Vodacom in talks with Cell C
Vodacom is in talks with Cell C about taking on the smaller rival’s contractpaying cellphone customers, a move that would strengthen its position as SA’s telecom market leader, according to people familiar with the matter.
Vodacom is in talks with Cell C about taking on the smaller rival’s contract-paying cellphone customers, a move that would strengthen its position as SA’s telecom market leader, according to people familiar with the matter.
Vodacom would gain just more than one-million highpaying subscribers from the deal, said the people, who asked not to be identified as the discussions are continuing. The talks are at an early stage and could still fall apart, they said.
Cell C and its biggest shareholder, Blue Label Telecoms, are looking at ways to cut costs and strengthen the balance sheet as they battle to service R9bn of debt. Transferring the customers to Vodacom would attract a fee and free Cell C from the cost of servicing clients, including handset subsidies and credit checks, said the people. The carrier could also cut jobs and close some stores after slimming down operations, they said.
Philip Short, an analyst at Old Mutual, said if such an arrangement were to go through, it would probably have to go through the Competition Commission. “But if it does happen it can go a long way to pay down Cell C’s debt.” Short said that the
Competition Commission might be an issue for Vodacom, given its size in the market, but not for smaller player Telkom, if they wanted to acquire the same subscriber base.
Representatives of Vodacom and Blue Label declined to comment. A spokesperson for Cell C said that the company did not respond to speculation.
Blue Label shares rose as much as 2.4% to R3 on the JSE on Tuesday, the highest in more than a month.
Cell C generated about R3.6bn in revenue from its postpaid customers in the year through May, about 30% of sales from cellphone subscribers. The company will be left with those who pay as they go, who don’t spend as much on average as those with contracts. The resulting smaller business would also include Cell C’s broadband customers.
With Vodacom’s earnings before interest, tax, depreciation and amortisation (ebitda) margin at 37%, Short said Vodacom would probably get more margin out of the move because there is no customer acquisition cost and systems are already in place. He said that the real question for Vodacom or anyone looking to acquire that specific subscriber base from Cell C was what it would cost. At a 37% ebitda margin, it would be costing Vodacom R1.3bn to acquire these customers.
Vodacom has about 5.8-million post-paid subscribers in SA, meaning a successful deal would see it leapfrog MTN with 5.9-million and increase its overall lead in the market.
In November, Cell C rejected a takeover offer from Telkom that would have combined SA’s third- and fourth-largest cellphone companies. It remains in negotiations with a local investment firm called Buffett Group, which could trigger its second recapitalisation deal in four years. /With Mudiwa Gavaza /Bloomberg