Douglas Craigie Stevenson. Cell C CEO. Picture: SUPPLIED
Douglas Craigie Stevenson. Cell C CEO. Picture: SUPPLIED

SA’s third-largest mobile operator, Cell C, says it is focusing on attracting and maintaining lucrative customers, even as its base was eroded by almost a fifth over the past year.

“Though there was a decrease of 2.9-million prepaid customers, a 21% drop  in the 12 months to 2019, the margin on our existing customers is better as a result of acquiring profitable customers and not signing on a customer at any cost,” Cell C CFO Zaf Mahomed said. Total subscribers fell 16% from 17.2-million in 2018 to 14.4-million in 2019.

CEO Douglas Craigie Stevenson said that despite this loss of subscribers Cell C's average revenue per user had gone up across its prepaid, contract and broadband customers.

Mobile operators have to find a way of quantifying how well they are performing, said Craigie Stevenson. There were about 100-million active SIM cards, with few actually turning into bona fide customers that made calls, used the internet and recharged their accounts, he said.

Craigie Stevenson said Cell C was likely to see its subscriber base eroded even more over time. Part of its mission was to ensure the company did not lose the real active customers that could spend more on its services.

Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said that given Cell C’s financial position, its change of strategy to rely on roaming was the right thing to do. Cell C could no longer afford to play the subscriber and traffic game at lower profitability levels as that would amount to it just working for MTN and not benefiting its stakeholders, he said.

“They will have to give up some subscribers and revenue in order to optimise their cost base and network investment.”

For the year to December 2019, the operator had a 1% drop in service revenue to R14.2bn, while earnings before interest, tax, depreciation and amortisation (ebitda) fell 15% to R2.5bn.

Takaendesa said Cell C’s management team did well to limit the rate of decline in revenue and “optimising the cost base in the context of a very difficult business to manage and a tough consumer environment”.

There were some encouraging signs that the spending  was starting to slow as capital expenditure had been cut significantly and adjusted operating profit  improved in the second half of 2019, he said, “but it is still very difficult to assess how sustainable these measures are, given the operating environment in SA and a highly geared balance sheet that is likely to continue to constrain their operational competitiveness”.

Cell C has struggled to make consistent profits since its launch 2001, carrying R8.7bn in debt on its balance sheet. The operator’s declining fortunes have resulted in its largest shareholders, Blue Label and Net1, which together hold 60% of its equity, writing their combined R7.5bn investment down to nil.

Takaendesa said Cell C remains the most geared major telecom company in SA, and its liquidity challenges, as well as higher funding costs, made it the most challenging company to manage, particularly in this environment. He said the operator had to find a way to recapitalise the business and “have to make sure they decide on the best use of their spectrum before other operators receive new spectrum from the government as that is likely to change spectrum economics in SA for a long time”.

Craigie Stevenson said part of Cell C’s turnaround strategy was improving the company’s liquidity and a new capital structure through recapitalisation. He said this process was at an advanced stage and would  take at least another month to complete.

Job cuts are also on the cards at the company, but Craigie Stevenson said the extent and number of people affected would be made clear only when the consultation process was completed in late April.

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