Cell C banks on prepaid customers for growth
Mobile operator Cell C says it is focusing on growing its prepaid customer base, given the negative effect of the Covid-19 pandemic on contract users’ ability to pay.
SA’s fourth-largest mobile operator reported a loss in postpaid customers, while being able to push up the overall count, driven by a 15% rise in prepaid subscribers for the six months to end-June.
Cell C CEO Douglas Craigie Stevenson told Business Day the operator sees prepaid as being a source of growth in the prevailing environment.
“Postpaid is still continuing into the future but prepaid, we believe, is a much better proposition. It’s convenient, it’s fast, it’s easy,” he said in an interview on Wednesday.
“A lot of the complaints that we get are about billing issues and credit vetting. It’s painful for the customer experience.”
During the period, contract customers fell 17%. Overall, the mobile operator added just more than 1-million subscribers from the same time in 2020 — a 10% rise to about 13-million.
“Postpaid base went down, which has a lot to do with the economics of Covid-19. I think it will recover. But the big growth will be from prepaid,” said Craigie Stevenson.
The biggest source of new prepaid customers is with fixed internet products in which customers use Cell C SIM cards and routers for wireless internet at home or for business.
South Africans tend to have a mix of SIM cards from different operators, depending on use case and price. Craigie Stevenson said they aim to get more, if not all, of customer connectivity provided by Cell C.
This comes as Cell C swung to an interim profit after huge losses previously, with the mobile operator saying this is proof that its new network strategy is starting to take shape.
Total revenue for the six months was down 5% to R6.6bn compared with R6.9bn at the same time in 2020.
The largest contribution to revenues came from Cell C’s prepaid customers at R3bn, down marginally from R3.1bn previously. The postpaid base fell 25% to R563m.
Profit before tax came in at R148m, a turnaround from the R7.6bn loss reported year on year. Earnings before interest and tax increased R736m to R5.3bn. This is mainly due to the significant impairment of network assets in the previous financial year and operational expenditure savings in the current reporting period.
Cell C is shifting away from owning and operating its own network infrastructure in favour of roaming agreements with MTN and Vodacom. The company uses its own spectrum through network towers operated by the larger players and is set to take part in the now delayed auction.
So far, 40% of the transition has been completed.
Much of 2020’s losses had to do with a R5bn impairment on network infrastructure, as the company continues with its plan to decommission towers by 2023.
This change has already lowered capital expenditure.
Cell C CFO Zaf Mahomed said over time the costs to access MTN’s network will rise as the transition continues. “This will be offset by the savings in network capex, related lease payments, as well as reduced network maintenance-related costs.”
Even though the costs will result in decreased earnings before interest, tax, depreciation and amortisation (ebitda), “the net result will be lower depreciation, as well as an increase in cash flow due to the savings on capex and lease payments”, Mahomed said.
Over time, Cell C says, a recapitalisation is the final pillar in its turnaround strategy “and will provide momentum to effectively manage the transition, focus on profitable revenue growth and the overall simplification of the cost base, putting Cell C on the path to long-term sustainability”.
In August, Blue Label Telecoms, Cell C’s largest shareholder, said it had secured funding from various banks to recapitalise the mobile operator.
Blue Label, which specialises in selling prepaid airtime, electricity and ticketing, is recapitalising Cell C, which has struggled to make a profit since it opened its doors in 2001 and is laden with long-term debt of R8.2bn.
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