Cell C’s new CEO breaks silence
Cell C’s recently-appointed CEO Jorge Mendes has laid out his plan to turn the company around — which is to maintain course.
In a column published in the Sunday Times this week, Mendes reiterated the talking points of his predecessor.
Cell C has given up trying to build its own network. Vodacom and MTN pump around R10 billion each into their networks annually, which is impossible to compete against.
“There is an ambitious game plan, and the industry is ripe for it,” Mendes asserts.
“Critical to the plan is our [capital expenditure]-light network strategy and business model.”
Mendes also makes some curious statements with little substantiation or elaboration about 5G, and breaking away from selling minutes and megabytes as products.
Mendes’ first public remarks as Cell C CEO were, in a word, disappointing.
However, right at the start of the piece, he related a parable from the Apple TV+ show Ted Lasso.
In the scene, the titular character quotes American poet Walt Whitman as saying, “Be curious, not judgemental”, and delivers a monologue about how people have always underestimated him.
Ignoring that the quote is not Whitman (albeit commonly misattributed to him), the scene was moving, and Mendes’ point well made.
Taking it as an invitation to reach out for concrete details and start a conversation, we sent Cell C an opening batch of questions. They are reproduced below with minimal edits for clarity.
- What is Cell C’s strategy to be effective competition for Vodacom and MTN while being reliant on them for your infrastructure layer?
- What systems do you have in place to monitor the network performance your customers receive from Vodacom and MTN?
- MTN’s Ralph Mupita recently said that telecoms has become like mining and oil — there’s only room in the market for a few majors. Do you agree with that sentiment?
- On top of that, margins have grown ever-thinner as voice declines and data takes over. How do you become profitable and maintain profitability while still offering a viable alternative to Vodacom and MTN?
- Your predecessor maintained that Cell C is not [a mobile virtual network operator]. Do you agree?
- In your op-ed in the Sunday Times you talk about allowing the Megabyte and the Minute to become the tools of provision rather than the product. Vodacom’s [head of innovation] has talked about this for years. Can you elaborate on what this means [to you] and what you have in mind for Cell C’s product offering?
- Related to the above: How do you build and convince customers to buy a product like, for example, 20 streaming movies per month or 100 YouTube videos per month?
Cell C declined to answer any of these questions.
The company’s media relations representatives said Mendes was too busy to respond.
Instead, the company is arranging a media networking day with the CEO next week, where he will address “some” of the questions we raised.
These weren’t even the hard questions, either.
Much harder questions Mendes will still have to field in future are: what really happened to Cell C’s contract subscriber base, what is stipulated in its secret deal with Vodacom, and how much value Cell C is still getting from its contract subscribers.
Another is what Cell C plans to do to improve its network quality.
Research from Analytico shows that Cell C’s network performs much worse than Vodacom and MTN’s, even though it relies on both companies for their infrastructure.
Without clarification, there are several statements in the column that warrant challenge.
Three in particular stood out.
5G is an inevitability, but unless we as an industry make dramatic changes to the traditional models of network rollout, it’s unlikely that it will make the affect we hope for. […] A significant change in mindset will be needed to drive an evolution of the network and infrastructure-based competition if telecom providers are going to give customers 5G service at an affordable price.
“Dramatic changes”, “traditional models”, “change in mindset”, and “drive an evolution of the network and infrastructure-based competition” are excellent examples of deliberately vague phrases that give the veneer of saying something revolutionary and substantial without actually saying anything.
Given Cell C’s history and the context Mendes was writing in, the most likely conclusion is that he is talking about some kind of centralised or government-driven 5G deployment.
However, plans are already underway to licence a national wholesale open-access network (WOAN) as part of a State Digital Infrastructure Company.
Vodacom and MTN initially kicked up a fuss about the WOAN, but ultimately struck a compromise with former communications ministers as part of a deal to release sought-after radio frequency spectrum.
Spectrum is raw wireless network capacity and is the lifeblood of any cellular network.
