Ig­nor­ing talk of tur­moil

Cel­lu­lar op­er­a­tor down­plays talk of trou­ble

Finweek English Edition - - Openers - CHIMWEMWE MWANZA

IS THERE A CRI­SIS BREW­ING AT Cell C? The cel­lu­lar op­er­a­tor has in the last six months re­port­edly shed nearly 3% of its 2 500 work­force.

Fur­ther job cuts at se­nior man­age­ment level are on the cards, much in line with new CE Jef­frey Hed­berg’s stated ob­jec­tives of stream­lin­ing the com­pany. Cell C may well have im­proved earn­ings in its last re­port­ing pe­riod by record­ing a 22% in­crease in rev­enue to R3bn, but over­all it’s still bat­tling to ring up its first hard­core profit – a de­vel­op­ment that re­cently prompted rat­ing agen­cies S&P and Moody’s to down­grade its high yield bonds.

A joint ven­ture (JV) signed last year with the Richard Bran­son-owned Vir­gin Mo­bile – Bri­tain’s largest mo­bile vir­tual net­work op­er­a­tor – to prop up Cell C’s sub­scriber re­cruit­ment cam­paign, has yet to have a pos­i­tive ef­fect. Iron­i­cally, mo­bile num­ber porta­bil­ity (MNP) – whose in­tro­duc­tion Cell C cham­pi­oned – has turned out to be its Achilles heel. Irked by the cel­lu­lar op­er­a­tor’s in­abil­ity to of­fer them cut­tingedge data ser­vices such as 3G and HSDPA, a sig­nif­i­cant num­ber of post-paid users, who con­sti­tute 20% of the group’s over­all 2,7m sub­scribers (as at Au­gust 2006) are said to have ported out of Cell C and de­fected to com­pet­ing net­works MTN and Vo­da­com.

Fol­low­ing the en­forced de­par­ture of for­mer CE Taalat La­ham, who had been sec­onded to Cell C by its par­ent com­pany – the Saudi O’ger group – whis­pers em­a­nat­ing from the Cell C cor­ri­dors sug­gest that the Saudi O’ger group is con­sid­er­ing di­vest­ing from the firm. Cell C man­age­ment is, how­ever, adamant that all’s well at SA’s small­est cell­phone op­er­a­tor.

Cell C’s com­mu­ni­ca­tions man­ager Vanashree Pil­lay says: “We’ve read some of the stuff you’re ask­ing about in other me­dia, and none of it’s true. Some of the fig­ures be­ing bandied about re­gard­ing staff re­trench­ments are ridicu­lous. Does re­align­ing 25 cred­itvet­ting and sales po­si­tions in an in­ter­nal re­struc­tur­ing ex­er­cise amount to a cri­sis? To my knowl­edge only 12 em­ploy­ees – ac­count­ing for less than 2% of our to­tal staff com­ple­ment – have left.

“Your per­cep­tion that Hed­berg – a for­mer Deutsche Telekom ex­ec­u­tive known for his ag­gres­sive cost-cut­ting mea­sures – is a hatchet man brought in to save a sink­ing ship is in­cor­rect.”

Pil­lay in­stead blames op­po­si­tion net­works for some of Cell C’s woes: “There are ru­mours of col­lu­sion aimed at sti­fling our growth. Not long ago, both Vo­da­com and MTN went as far as at­tempt­ing to de­lay the in­tro­duc­tion of MNP, but they got off scot-free with­out any ad­mo­ni­tion by the reg­u­la­tor. As we speak, Cell C is owed al­most R1bn in in­ter­con­nect fees by MTN, but be­cause it’s Cell C, MTN is re­luc­tant to pay up, which it wouldn’t do if it owed Vo­da­com. Un­like them, we don’t have the re­sources for a pro­longed le­gal bat­tle. It’s time the reg­u­la­tor reined in the bul­ly­ing tac­tics of com­pet­ing net­works in or­der to level the play­ing field.

Pil­lay is equally dis­mis­sive of sug­ges­tions that the cel­lu­lar firm had lost a sig­nif­i­cant num­ber of high value sub­scribers. “It de­pends on one’s source of in­for­ma­tion.” Ac­cord­ing to Pil­lay, sta­tis­tics re­cently pro­vided to Cell C by the more cred­i­ble cen­tral ref­er­ence data­base shows that of the 33 000 peo­ple who ported at end Fe­bru­ary 2007, Cell C lost about 13% and gained 40%, giv­ing it a net gain of 27%.“The con­tention that we lost a num­ber of high-end users be­cause we couldn’t of­fer them a broad range of data ser­vices is not based on fact. Our re­search has shown that only 10% of our sub­scribers use data ser­vices and we have got Edge for our more so­phis­ti­cated data users. For us, voice and data ser­vices re­main the most widely used ser­vices among our sub­scriber base; we don’t see the need to launch a 3G or HSDPA net­work. To date both Vo­da­com and MTN have yet to jus­tify their busi­ness case for 3G.”

Whether Pil­lay’s sen­ti­ments are meant to pa­per over the dam­ag­ing leaks is hard to tell, but tele­coms an­a­lyst An­dré Wills adds an in­de­pen­dent view about Cell C’s re­ported woes and the con­fu­sion sur­round­ing MNP. Will be­lieves that Cell C has bat­tled to break even ow­ing to the com­pet­i­tive na­ture of the lo­cal cel­lu­lar mar­ket.

“Cell C has done rea­son­ably well, con­sid­er­ing that it was launched years af­ter both Vo­da­com and MTN had been firmly en­trenched in the lo­cal mar­ket. Cell C could have taken ad­van­tage of MNP to gain con­sid­er­able mar­ket share, but for a lack of cut­ting-edge data ser­vices such as 3G and HSDPA,” says Wills, adding that the amount of rev­enue that Vo­da­com and MTN gen­er­ate from data ser­vices makes a com­pelling case for of­fer­ing th­ese ser­vices. “By de­ploy­ing 3G net­works, Vo­da­com and MTN have sat­is­fied de­mand ahead of time.”

Says Pil­lay: “What­ever the mer­its of 3G and HSDPA, we’re not look­ing to de­ploy a new gen­er­a­tion net­work any­time soon. Our new CE is fo­cused on build­ing a strat­egy that’ll of­fer pre- and post-paid users the kind of ser­vice they’re look­ing for. We un­doubt­edly have the best call rates, and th­ese could even be lower were it not for the high in­ter­con­nec­tion fees charged by com­pet­ing net­works.”

Pil­lay dis­misses ru­mours that the Saudi O’ger group was con­sid­er­ing di­vest­ing from Cell C and as­sures cyn­ics that the Hed­berg-led man­age­ment team is on course to re­vers­ing the for­tunes of the com­pany.

She parts with: “Let’s wait and see what the next set of re­sults looks like.

Is he the hatchet man? Jef­frey Hed­berg

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