Cell C CEO explains how Vodacom and MTN waste money

Cell C CEO Douglas Craigie Stevenson has highlighted a major problem in the mobile telecoms industry, one which is especially prevalent at major operators like Vodacom and MTN.

Cell C, which is currently undergoing a recapitalisation process and has had its value written down to R0, reflected a prepaid subscriber decline of 38.9% in its latest financial results.

The company posted a net loss after tax of R7.5 billion and has lost 4.4 million mobile subscribers over the past year.

The bulk of this loss, however, was attributed to the impairment of network infrastructure, which Cell C is purposefully exiting.

Cell C has also stated that while it is losing prepaid subscribers, this is part of its plan to reduce churn and improve the quality of its customers.

Speaking in an interview with MyBroadband, Craigie Stevenson said he wants to challenge the industry’s wastage surrounding SIM card churn.

No return on investment for Vodacom and MTN

In his results presentation, Craigie Stevenson referred to the “SIM card washing machine”, an analogy which demonstrates the relentless chasing of subscribers who provide no value.

This concept argues that a SIM connection does not constitute a sustainable and profitable customer, and that the cost of acquisition is ineffective and drives bad distribution behaviour.

“I want to challenge the industry a little bit, and that’s my comment on the churn that’s being wasted with the washing machines and millions of SIMs going into the market,” Craigie Stevenson said.

“We’ve got to be a little bit more clever as an industry because we’re not getting a return on investment (ROI).”

“Our dear good brothers in red and yellow have not shown an ROI on the investment. I’m sorry, its a fact,” he said.

“You put in R100 billion of CAPEX over the last five years between the two of you and your share price is where it is. That’s not going to work forever.”

He said the industry was pumping SIM cards into the market just so a subscriber can throw it away in seven months.

“It makes no sense, its inefficient, and it’s costing the industry money,” Craigie Stevenson said.

“I’m hoping that some of the things we are starting to do now are going to start making people question the behaviours of the assets that are in the industry.”

Spectrum plan, towers, and new business model

Craigie Stevenson noted the large impairment cost reflected in the company’s balance sheet, stating that this infrastructure would be decommissioned and will not be used by MTN, with whom Cell C has an extended roaming agreement.

Cell C will be moving entirely onto MTN’s radio access network, although it will still run its own core infrastructure, which Craigie Stevenson said retains the company’s definition as an MNO (Mobile Network Operator) as opposed to a “Super MVNO (Mobile Virtual Network Operator)”.

“The business was always trying to compete in something it could never do,” Craigie Stevenson said.

“What would be the point in recapping a business to go back to the shareholders and say ‘Oh, by the way, I need another R50 billion to start competing again’?”

“We’ve done a pretty good job in terms of making or proving the case that this business could run as an MNO as well as then transition into a new business,” he said.

When asked about the upcoming spectrum auction, Craigie Stevenson said it would be remiss of him not to participate.

“How will I pay for it? Let me make that a problem for asking ICASA, the government, whatever it may be, but we’re still very much an MNO in our core, we just don’t have the radio access network,” he said.

“We can utilize spectrum on another network.”

“We will either lease the spectrum from government or we will pay for it as we use it,” he said.

The infographics below detail Cell C’s perspective regarding its retained classification as an MNO and the SIM card washing machine analogy.

SIM Card Washing Machine

Cell C SIM card washing machine


Now read: Cell C makes R7.5-billion loss

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Cell C CEO explains how Vodacom and MTN waste money