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A top-tier South African telco is handing over control of its assets

Cell C has had sustainability challenges since entering the market in 2001, and struggled to match investments by its closest rivals.

A top-tier South African telco is handing over control of its assets
Photo by Diana den Held / Unsplash

After several years of ups and downs, one of the largest telecom operators in South Africa is now aboard a moving acquisition train, possibly marking the start of a new era for the beleaguered telco. 

South Africa’s telecoms regulator, the Independent Communications Authority of South Africa (Icasa), has notified via the country’s Government Gazette that Cell C—the fourth-largest provider in the market—has applied to pass on its operating licence and frequency spectrum.

The network provider plans to transfer its operations to The Prepaid Company (TPC), a subsidiary of JSE-listed Blue Label Telecoms, Cell C’s largest shareholder. 

Per Icasa’s notice, the applicant wishes to cede control of its Individual Electronic Communications Service (I-ECS) and Individual Electronic Communications Network Service (I-ECNS) licenses. This would give TPC the rights to Cell C’s permit to build and operate wholesale network infrastructure. 

TPC’s parent firm, Blue Label Telecoms, which describes itself as an innovative technology platform for mobile commerce to emerging markets, owns a total 63.19 percent stake in Cell C and is the initiating party in the acquisition.

According to the telco, TPC—a 49.5 percent non-controlling stakeholder in the business—is increasing its stake to 53.5 percent, necessitating regulatory requirements the acquisition will help satisfy. 

“This entails a filing with the Competition Commission and Icasa for the approval of the transfer of control to enable TPC to obtain majority control of shares of Cell C by obtaining an additional 4.04 percent shareholding,” Cell C told local media.

“Cell C retains full control of its spectrum as part of its operating model and will continue to operate as a licensee providing mobile services to its customer base as a mobile network operator,” the company added.

When approved by Icasa, this deal would go down as one of the most critical takeovers in the South African telecoms market. Despite being one of the largest telcos, Cell C has had a rough several years. 

In hindsight, the mobile operator has been struggling with sustainability since 2001 when it came to market, unable to match the investments made by its closest rivals, Vodacom and MTN. Moreover, a debt burden of about $434 million has contributed to its yearslong financial distress. 

A lifeline came in 2017 when Blue Label stepped into the picture, acquiring its $369 million stake with the primary objective of pulling the business out of debt. But Cell C’s financial issues proved too complex to manage. In May 2019, Blue Label wrote off its investment in the firm, with fair value losses of over $31 million. 

Reports say the business has lost hundreds of millions of dollars since 2019, offering a conundrum that punctured an $80 million hole in Blue Label’s shareholder value. Still committed to saving the business, the investor paved the way for Cell to be recapitalized, As a result, the telco’s lenders forfeited up to 80 percent of their debt. 

Post-recapitalization, Blue Label’s share price has nosedived by more than 50 percent, reflecting the market’s unwillingness to believe it can rehash a rescue plan for Cell C. Recall, Telkom SA moved to acquire the carrier in 2019 but those plans fell through due to conflict of interest. 

Between June 2021 and May 2022, Cell C hemorrhaged almost $150 million. Its latest financial results show that revenues declined from $696 million to $623 million. The business went from a $125 million loss to a $256 million profit, only because of over-significant income. 

Regardless, Cell C continues to fall behind its peers. At some point, it was the third-largest telco on the turf but was unseated in 2020 by Telkom. The telco, which recently sold its tower assets, shares roaming agreements with MTN and Vodacom. 

In July, as part of the turnaround plan, former Vodacom chief consumer officer Jorge Mendes joined Cell C as its new CEO, following the exit of Douglas Craigie Stevenson. 

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