Cell C, which has always been seen as a laggard in SA’s cellphone industry, is finally starting to gain ground on its bigger, better-funded rivals: in the past year it has clawed away some market share from MTN and Vodacom.<\/p>\n
Between June 2007 and June 2008, Cell C grew its subscriber base by 58%, to 5,4m. Analysts say that is good growth in an industry nearing saturation. But CEO Jeffrey Hedberg cautions that the expansion will moderate.<\/p>\n
The growth was driven largely by its offer of free on-net calls over weekends (subject to conditions, such as the weekly purchase of at least R10 of airtime).<\/p>\n
Revenue rose 17%, or R590m, between June 2007 and June 2008 and operating profit rose 36%. Earnings before interest, tax, depreciation and amortisation came in at R517m.<\/p>\n
Cell C does not disclose its net profit. It is likely that debt repayments continue to push the company into the red. Hedberg says Cell C discloses only the numbers over which the management team has influence, as these best indicate its actual performance.<\/p>\n
Analysts seem to like what Cell C has achieved under Hedberg, who took the hot seat from Talaat Laham in May 2006. “Cell C’s growth has been quite impressive,” says Fezekile Mashinini, a telecom analyst at research firm BMI-TechKnowledge. “Depending on how it accounts for churn, its growth dwarfs Vodacom’s growth of 1% over the same period.”<\/p>\n
Mashinini points out, however, that Vodacom cleared out some of its nonactive Sim cards during the period, which depressed subscriber growth numbers.<\/p>\n
He believes Cell C can continue winning market share from its rivals. “The battles it has won recently are just that — battles, not the whole war,” Mashinini says. “However, if it continues to win battles it could pick up another five percentage points in market share.”<\/p>\n
Cell C’s prepaid and post paid Arpu — average revenue per user, an important industry measure — have both climbed.<\/p>\n
Prepaid revenues surged 52% between the second quarter of 2008 and the same quarter a year ago, with Arpu rising 18% (R40\/month to R47\/month). Postpaid revenue grew 10%, while Arpu rose 12% (R356\/month to R398\/month).<\/p>\n
There was, however, a big decline in Cell C’s community service telephone (CST) business. Hedberg attributes this to the downturn in the economy — the poor, whom the community phones serve, are being forced to cut their telephony spend, he says. “The CST business is a little troubling.”<\/p>\n
More pleasant news for the company is that ratings agencies Standard & Poor’s and Moody’s both recently upgraded Cell C’s long-term debt ratings. The agencies have a more positive view of Cell C’s outlook, in part because of a recent offer by Saudi Oger, the controlling shareholder, to buy back its US dollar and euro high-yield bonds.<\/p>\n
Hedberg says Cell C will continue to do things that irk its rivals, chipping away at their market share. This includes a plan to cut prices — something it will be able to do fairly aggressively if the Independent Communications Authority of SA intervenes, as expected, in the wholesale call-termination market.<\/p>\n
The authority wants to force down the fees mobile operators charge one another to terminate calls between their networks, something which will benefit Cell C as the smallest operator.<\/p>\n
The company also has plans to compete more effectively in wireless broadband. It has been criticised in the past for not having a 3G data network.<\/p>\n
“There has been a lot of questioning of our data strategy, so we are looking at it,” Hedberg says.<\/p>\n
The company has not decided what to do yet, or what technology to choose — it is considering 3G, WiMax and others — and it may also look to roam at least partially on another operator’s broadband network.<\/p>\n
Hedberg says Cell C will provide details of its broadband data strategy before the end of the year.<\/p>\n