Cell C dragged into spectrum war

Vodacom and Telkom have registered concerns about Cell C transferring control of its spectrum licences to Blue Label Telecoms due to the company’s spectrum pooling deals with MTN.

A public hearing was held on 19 September to discuss Cell C’s application to transfer control of its network, service, and spectrum licences to its biggest shareholder, Blue Label subsidiary The Prepaid Company.

Cell C filed the application because The Prepaid Company wishes to increase its shareholding in the mobile operator from under 49.5% to 63.2%.

The application includes all of Cell C’s radio frequency spectrum in the 2100MHz, 1800MHz, and 900MHz bands.

Spectrum is the lifeblood of any wireless network carrier. It is the raw bandwidth they use to communicate between their towers and customer devices like smartphones.

In May this year, Vodacom launched legal action against the Independent Communications Authority of South Africa (Icasa) after learning that the regulator had approved spectrum pooling agreements between MTN and several other players.

According to the court papers, Icasa allowed MTN to pool spectrum belonging to Cell C and Liquid Intelligent Technologies with its own.

Vodacom said Icasa erred by approving the application without public consultations.

It also argued that the pooling agreements constitute notifiable mergers that should have been lodged with the Competition Commission.

During the hearings this week about Cell C’s application to transfer control of its licences, Vodacom also argued that Cell C’s spectrum was effectively under MTN’s control.

Asked to respond to the allegation, Cell C CEO Jorge Mendes said they rejected the claims on the strongest terms.

Contacted for comment, Telkom explained that it did not object to Cell C’s application.

“A short submission was made by Telkom requesting that Icasa, in its deliberations, closely consider the issue of control of Cell C’s spectrum licences,” a spokesperson for the company said.

“Telkom did not raise any other material issues in its submission.”

Vodacom told MyBroadband that it believes Cell C’s spectrum is not used lawfully in terms of the relevant licenses or in accordance with Electronic Communications Act.

It contended that control of Cell C’s spectrum licences should not be transferred unless and until this is remedied.

“Icasa is empowered to take action against non-compliance and should not permit Cell C to transfer rights in the spectrum licence while the spectrum is not being used lawfully,” Vodacom said.

“In this instance, Vodacom asserts that Icasa must either prohibit the transaction, alternatively afford Cell C an opportunity to remedy the situation, after which further public hearings must be held to reconsider the transaction.”

In response to Vodacom and Telkom’s submissions, MTN said its pooling agreements with Cell C are irrelevant to the licence transfer of control application before Icasa.

MTN submitted that Icasa should only consider whether the transfer of control would hinder competition within the industry.

However, it also noted that such adverse impacts do not necessarily mean Icasa should refuse the transfer; it may just need to impose conditions on it.

One of Cell C’s oldest shareholders, CellSAf, has also opposed the transfer application.

CellSAf’s legal representative told MyBroadband that there was a lot of uncertainty surrounding the company’s shareholding in Cell C.

“The structure is too opaque; our client has been oppressed as a minority shareholder and is not consulted on significant decisions that affect their shareholder rights,” they said.

CellSAf’s shareholding has been significantly diluted from the 25% it used to own in Cell C due to two recapitalisation transactions — one in 2017 and another in 2022.

CellSAf said it believes the Independent Communications Authority of South Africa (Icasa) and the Competition Commission allowed the strategic merger and transfer to take place without scrutiny.

“Thus, our client was not afforded its regulatory rights to participate. It is our strong contention that all past and current transactions are a nullity for lack of regulatory compliance,” CellSAf’s legal representatives said.

“We believe the transaction is a subversion of BEE and will strip our client of a hard-earned asset for which they paid more than a billion rand nearly twenty years ago,” said CellSAf.

In the notice of the public hearing, Cell C also announced that it was withdrawing its application to transfer the 10MHz of 3,500MHz radio frequency spectrum it acquired during the 2022 high-demand spectrum auction.

Cell C has forfeited the spectrum and returned it to the regulator. It is currently negotiating to reapply for it.

This is due to a payment arrangement — which Cell C believed it had in place with the regulator — falling through.

It had bid R288 million for the 10Mhz through the auction and had paid a deposit.

“Between the changes that took place at Cell C and the changes that took place at the regulator, this thing was lost in translation,” Cell C CEO Jorge Mendes told MyBroadband.