers to MTN.

Over the next three years, Cell C will move its customers from its own network onto partner networks and decommission its own towers.

Cell C would have to invest more than R12.4 billion per year for 18 years to catch up with Vodacom and MTN.

Craigie Stevenson said their plan is to become South Africa’s largest buyer of wholesale network capacity and infrastructure services.

Cell C will then differentiate itself by focusing on innovative products and services, without owning expensive network infrastructure.

“Our new operating model allows us to access infrastructure and benefit from scale,” Craigie Stevenson stated.

“Data will become our cost of sale and the real value will be created through the servicing of customer needs.”

He said that customers have generally been very vocal about their needs. “We are listening to those needs and designing products around that.”

It calls this its pivot from a telecommunications company to a technology company – “pivoting from a telco to a techco”.

Zafar Mahomed, Cell C CFO
Zafar Mahomed, Cell C CFO

Zafar Mahomed, the chief financial officer of Cell C, said that the traditional mobile network operator model is coming to an end.

“The industry spends in the order of R20 billion per year [on capital expenditure],” said Mahomed.

“Now you’ve got 5G coming on stream. The latest estimate is that it’s going to cost the industry in excess of R200 billion to roll out 5G.”

This is simply not sustainable, according to Mahomed.

“If you look at where MNOs are, they’re all going into financial services, they’re all going into content,” he stated.

“You’ve got to understand that the industry is at a crossroads. You cannot sustain four competitors in this industry.”

Now read: How Cell C’s deals with Vodacom and MTN will make it profitable

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It will cost Cell C over R223 billion to catch up with Vodacom and MTN’s networks