Cell C plans to claw back market share in South Africa

Embattled South African mobile operator Cell C is aiming to claw back some market share and improve perceptions of the brand's network quality as it starts to see its turnaround efforts materialize.

Cell C CEO Jorge Mendes sat down with Connecting Africa to talk about the company's strategy going forward and how he plans to right the ship.

"Pricing is one lever. We're not suggesting that we're just going to drop prices. We're going to compete in the market with value. We want to look at the whole value proposition. What do you get? What is it valid for in terms of time frame? Can you use it all the time or only at night, etc, and obviously the price itself. You have to be favorably competing in that space," Mendes said.

"I think we're going to drive significant differentiation in the market, and it will force the competition to do certain things. If they do that, they compromise their revenue. If they don't do that, they allow us the space in the market. Either way, they've got challenges coming, because we're going down this route," he added.

Cell C has struggled over the past few years, losing customers and facing revenue declines, but is working to turn things around.

Cell C launched its operations in South Africa in 2001 and has always been seen as a challenger for the two biggest operators, Vodacom and MTN, which launched seven years ahead of it.

Cell C used to be South Africa's third-biggest operator, and its subscriber base was up to around 21 million users at the end of 2015, according to statistics from market research company Omdia, a sister company of Connecting Africa. However, it has been slowly declining since then and former fourth-placed operator Telkom SA outpaced it to take over third place in early 2020.

At the end of May 2024, Cell C's total subscriber base was down to just 7.7 million, compared to Vodacom's around 57 million users, MTN's 37 million and Telkom's 21 million subscribers.

Mendes admitted that Cell C needs to grow its customer base and aim for a much higher market share.

He said the telco did a cleanup of its prepaid base in November 2023, because it found it was double counting some of its mobile virtual network operator (MVNO) customers and prepaid customers.

"I think we've pretty much got most of [the clean up] behind us now, so it's a real number of customers with real revenue. But we have to grow it, to where we were in years gone by, absolutely," he said.

Turnaround strategy

Mendes only joined Cell C in July 2023, leaving Vodacom where he was chief consumer business officer for Vodacom South Africa, and took over from Douglas Craigie Stevenson, who had been CEO since 2019.

When he joined, he said Cell C had been in revenue decline for 24 consecutive months and had "a terrible commercial structure" on its roaming deals – including large costs and poor quality of service – which have now been re-negotiated.

"I was in a conundrum myself, where you've got massive costs, poor quality of service, and you're not doing anything in the market from a commercial proposition point of view. So those next three months were really difficult – building a team, creating a little bit of stability. We've genuinely only been on the front foot from January of this year," he explained.

Cell C revenue for the past year grew 2% and service revenue was up by 4%, which Mendes called "fairly pedestrian."

"We are a challenger brand, there's no doubt about that, and we'll remain that. We want to be a consumer champion. We've been known for great value propositions. We want to get back there, the propositions haven't been bad, but the quality of the network has been questionable, and so customers have left in droves. So, we want to be a disruptor, we want to be a challenger brand," he said.

Mendes said the strategy is very "deliberate and intentional" around pricing and products but said that pricing alone is not a good strategy as it's too easily replicated.

"We think we've got a niche to carve out. We really want to be customer-centric so our products will start having less and less terms and conditions. I wish I could do that faster, to be honest. So, use your data [anytime], not just on Friday afternoon, or after midnight for example. I genuinely want to do that. So, I think that's going to start changing the landscape," he said, referencing a common practice for SA operators to sell data bundles that only work at certain times or for specific services.

He believes Cell C can carve out differentiation across its prepaid, postpaid and mobile broadband segments.

"We can trade at acceptably lower margins and earnings before interest, taxes, depreciation, and amortization (EBITDA) than some of the bigger players. Their cost structure is just too high, whereas we have a capex light model. We swap capex for opex, so we can make very good margins and compete favorably in the market. So, we think that's a nice position [to be in]," Mendes added.

Network perceptions

One key strategy for getting customers back to Cell C is changing the market perception that Cell C's network quality was not as good as other operators.

"Our network strategy has now paid dividends. Where we had 5,500 of our own basestations, we fully switched off our physical radio access network, and now we have access to 28,000 basestations on a virtual radio access network across MTN and Vodacom. So, the positioning now, from a platform point of view, is really strong," he said.

This was part of his predecessor, Douglas Craigie Stevenson's turnaround strategy to improve operational efficiencies, reduce operational expenditure and optimize traffic.

The tower strategy was a move away from a capital-intensive infrastructure ownership model to an infrastructure-sharing model.

In early 2021, Cell C began migrating its customers to roam on MTN and Vodacom's networks and in June 2023, it deactivated its radio access network.

"There is a very strong strategy to make sure that our network quality is now of such a level that customers can use our products. That's now been achieved everywhere in the country, and we outperform, in many instances, Vodacom and MTN, and we've got roaming partnerships with both," Mendes told Connecting Africa.

