Cell C and Telkom to join forces?

Telkom and Cell C look like match made in mobile heaven. Jeffrey Hedberg, the CEO of Cell C, could be headed for Telkom where he will be given the task of turning it around and facilitating its merger with Cell C.

Hedberg has previously said that he would favour Cell C being bought by Telkom.

On Friday he said he had not been approached by Telkom, although it is understood that he may have been approached by Telkom shareholders. Government has 39.4% and the Public Investment Corporation, which invests government pension funds, 15.2%.

“M y energies are concentrated on ensuring that the team at Cell C continues to provide affordable and accessible services, while improving the company’s operational and financial performance. I will therefore only make an announcement on whether or not I will renew my contract (which expires in November) later.”

Telkom would not comment and the Department of Communications did not respond to queries.

It is understood that Hedberg does not plan to renew his contract with Cell C when it expires in November. But Hedberg, who is American, does not plan to leave SA.

Brought in to help turn Cell C around, he has done an admirable job.

It is understood that Cell C has increased its subscriber base by 25% to 6.5 million in 2008 and that its operating profit has increased to more than R400-million from R321-million in 2007, and from a loss of R350-million when he took over in 2006.

But while he has made significant operational improvements, Cell C’s big problem remains its crippling debt, which Hedberg inherited.

It is understood that Hedberg has been approached by people at Telkom shareholder level to:

  1. Effect a turnaround at Telkom, whose future looks a bit sketchy once it sheds its investment in Vodacom; and
  2. Facilitate the integration of Telkom and Cell C.

Telkom is looking for a cellphone presence following its imminent separation from Vodacom, when Vodafone, Telkom’s equal partner in Vodacom, increases its stake in Vodacom and Telkom unbundles what is left of its stake.

Telkom’s current CEO, Reuben September, although he has been with Telkom for many years, is not considered a troubleshooter, and Hedberg could be more up to the task of developing a path to future growth. Additionally, September has been involved in controversies relating to a tender and the axing of chief operating officer Motlatsi Nzeku.

But one analyst points out that Cell C is not the only option.

He said: “Who is to say that Zain will not show an interest in Telkom and become a partner in Telkom Mobile?”

The Kuwaiti company Zain is a significant player in Africa and the Middle East. It has 63.5 million subscribers in 22 countries, with revenue of 7.4-billion.

Its management has stated that it wants to have 110 million customers by 2011. The company recently launched its One Network, which is a borderless network meaning that Zain clients do not pay cross- border tariffs.

Telkom will be in definite need of a cellphone partner once it loses Vodacom. The partner it opts for would depend on how much it has to spend, and it is expected to have an additional R10-billion following conclusion of the Vodacom transaction.

Hedberg joined Cell C in May 2006, taking over from Talaat Laham. He was previously the chairman and CEO of Deutsche Telekoms’ US subsidiary, responsible for the company and its subsidiaries T-Mobile and T-Systems in the US.

Before that he headed international operations for Swisscom International and was an adviser to the telecom clients of auditing firm Coopers & Lybrand.

When he took over at Cell C, it had 2.7 million customers and while he has managed to achieve an increase in subscribers (of over 100% in 2007 and 25% in 2008), the numbers are still low. MTN has 17.2million subscribers in SA and Vodacom has 26.5million.

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Cell C and Telkom to join forces?