Douglas Craigie Stevenson
Douglas Craigie Stevenson

Cell C has finally signed a long-awaited roaming agreement with much bigger rival MTN. We asked Douglas Craigie Stevenson, CEO of Cell C, to explain the significance of the deal, especially now that Telkom is back for a third bite at the struggling mobile operator.

We always struggled to attract higher-end subscribers. So that was where the initial phase 1 with MTN was signed, and that was the rural and peri-urban roaming agreement we did, and that was a huge boost for us, to be able to get our network footprint out.

Now, with the extended roaming agreement we have, we’re able to carry the service across the bulk [of the business] and we’re able to bring up a lot more of the 4G and LTE coverage that we were behind on.

The traditional view of a network operator was to own their own infrastructure, end to end. The problem with that is that it constrains mobile networks because the capital investment bill is just so phenomenally big. If you look over the past decade, the model globally has moved from owning to sharing infrastructure and putting in these roaming agreements.

It takes a lot of the cost out of a business, especially where you find yourself in a low-growth environment. For us, we’re 19 years old, we are never going to catch up. There was no way I was going to be able to get any kind of funding that would be able to carry on pushing at something that I would never be able to compete in properly.

Strategically and tactically we said we need to embrace this sharing of infrastructure, allowing ourselves to compete on products, as opposed to just competing on the network side.

But who benefits most? Are you paying MTN a fat fee?

These types of deals have been done with others — Vodacom and Telkom have done it, Vodacom and rain have done it, MTN and Liquid have done it: there’s a general market consensus to go to that area. Also understand that there are a number of operational costs that come with networks: diesel and power and vandalism and batteries, those are starting to mount in double digits for all of the networks, so it makes sense for all of the networks to start sharing costs.

Can you tell us how much you are paying MTN?

Nice try.

OK, but is it a figure Cell C can bear?

The big thing you’ve got here is that you’re substituting capital expenditure for operational expenditure, so we don’t have the depreciation charge any more, or rather, we have a much lower depreciation charge.

That’s where your differential is. At the end of the day we would measure up the substitution, so to speak.

What does this mean for your potential suitor, Telkom?

Telkom has said it would still be interested in pursuing something, notwithstanding what has been signed in this deal. I don’t see it as being anything but upside for us.

… and therefore, by extension, for anyone who happened to buy you?

Yes. The big question you’ve got to ask is: was Cell C able to continue competing in the market with a debt-laden balance sheet and a very small ability to continue funding its debt as well as its capital expenditure? So we had to come up with a new plan.

Are you open to being bought out by Telkom?

We’ve got nondisclosure agreements with them and I cannot really talk about that.

Sure, but can you continue going about your business easily enough?

It’s no more or less disruptive than making sure we can survive as an organisation, so, as I’ve said before, we’ll consider any offers that are put in by any suitor.

Blue Label, which owns 45% of Cell C, has gone to ground entirely on this investment. Do you have supportive shareholders?

You’ve got to look at all of the stakeholders in the organisation, and yes, I do believe there is adequate support.

Could Cell C have traded its way out of its financial difficulties — or do you need some sort of white knight?

The initiatives we’ve put in place over the past eight months are starting to bear good fruits. But I don’t think you can trade out of the debt situation we have at the moment.

Is that likely to happen soon or has Telkom’s approach thrown a spanner in the works?

No … we have to focus on getting the business on track and the recapitalisation process will carry on.