Picture: ISTOCK
Picture: ISTOCK

It is one of the worst-kept secrets in the telecoms industry that cellphone company Cell C has been struggling with its debt load and, on Tuesday, ratings agency S&P Global Ratings confirmed the extent of the problem by downgrading the company’s debt from CC to a D rating. A CC rating is pretty bad; it suggests default is imminent, with little prospect of recovery. D is, well, worse.

For the company and its debt holders, this is obviously bad news. But behind the company’s travails is something of greater concern: grotesque regulatory incompetence. The Independent Communications Authority of SA (Icasa) has done good work in the past and recently has been active in trying to get the state broadcaster to report the truth.

But on the licensing side, Icasa has been a nightmare for the industry. Its competence is low, its decision-making has been slow, it is bureaucratic and indecisive – all the things we have gradually become inured to as citizens of SA. This is an organisation that costs taxpayers more than R400m a year and takes a further R1.4bn out of the industry. What SA gets for that is a bloated organisation and a fleet of councillors who all earn more than R1m a year.

Cell C has for years been trying desperately to extricate itself from its debt mess, as you might expect. The irony is that it has effectively succeeded in doing so. Blue Label Telecoms, an innovative and entrepreneurial group, offered to buy a 45% stake of Cell C way back in 2015. That will not nullify Cell C’s debt, but will bring it down to a more or less manageable level. Were it not for the debt, Cell C would, as far as we can tell, be financially more or less stable.

So, with the continued existence of one of only three cellphone companies at risk, you might expect Icasa to rouse itself from its bureaucratic slumber and deal with this issue at high speed. Apparently not.

Blue Label said on Tuesday that it still hoped the deal would be concluded, but one of the unspoken truths of the telecoms industry is that nobody dares criticise Icasa no matter how bad the service they get because of the regulator’s power over the industry. Hence, a year of haggling and public hearings have gone by and Blue Label and Cell C have have had to bite their tongues.

The core issue is whether the spectrum that Cell C has been granted is fungible. In most countries, once spectrum has been issued, it is effectively owned by the licensee and consequently they can sell it.

But not in SA, where no effort is spared in tying business up in red tape in order to ensure it remains pliant. Even if the spectrum remains "owned" in a technical sense by the state, surely all that is required would be for Icasa to approve the transfer. And, in fact, it’s not technically a transfer, since the existing owner remains the majority holder of
the spectrum.

The alternative is that Cell C goes bankrupt and competition in the industry becomes even tighter. The cost of bandwidth in SA over the cell networks is high by international standards and very high by African standards. One way of combating that would be to ensure Cell C does not go under, particularly because there is no reason for it to do so.

As it happens, this is the second major corporate deal to be stymied by regulatory constriction. Vodacom recently abandoned its R7bn deal to buy Neotel after two years of regulatory uphill. The dynamics were slightly different because the deal arguably would have reduced competition. But this one would do the opposite, so you might expect a different approach.

All is not lost. Icasa could still get its act together and approve the deal — or have the courage to explicitly turn it down and explain its position to Cell C’s 22-million users.

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