Herman Kotze. Picture: THULI DLAMINI
Herman Kotze. Picture: THULI DLAMINI

Blue Label and Net1 have completed the R7.5bn acquisition of a 60% shareholding in Cell C, paving the way for the turnaround of the struggling entity.

Blue Label, which distributes cellphone airtime vouchers and SIM-card starter packs, owns 45% of Cell C while electronic payment provider Net1 holds 15%. The entity 3C Telecommunications, Cell C’s founding shareholders, will own 30%, while the balance will be held by management and staff.

The transaction is expected to substantially reduce Cell C’s debt to R6bn from about R23bn. The tie-up will also give Cell C some financial headroom that could strengthen its competitiveness. Cell C did not have enough internal resources for aggressive growth to keep up with much bigger and cash-flush competitors.

Its rivals are spending more than R10bn a year on network infrastructure that has given them a strong market leadership compared with Cell C.

BMI-TechKnowledge consulting director Denis Smit said Cell C was now "better placed than ever before to continue and accelerate its disruptive impact on the mobile industry" as it now had a balance sheet to use as leverage. He expected cross-selling of value-added products across Net1 and Cell C.

Net1, which has also concluded the sale of a 45% shareholding in Cell C’s SIM-card starter pack distributor DNI, sees an opportunity to provide its financial services products to Cell C’s 15-million subscribers.

Net1 CEO Herman Kotze said the company’s products, with Cell C’s mobile services and DNI’s distribution network, provided "an ideal opportunity to deliver a comprehensive suite of mobile, transacting and financial services".

Blue Label said the transaction would position it "deeper into the telecom value chain, further protecting itself from possible disintermediation".

Brett Levy, Blue Label joint CEO, said as a supplier and distributor to Cell C, it had identified "multiple synergies in the procurement chain, distribution network and provisioning of products and services".

There is also an opportunity for Cell C to become a channel distributor for public transport and events tickets, given that Blue Label owns TicketPro, which sells e-tickets.

Blue Label reiterated that its commercial contracts with 
all other mobile networks remained unchanged. It had previously stated that it would honour all its existing contracts with all the mobile network operators and would not prioritise one entity over another.

Cell C CEO José dos Santos said Cell C would submit a formal notice with full details of the transaction to the Independent Communications Authority of SA (Icasa), which included changes in shareholding, within the seven business days period.

Chief investment officer for Falcon Crest Asset Managers Farai Mapfinya has said that telecommunications was a game of scale and network effect. "The key strategic levers that Cell C require to achieve this are price competitiveness, net quality, distribution and customer care."

Frost & Sullivan Africa analyst Lehlohonolo Mokenela said the recapitalisation of Cell C was the boost the company needed to refocus on maintaining its earlier momentum.

"While it may not imply its financial challenges will be completely over, it will provide some much-needed stability," Mokenela said.

After the transaction, growing its subscriber share should be a priority along with expanding its network infrastructure, he said.

mochikot@bdlive.co.za

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