Cell C on Thursday assured rivals that it will maintain its holding of its Individual Electronic Communications Network Service and Individual Electronic Communications Service licences, and that only its control thereof is to be transferred to Blue Label Telecom’s The Prepaid Company (TPC).

Cell C, on September 26, 2023, submitted an application to the Independent Communications Authority of South Africa (Icasa) for the transfer of the control of these licences, along with an application for the transfer of control of its radio frequency spectrum licences, to TPC.

During public hearings, held by Icasa to unpack the applications, Cell C CEO Jorge Mendes said that the transfer of the control of its licences is in line with TPC’s acquisition of an additional 4.04%, bringing its shareholding to over 50%, which had triggered the requirement for Icasa approval.

In a presentation to Icasa, Mendes outlined that Cell C’s shareholding was made up of Lesaka Technologies at 5.13%; M5 at 1.71%; SPV4 at 10.47%; SPV5 at 10%; Albanta Trading at 5.5%; TPC at 49.53%; Cedar Cellular Investment at 4.04%; Gamercy SA at 6.09% and Nedbank at 7.53%.

Post the proposed transaction, all shareholdings remain the same, except for the acquisition and absorption of Cedar Cellular Investment’s 4.04% share to bring the TPC’s shareholding to a controlling 53.57%.

Senior counsel Wim Trengove SC explained that the application was only necessary under the Electronic Communications Act as there was a change in control of Cell C, and even that change was miniscule.

Mendes pointed out that, while Cell C was not currently controlled by any single firm, Blue Label and its subsidiaries had been Cell C’s only funders for ten years, injecting R5.5-billion into the operator, settling its creditors’ claims, loaning it R1.03-billion and holding substantial Cell C airtime and data stock, with the total value of these contributions surpassing R14.4-billion – despite not having control.

TPC has a vested interest in improving Cell C’s financial viability, and given its significant exposure, TPC requires a controlling interest in Cell C so that it can direct and control its financial recovery.

Further, as Cell C’s market and financial positions continue to deteriorate, the transfer of control will be critical for the company’s survival.

Cell C’s market share has been declining in recent years and it is in serious financial trouble.

While progress is being made in turning the company around, Cell C faces financial difficulties and, according to the presentation, is technically insolvent, amid cumulative losses of R45-billion, and has yet to turn a profit after 20 years.

According to Mendes, Cell C’s position in the postpaid market has declined from 13% to 7%, and from 16% to 10% in the prepaid market.

He further noted that a mobile market in which Cell C was severely weakened or forced to exit would weaken the competitive constraints.

The proposed transaction will better enable Cell C to compete effectively, benefitting from strengthened strategic shareholder guidance to unlock greater opportunities for success and support its new strategic direction.

The proposed transaction is the only means available for Cell C to secure its continued operation and facilitate its financial recovery; compete effectively in the mobile market; implement its growth strategy; generate cost savings and efficiencies; improve consumer pricing and choice in a highly competitive market; ensure continued employee job security with growth opportunities; and give shareholders some hope of return on their investment.

He added that the transaction satisfied all the criteria for approval.

Trengove further pointed out that the present transaction did not present the competition concerns raised by rivals, such as concerns that the transaction would present a threat of foreclosure on other wholesalers and distributors.

However, Cell C is too small an operator, accounting for only 10% of the prepaid market.

According to Trengove, Vodacom held 40% of the prepaid market, MTN 30% and Telkom 16%.

Overall, with the three mobile network operators accounting for 87% of the market for prepaid airtime, distributors of airtime and sim cards, such as TPC, rely much more on Cell C’s competitors for business.

TPC had no ability or incentive to foreclose larger mobile network operators, he assured, pointing out that TPC must carry their products to remain viable.

In addition, TPC simply meets customer demand for each mobile network operators’ products, which is driven by their prices and quality of services.

Further, addressing concerns regarding the competitive value of TPC’s knowledge on other mobile network operators, he explained that TPC only had information on prepaid airtime purchases and the price TPC pays, which had no competitive value, and most of it was in the public domain. TPC also had no insight into the various operators’ strategic and other competitive decisions.

Lastly, TPC cannot persuade customers to port to Cell C, as it only buys and sells what customers need, and the mobile network operators develop and market their own products, which the customers choose based on coverage, price and quality of service.

Icasa will evaluate Cell C’s applications based on the promotion of competition in the information and communications technology sector; consumer interests; and equity ownership by historically disadvantaged persons.