Cell C’s majority shareholder Blue Label Telecoms expects to start seeing returns on its multibillion-rand investments in the mobile operator in 2025.
So said Brett Levy, co-CEO of Blue Label Telecoms, speaking last week to the media after the JSE-listed company announced its annual financial results for the year ended 31 May.
The fintech group has a non-controlling 49.5% stake in Cell C, and is looking to get an additional 4.04% stake via its subsidiary, The Prepaid Company, in order to control South Africa’s fourth-biggest mobile operator.
Blue Label is now looking for a favourable decision from regulators − the Independent Communications Authority of South Africa and the Competition Commission − for the deal to go through.
In the financial results, Blue Label said its subsidiary Comm Equipment Company, which is directly linked to Cell C, showed a negative impact of R368 million, while the remaining group operations contributed an additional R110 million compared to the previous year.
According to Levy, since buying into Cell C, Blue Label has invested close to R7.5 billion in the mobile operator.
“In Blue Label’s world, it’s short-term pain and long-term gain for Cell C, because we are trying to contribute the little that we can to Cell C in order for Cell C to maximise their position and get back on track, which they are doing,” he said.
“It’s very important now to have a holistic view of Cell C and Blue Label, and we are happy with what we have done; it was definitely the right move.
“Our initial investment in Cell C was R5.5 billion, with an additional R800 million that we invested afterwards. In the recap of 2022, we invested another R1.2 billion. Our total investment in Cell C from an equity point of view is R7.5 billion, plus or minus. We are planning on getting that back.”
He said Blue Label expects to make gains from Cell C in 2025.
“We sold a piece of our book to African Bank for the purpose of funding Cell C an additional R1.2 billion, which was part of the recap programme of 2022. We are definitely under a little bit of pressure, but I think we have stabilised it, and we are coming to normality, and from 2025, we should see some improvements.”
Network boost
Also speaking at the event, Cell C CEO Jorge Mendes expressed confidence that the company is moving in the right direction to become profitable.
He noted that since Cell C switched off its radio access network, it now has access to 28 000 base stations through roaming partnerships with Vodacom and MTN.
In 2021, Cell C started migrating its contract and broadband customers to Vodacom, while it commenced building its own radio access network on MTN’s infrastructure and switched prepaid subscribers to MTN.
“We have seen significant improvement in our network and we are seeing great performance throughout the country,” said Mendes.
“The magic is that if we were to build our own infrastructure, we would spend something between R35 billion to R40 billion in capex, and we would have to spend another R10 billion in capex per year to at least try and compete with Vodacom and MTN.
“So, we are getting the quality of service immediately, and the partnerships we have also allow the two big operators to generate revenue and invest in infrastructure and we become buyers of technology services.”
Mendes pointed out that the renegotiated roaming agreements with Vodacom and MTN give Cell C significant financial benefits and quality of service going forward.
“The previous agreements created a bottleneck in terms of us really going forward with launching new products.”
He added that the company is looking to expand its mobile virtual network operator (MVNO) business going forward.
Cell C pioneered the local MVNO market in 2006. However, MTN has aggressively entered the MVNO market over the past two years. It is expected Vodacom and Telkom will soon be entering the market as a result of obligations connected to the spectrum they recently acquired.
“We are repricing the MVNO category because we want to be known as the home of MVNOs. We will continue to create pricing structures that are aggressive and competitive in the market. The magic is simple in that from a roaming revenue perspective, we have taken a significant amount from Vodacom and MTN when it comes to the roaming structures,” Mendes said.
“What will happen is, naturally, they will be going more aggressively at MVNOs. We want to make sure we tie up that section of the market and continue to be competitive in that space.”
He noted that Cell C has spent a lot of time reviewing products, while bringing operational costs significantly down.
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