Cell C taking market share?

South Africa’s third-largest operator, Cell C, has added 1.5m subscribers since October 2012. It has 11.5m customers today, versus the 10m chief executive Alan Knott-Craig told Reuters it had late last year.

The operator does not publish quarterly or even half-yearly financial or subscriber information, but beyond the 1.5m increase, Knott-Craig contends the operator has added “about 2.5m in just over 12 months”. While the words “about” and “just over” are somewhat vague, he disclosed in January last year – ahead of taking over as CEO in April that year – that the group had 9m customers. That’s growth of 2.5m in 18 months.

The rate of growth, as Knott-Craig says, is increasing: 1m customers in nine months and 1.5m in the next nine. But how quickly is Cell C growing compared with the rest of the market?

Between January and September 2012, Vodacom lost about 1m customers (31.787m to 30.783m). Since then, it’s lost another 1.5m (29.282m as at June 30). The bulk of these losses – in absolute terms – were prepaid customers. Over the past year, the group has repeatedly highlighted its strategy of taking low value calling cards and bundled SIM packs out of the market.

What about MTN? In the first nine months of last year, it gained 2.5m customers (22.033m to 24.498m). We don’t have the June numbers for the country’s second-largest operator, but by March it had added another 500 000 (to 24.95m).

We don’t know too much about Telkom Mobile (neé 8ta), but it’s added 1.1m customers in the 12 months since end-March 2012 (3.053m to 4.177m). It splits out active customers separately (those who have conducted revenue generating activities in the past 90 days) – on that basis its base is only 40% of that reported number (1.534m), and growth is far weaker.

Cell C’s growth then, when compared with its rivals, looks impressive. In absolute terms, MTN has added more customers (over 3m vs 2.5m). Telkom Mobile’s added, give or take, 1m. And Vodacom’s pursuing a different strategy of not necessarily growing a subscriber base (especially at the low end) at all costs.

But these numbers only tell half the story – if that.

Market share is one thing. But we don’t have revenue numbers for Cell C. Nor do we have ARPU (average revenue per user) data. Both of these would be incredibly telling. There’s a reason why Knott-Craig hasn’t disclosed these over the past 18 months.

You can chase subscriber numbers all you want, but if those are low-value customers, the growth is unprofitable. Everyone who spends a significant amount of money every month on mobile communication already has at least one contract.

That said, Cell C has no other option but to aggressively grow its subscriber base. At under 10m subscribers, it was sub-scale. Today it has 17% market share, but on a revenue market share basis, that number is probably under 10%. Vodacom, by comparison has a 43% market share, but its revenue market share is over 50%. MTN, which has taken market share and revenue market share, has 38% of the former and over 40% of the latter. Telkom Mobile remains hardly relevant.

The real challenge for Cell C remains the ability of Knott-Craig and his team to continue improving its network capacity even more rapidly than its subscriber growth. The operator’s building out 100 base stations a month – it can’t do much more than that.

Its aggressive smartphone and data pricing – a strategy which started under Lars Reichelt more than two years ago – means the mix of usage on its network is shifting. Three years ago, the operator didn’t have a 3G network. Think about that. Traffic was overwhelmingly voice. That gives some perspective to what Cell C’s needed to do.

Knott-Craig’s market share target of 25% by 2016 remains within reach. I wouldn’t bet against it.

*Hilton Tarrant contributes to ‘Broadband’, a column on Moneyweb covering the ICT sector in South Africa. The mobile market in this country is intensely competitive – don’t believe anyone who says it’s not.

** Hilton Tarrant owns shares in Vodacom, acquired in June 2013.

Source: Moneyweb

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Cell C taking market share?