As part of the compromise, Vodacom and MTN committed to buy a substantial chunk of capacity on the WOAN to ensure its viability.
Smaller players, whether tiny independent ISPs or larger licensed operators like Cell C, will then — in theory — be able to use the same wholesale network alongside Vodacom and MTN.
While this sounds good on paper, it is actually a terrible idea.
However, since the WOAN is already in motion, it raises the question of what other “dramatic changes” Mendes could be referring to.
Reading between the lines, a major competitive disadvantage for Cell C is that it is the only cellular service provider without any 5G access. Vodacom, MTN, Telkom, and Rain have all begun rolling out 5G.
Perhaps Mendes wants government to force Vodacom and MTN to open their 5G networks on more favourable commercial terms than they currently offer to wholesale customers like Cell C.
Or perhaps he wants some of the money Vodacom, MTN, Telkom, and Rain would’ve spent on their own 5G networks funnelled into the WOAN.
Perhaps he’s advocating for cellular network nationalisation, or some other form of single-network model that will see portions of each operator’s profits used to build a single national mobile network.
Regardless, these are all bad ideas.
History and basic economic theory have shown that, although it seems counterintuitive, having infrastructure competition — or network duplication — is the best way to incentivise high network quality and low prices.
Whether government-owned or private, monopolies lead to higher-than-necessary prices and poor service delivery even when they should theoretically save on infrastructure investment costs.
Especially so in South Africa, where the government has been unable to deliver a single successful telecommunications network project and has driven every state-owned company into the ground.
Load-shedding is also playing havoc with 5G networks in South Africa.
Imposing an additional regulatory burden on Vodacom and MTN (and Telkom and Rain) while they are trying to get their network uptime back above 95% during stage 6 power cuts will just push prices up.
By removing the burden of individual infrastructure investment by each provider and allowing the Megabyte (MB) and the Minute to become the tools of provision rather than the product, providers are more likely to find value and still give customers what they want.
“By removing the burden of individual infrastructure investment” — as covered above, this is a bad idea.
Mendes has also not explained how this would work. Where would the money come from to build the network?
Must Vodacom and MTN continue investing R10 billion per year each in this national network while the smaller players invest a fraction of that? How will they generate the profits needed to sustain that level of investment?
How do you ensure this centralised approach is fair to all parties over the long term?
Regarding moving away from the old minute and megabyte-based products — this sounds like it could be a breakthrough innovation. Or it could be all talk.
It all depends on what Cell C has in mind and if it offers consumers genuine value, or tries to charge more for the same thing.
For example, network operators wish that instead of selling megabytes, they could sell bundles of WhatsApp messages and video streams.
While the claim is that this would make it easier for consumers to understand than megabytes, the goal is actually to increase profit margins by offering less value without consumers noticing. Essentially a form of “shrinkflation”.
Cell C has migrated its network and is now operating with access to circa 14,000 towers countrywide, with more than 13,000 sites 4G/LTE enabled on the MTN network and circa 14,000 on the Vodacom network.
The way Cell C talks about its infrastructure deals with MTN and Vodacom is misleading.
It makes it sounds like subscribers get the best of both worlds when, in fact, they get a sub-par service on one or the other network.
Cell C contract subscribers are on Vodacom’s network.
Prepaid and MVNO customers like FNB Connect, Shoprite K’Nect, and Capitec Connect use the “virtual radio access network” provided by MTN using Cell C’s spectrum.
Subscribers are not switched between the networks depending on which they would get better service — they are locked to one or the other.
Data from Analytico also shows that Cell C customers are not getting nearly the performance or voice quality than if they directly used MTN and Vodacom’s networks.
Cell C really needs a Ted Lasso-like turnaround.
Hopefully, Mendes is right and Cell C is being underestimated, and an epic game of darts with a clutch victory is around the corner.
Based on what’s been shown, that seems unlikely. But who doesn’t like a good underdog story?
Now read: MTN South Africa technology chief quietly quits
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