Hedberg’s hard talk
Icasa to blame for cellular operator’s woes
IF MAKING A JUDGEMENT based solely on Cell C’s reported woes, it would be easy to conclude that the company is on the brink of a financial meltdown. Yet the cellular operator’s CE Jeffrey Hedberg scoffs at such reports, insisting that talk of a crisis at the company – though of potential strategic benefit to its competitors – was a gross exaggeration of the true facts.
Although admitting that Cell C is faced with challenges, some of which Hedberg attributes to the lack of strategic clarity and focus in the past at the company, he takes a thinly veiled dig at Icasa, charging that South Africa’s regulatory environment is skewed in favour of rival established operators Vodacom and MTN.
Says Hedberg: “Due to the high interconnection costs within the country we’re constrained from lowering tariffs without affecting our bottom line. For example, for every Cell C call carried on a rival network, we’ve got to cede a significant portion of revenue to that particular carrier in interconnect fees or interconnection cost based on a transparent view of costs was the standard practice worldwide. “The reason behind Vodacom’s and MTN’s delay in reforming the current interconnect regime is that both their bottom lines would be affected.”
Hedberg says that Icasa’s silence concerning the interconnection fee debate was only broken recently by the regulator’s initiative to release a discussion paper on cost-based interconnection that had cost Cell C significant revenue. “The discussion paper may have come a little too late but it will still have a positive effect in reducing the costs of telecoms services in SA.”
Despite these challenges, Hedberg says that he’s on course in turning around Cell C’s the costs for terminating that call.
“The fact that Cell C is the smallest operator means that most of our outbound calls are carried on rival networks, which in turn charge us for connecting that call but without providing transparency on the cost incurred to terminate the call.”
For example, a call from a Cell C subscriber to one on the MTN network will net MTN R1,25c/minute in interconnection revenue. With both Vodacom and MTN reported to have raked in excess of R10bn in interconnect fees over the past year, it’s little wonder that both operators are reluctant to reform their interconnect fee structures.
Hedberg says: “For us, the contention is how the current interconnect structure – and, accordingly, the interconnection price – was arrived at.” He argues that an fortunes. He has since repositioned the company to strategically focus its growth plans on the LSM 3-7 market, adding that the needs of that particular segment were basic: voice, SMS and simple data services. “We need to leverage our strengths more effectively because, as the third operator in a market dominated by the Goliaths, we need to be more nimble, be able to differentiate our products and stop diluting our resources across too many initiatives.”
Hedberg says the fact that Vodacom and MTN have deployed a 3G network isn’t a compelling reason for Cell C to follow suit. “The problem I inherited is that the company modelled its strategy on that of competing service providers without that differentiation.”
Unlike two years ago – when Cell C had to lease infrastructure from Vodacom – 86% of its traffic now flows through its network. That it makes economic sense – particularly in SA’s far-flung rural areas – the company will for now let 14% of its traffic continue to “roam” on Vodacom.
“The problem I inherited is that the company
modelled its strategy on that of competing service providers without that differentiation.”
Hedberg is full of praise for Cell C’s staff, saying that he’s encouraged by their sense of urgency to turn around the company’s fortunes. Though it was still battling to break even five years after launching its network, he remains unfazed. “It takes three to five years for a cellular operator to become profitable and, given the strategies in place, I’m positive about the future.”
With regard to speculation that Cell C’s parent company – the Saudi Oger Group – was considering divesting itself of its stake in the company, Hedberg had this to say: “I understand the interest, because we’re an exciting company in the middle of a turnaround – but that’s solely a shareholder issue.”
No crisis at Cell C. Jeffrey Hedberg