FNB could save struggling Cell C
ISN’T the time right for First National Bank (FNB), South Africa’s most innovative bank, to make a bold move to buy Cell C, the country’s third-largest cellular operator?
The move for FNB to buy Cell C has to be considered urgent, especially because soon the cellphone will function as a virtual bank card.
The lines that differentiate banks from cellular operators are increasingly becoming blurred. Thousands of consumers buy cellphones and tablets through easy-to-afford deals from FNB.
The bank offers a tablet banking app and at least 62% of all prepaid electricity purchases processed by FNB are made on cellphone banking.
Would FNB be unduly deviating from its main business by considering buying struggling Cell C? Not really.
FNB has a telecoms licence, so it is already able to provide voice and data services. By acquiring Cell C, it would boost its revenue stream from digital banking and ICT industry services, embracing a future in which cellphones are being transformed into pocketsized bank branches. Already, traditional banking branches have long been deserted by technosavvy and high-end customers.
Ravesh Ramlakan, FNB cellphone banking solutions CEO, was recently quoted in the media saying the future of retail banking was a “mobile phone”.
Unfortunately, FNB may face a backlash from shareholders, who could prefer to collect fat dividends rather than finance the acquisition of Cell C.
They would be right that there are pitfalls to such a deal. Cell C is mired in debt. Its network can’t cope with its more than 12 million customers, or more than 17% market share. The company’s capital expenditure is a drop in the ocean compared to more than R10billion capital being invested by both MTN and Vodacom annually.
In July, Cell C received from its majority shareholder, Oger Telecom and a Nedbank-led consortium, funds amounting to R5.7-billion.
Next year, Cell C’s majority shareholder is unlikely to be as generous with equity debt.
In an ideal situation, a bank that creates a joint venture with a cellular operator will save costs — but if FNB were to purchase the struggling operator, it would have to splurge on capital and thereafter would be expected to finance dayto-day operations.
But there would be clear benefits. FNB would earn a first-mover advantage, leaving rivals Absa, Standard Bank, Nedbank and some mobile operators in the dust.
Clearly Cell C is looking for a parent company with deep pockets. It unsuccessfully tried to partner with Telkom Mobile, a cellular unit of Telkom Group. It has also unsuccessfully experimented with mobile virtual network operators who piggyback on its network. These included ventures with Virgin Mobile and Red Bull Mobile.
So will FNB ever consider buying Cell C? This week FNB was cagey.
FNB spokeswoman Virginia Magapatona would only say: “As one of the largest bulk SMS users and airtime distributors, we have relationships with all mobile operators and will continue to work closely with all parties.”
“We will only be in a position to formally announce any new features or customer benefits once launched,” Magapatona said.
However, I still believe FNB management will be creating lasting shareholder value by doing this deal. FNB already has more than 1.5 million digital banking customers and more than 500 000 clients actively using smartphones and tablets.
Last month, the bank sold more than 175 000 smart devices, making it one of the biggest distributors of iPads in the country. It has a vibrant internet service provider business known as FNB Connect.
The advantage for FNB also lies in the fact that the licences offered to cellular operators to provide mobile banking are not fully fledged banking service licences. That is why operators choose to partner with banks to provide such services.
A Cell C owned by FNB would shake up the cellular industry.