Vo­da­com in talks with Cell C

Business Day - - FRONT PAGE - Loni Prinsloo

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

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