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It’s been 15 years since Cell C, SA’S third mobile network, signed up its first customer. When it launched in November 2001, then-ceo Talaat Laham boasted how he was “confident that we will perform better than our own expectations”, signing up more than 20% of the market by 2006, mainly because it would provide “far better value for money” than its rivals.
On that barometer, you’d have to say it’s been a spectacular disappointment.
Today, Cell C remains a speck in the distance behind Vodacom and MTN: it has yet to reach that 20% market share, has only just recorded its first net profit, and its prospects of closing the gap to its two Goliath-like rivals seem vanishingly slim.
It’s not altogether surprising. Globally, late entrants into the mobile network industry, especially where there are already two players, have little to zero chance of success. Trying to find space to compete, where economies of scale are not in your favour, is no easy quest.
In Cell C’s case, it entered the market with much fanfare — but crucially, it was seven years after Vodacom and MTN had launched.
If the goal, for the regulators, was increased competition, it worked almost immediately: for example, in anticipation of Cell C’s arrival, MTN and Vodacom began offering per-second billing for the first time.
But whatever Cell C did, its rivals were able to match. And while Laham initially saw Cell C turning profitable by year five, it did not hit that goal.
This meant its survival hinged on the willingness of its 60% shareholder — Oger Telecom — to pump in money for no return. The other 40% of Cell C was held by Cell C’s failure to live up to its pro fact that it was a late entrant to a m MTN. But having eluded busines just survival but injecting more com an R8bn deal with new shareholde turn the com empowerment consortium Cellsaf, but other than seed capital, it contributed nothing to the cash-hungry enterprise.
Finally, this year, the chickens came home to roost.
Facing a crippling R23bn debt load, Cell C was on the brink of being placed in business rescue (and if you want a taste of what happens there, consider the sad tale of Stuttafords). But its largest lender, the Industrial & Commercial Bank of China, agreed to a stay of execution.
The crisis intensified in January, when Cell C missed a repayment on a €400m bond. This meant its credit rating was downgraded to deep into junk status (a “D” rating, the lowest you can get) by Standard &
Poor’s. In May, Moody’s said the lenders would probably agree to a deal which
“would be considered a distress exchange”.
It’s a grim story, principally because were Cell C to go belly-up, it would harm consumers as it would strengthen the pricing
What it means: