Hed­berg’s hard talk

Icasa to blame for cel­lu­lar op­er­a­tor’s woes

Finweek English Edition - - Business strategy - CHIMWEMWE MWANZA

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

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