"We're now starting to show up facing the market with great products, propositions, a brand refresh, new stores being launched, and we've got a whole revised USSD menu for [mobile] prepaid and prepaid broadband, and we're going to start showing up better from a postpaid perspective as well," he said.

Cell C CEO Jorge Mendes and Chief Marketing Officer Melanie Forbes open a newly revamped store at the Mall of Africa in Johannesburg. (Source: Cell C)

"I think we're now starting to do the front foot stuff and going after subscribers, because we're confident on the quality of our network and our pricing ... and we've managed to get revenue from our existing customers and stabilize all of that," he added.

Over the past year, Cell C's prepaid revenue has grown 5%, wholesale revenue was up 20% and prepaid broadband revenue grew 11%. Prepaid traffic on the network also grew 30% and wholesale traffic shot up 76%.

5G opportunities

Another advantage for a mobile operator that does not own or run its own towers is that it does not have to spend money upgrading to new technologies like 5G.

Cell C never launched its own 5G network but rather uses 5G investments made by its roaming partners.

"We have roaming arrangements with both Vodacom and MTN and we use their full spectrum bands, and we use our own spectrum bands and that's how we're able to achieve the quality of service that we're able to achieve," Mendes said.

He said Cell C also has its own core, its own billing systems and custom experience management systems and tools.

"We didn't have 5G and we didn't have VoLTE (Voice over LTE). We're only launching those things now. We're late to the market. Fortunately, 5G from a consumer perspective doesn't add much value, but it does add value from a fixed wireless access [perspective]," he said.

"If look at prepaid mobile broadband, LTE and 5G give you a lot of efficiency in carrying that traffic, so it's great for customers. We're seeing a lot of growth in 10GB, 50GB and 100GB tariff plans, from a prepaid point of view," he continued.

Mendes believes the biggest opportunity for 5G is as a fixed wireless replacement and for deployments in the enterprise space.

"From a consumer point of view, because you can't charge more for 5G it's very difficult to monetize because you watch a YouTube video on 4G or 5G it plays, it doesn't make a difference. The only difference is, if you are downloading something heavy, then it just downloads faster," he said.

In the enterprise space, Mendes said Cell C was "taking baby steps" and growing its team and would look to roll out enterprise offerings via partnerships.

Blue Label integrations

Mendes believes the company can also leverage more from its partnership with Blue Label Telecoms, which owns a big stake in the mobile operator.

"[We thought about] how we can take advantage of our total ecosystem. So, if you're a Cell C customer, what can I give you at Ticket Pro that is very unique? Because Ticket Pro is a Blue Label company. So, for example, if as a Cell C customer you can get any ticket you want at Ticket Pro 24-hours before the public gets it, that's a differentiator," he said.

"We have to have unique differentiation, which is real stuff that customers want, and normally that's your utilities – banking, data, voice, electricity. All those kinds of things are big strengths that we have as a group that we haven't leveraged. We haven't worked well together, Cell C and Blue Label [in the past]. For the first time, we're integrating and working well, and we will start unlocking those things," he added.

He also wants to take advantage of Cell C's partnerships in the MVNO space.

Cell C CEO Jorge Mendes said the operator wants to be a disruptor and a challenger brand. (Source: Cell C)

Blue Label Telecoms owns 49.53% of Cell C and is looking to up its stake to 53% over the next few months, but it is awaiting approvals from both South Africa's Competition Commission (CompCom) and the Independent Communications Authority of South Africa (ICASA).

In April 2024, the CompCom recommended that the Competition Tribunal approve the proposed transaction, with some conditions.

The Competition Tribunal matter is expected to be heard near the end of October and ICASA will hold public hearings on September 19, 2024.

Up until this point, the Cell C investment has not been a fruitful one for Blue Label.

In August 2017, Blue Label bought a 45% stake in Cell C for R5.5 billion (about US$420 million at the time). But, by the end of 2019, it had to write down the value of its entire investment in Cell C to zero.

Blue Label joint-CEO Brett Levy recently confirmed that Blue Label's total equity investment into Cell C is now around R7.5 billion ($418.6 million) after a number of recapitalization efforts.

Despite past challenges, both Blue Label and Cell C believe the partnership will improve going forward.

"I think the Cell C and Blue Label relationship has been weird in the past with my predecessors, if I'm brutally honest, because [Blue Label] owns a big chunk of [Cell C], but they never worked well together. It was a very weird situation," Mendes said.

"We've changed that fundamentally. I've got a very open and transparent way of doing things. So, we've aligned a lot more to make sure that we capitalize on what we've got as a total ecosystem," he added.

Mendes believes Blue Label taking a controlling stake in Cell C will be a good thing for the operator because it will make operations and reporting more clear.

"You become a full subsidiary. Reporting lines are clear. There's not this confusion taking place of ins and outs. I think a lot of that improves going forward, so I do think it's a good thing," he said.

— Paula Gilbert, Editor, Connecting Africa