Cell C expects a big boost in prepaid subscribers from its revised deal with retailer Pepkor and a new partnership with Shoprite, says CEO Jorge Mendes. The company is also eyeing a new mobile virtual network operator (MVNO) contract with Absa.
Cell C has signed an agreement with Pepkor — owner of Ackermans, Pep, Tekkie Town and Refinery — to add the mobile operator to FoneYam, its cellphone rental business. Pep has rented out more than 1.2-million entry-level smartphones across its stores.
“We’ve unlocked very strong commercials,” Mendes told Business Times. “We are already seeing some significant movement just in the last two months. We think there’s going to be some significant growth for us on prepaid … and that’s a seven-and-a-half-year agreement still.
“Commercially we’re in a very strong position to now get not just our share of growth that we didn’t have over the past two years, but even a disproportionate share of growth in some of the products.”
The mobile network operator has also bought the customer base of Shoprite’s MVNO K’nect. MVNOs piggyback on mobile network operators’ infrastructure to provide voice and data services.
It’s a very small subscriber base that we bought, about 150,000, but we are now running it end-to-end and that went live two months ago.
— Jorge Mendes, Cell C CEO
Mendes described the K’nect acquisition as “a unique MVNO deal structure”.
“It’s a very small subscriber base that we bought, about 150,000, but we are now running it end-to-end and that went live two months ago. We are now rolling it out to the staff, and then we will put it into all the 3,000 outlets,” he said.
Cell C is hoping that some of Shoprite’s 8.7-million money market customers will sign up to K’nect.
Mendes said the company was focusing heavily on its MVNOs, one of its key revenue streams. About 10% of its revenue is derived from the wholesale business — MVNO — which includes FNB, Old Mutual, Mr Price and Capitec. “So we are really at the beginning of a massive explosion in terms of growth.”
Mendes said growth in MVNOs has “only happened in the last year, with the exception of FNB Connect, that’s been going for a number of years, and they’ve been quite consistent. All the other rapid growth has only come in the last year.”
Cell C is one of the two companies shortlisted for a new MVNO deal with Absa and is in discussions with other companies in sectors such as insurance. “We’ve got quite a pipeline. So it’s not so much about how many MVNOs you bring on board, but it’s rather about the quality ... and how you collaborate in defining the strategy that gives you the highest probability of success.”
According to Cell C, South Africa’s MVNO market has significant room to expand, from the current 3.2% total SIM share to a potential 10.8%, based on global benchmarks. The projected five-year compound annual growth rate to 2029 of 17% is fuelled by rising interest from banks and retailers, “who view MVNOs as a way to deepen customer engagement, unlock new revenue, and boost loyalty through bundled digital services”.
Mendes, who joined Cell C two years ago, said management has made strong progress in stabilising the business. He said the company has reduced costs, met payment obligations, strengthened management and the board, grown revenues and earnings before interest, tax, depreciation and amortisation and renegotiated contracts, which resulted in some savings.
“We have a very efficient capital structure. We’ve made sure that from a positioning point of view, we’re not just going with the same [infrastructure] strategy. So we’ve chosen to go [with a] capex-light strategy.” Cell C has roaming agreements with MTN and Vodacom for its prepaid and contract customers, respectively.
Cell C has had a rollercoaster ride since its inception, having undergone a number of turnaround strategies under different CEOs. The acquisition of the company by Blue Label has given the group a new lease of life, with plans for a standalone listing on the JSE next year.
“We’ve delivered a turnaround already, and we’re well-positioned for a public market. We’ve restructured our balance sheet so that we’re very clean pre-IPO.”
The company has 800,000 contract customers, 6.9-million prepaid and 4.9-million MVNO customers.
Mendes said enterprise business, which was increasingly participating in government contracts, was a key growth lever for Cell C.
“On enterprise we are already winning contracts. MVNO, prepaid and consumer postpaid will grow above market. Given our balance sheet, going forward we’ll be able to quite easily fund a lot more hardware. We have a R1.7bn African Bank facility.”
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