Huge deal for Cell C

Cell C’s majority shareholder, Blue Label Telecoms, has announced a restructuring that will allow the mobile operator to retake complete control of its contract subscriber base.

This comes after Cell C CEO Jorge Mendes told MyBroadband in November 2023 that they wanted to take back control of their postpaid services.

In January 2021, Cell C surprised the market when it revealed that its contract and broadband subscribers would roam on Vodacom’s network.

That’s because Cell C had previously said it would stop operating its own cellular towers and outsource the management of its radio access network (RAN) to MTN as a “virtual RAN”.

There was widespread speculation that Cell C sold its contract and broadband subscriber base to Vodacom in a secret deal that involved Comm Equipment Company (CEC), a subsidiary of Blue Label.

Cell C, Blue Label Telecom, and Vodacom vehemently denied that the contract base was sold.

After months of unanswered questions, Blue Label disclosed the existence of “Project Boston”.

According to Blue Label, Cell C was faced with the decision to either wind down or restructure its postpaid service offering.

“During the 2021 financial year, the Group, through its subsidiary Comm Equipment Company (CEC), entered into an arrangement with Cell C to facilitate Cell C’s operation of the base,” Blue Label stated.

The agreement went into effect on 1 November 2020 for an initial five-year period, which CEC could renew for four more years.

CEC was entitled to receive a share of the subscription income generated by Cell C from a subset of new and upgrading postpaid subscribers who signed up, extended, or upgraded their contracts after 1 November 2020.

Cell C also paid CEC certain fixed and variable payments.

“Cell C will remain entitled to the subscription income of existing subscribers at 31 October 2020 for the remainder of the subscribers’ contract and a share of the ongoing revenue of New and Upgrade subscribers,” Blue Label explained.

“The aim of the reorganisation would be for the base to remain intact and grow in the future, and for Cell C to have limited downside risk on the base.”

CEC performed certain services itself and subcontracted the balance to a subsidiary of Vodacom.

“The rationale is to reduce Cell C overheads by leveraging Vodacom scale and expertise,” Blue Label said.

Project Boston also rewrote the way CEC funds handsets to Cell C subscribers, Blue Label stated.

“Bad debt risk now sits with CEC,” it explained.

Restructuring for Cell C to acquire CEC

In an announcement to the JSE News Service on Friday, Blue Label has revealed a plan to restructure its business so Cell C can formally acquire CEC.

The restructuring also helps pave the way for a potential future listing of Cell C on the JSE, Blue Label said.

The key components of the proposed deal include:

• Airtime asset transfer: The Prepaid Company (TPC), the wholly owned subsidiary of Blue Label that holds shares and debt claims in Cell C, will transfer Cell C airtime currently held by TPC on its balance sheet to Cell C in exchange for newly issued additional equity in Cell C.
• Debt-to-equity conversion: TPC’s outstanding debt claims against Cell C will be capitalised and converted into equity, further reducing Cell C’s leverage.
• Acquisition of Comm Equipment Company: Cell C will acquire 100% of CEC from TPC in exchange for additional Cell C shares.
• SPV restructure: The Special Purpose Vehicles (SPVs) currently holding equity interests in Cell C will also be restructured as part of the broader initiative, aligning their ownership structures with the redefined capital framework.

“Overall, the restructure is intended to streamline operations, improve financial sustainability, and enhance Cell C’s strategic readiness for long-term growth and potential listing,” Blue Label stated.

“The internalisation will enable Cell C to assume full responsibility over its postpaid customer base, including oversight of supply chain, commercial operations, marketing, billing, credit, and collections.”