Johannesburg - Cell C is holding “exploratory talks” with various parties over consolidation of the local telecommunications market, according to acting chief executive Jose dos Santos.
“The fact is there is going to be consolidation,” Dos Santos said yesterday. “The question is how will it happen. We have to find economies of scale. Worldwide margins are under pressure. Where we [Cell C] go, that’s the shareholder’s perspective. It’s a discussion across the industry.”
Dos Santos would not comment on speculation that Cell C could acquire fellow struggling minority telecoms firm, Telkom Mobile, or that Cell C itself was the takeover target.
A merger or acquisition deal seems inevitable and is necessary, according to at least two industry analysts.
“It’s clear that the present is a little bleak, when it is only able to grow its customer base through aggressive price competition,” Arthur Goldstuck, the managing director of technology research firm World Wide Worx, said.
Goldstuck said Cell C was “shaking up the market” through its aggressive strategy of low pricing on voice and data, but the company “could well shake itself out of the market if it keeps burning cash faster than it can increase average revenue per user (ARPU).
“A price war wins prepaid customers hand over fist but that also forces down ARPU from two directions: the lower-spending customers coming over to the network, multiplied by the reduction in call fees these new users are paying.”
He said that if investors could be persuaded to be patient and if a clear growth roadmap was provided then a deal was not necessary.
Despite recent regulatory intervention to structure interconnection fees so that Vodacom and MTN, the largest telecoms network providers, will pay more to connect to smaller rivals, the competitive environment remains risky for Cell C and Telkom Mobile as stand-alone firms, according to Spiwe Chireka, a manager at International Data Corporation.
“The consolidation aspect is very important now because if there is a Vodacom and Neotel merger then we’ve got two major players [Vodacom and Telkom] and MTN in the middle and the gap for the smaller players will become even wider,” Chireka said, adding that a merger between Cell C, Telkom Mobile and Nashua, owned by Reunert, could become a viable entity.
This week Cell C’s subscriber base grew to 13 million for the first time in its history. Dos Santos said Cell C’s financial performance would be disclosed in February next year. He added that the company was on track to achieve a 25 percent share of market revenue over the next three to four years.
He said the company had concluded a deal with Mirage Telecom, which will launch a mobile virtual network enabler platform on Cell C’s network using Comverse software. This will enable banks and retailers, for example, to offer tailored telecoms packages to customers and loyalty card holders and the launch of new products in the market in March.
Meanwhile, Alan Knott-Craig, Cell C’s chief executive, had made “phenomenal progress” after suffering a stroke on November 18.
Knott-Craig remained in hospital pending further tests. He was expected back in the office from February or March next year, Dos Santos said. - Business Report