C what can be done - TechCentral

C what can be done

[By Duncan McLeod]

South Africans are a cynical lot. When it comes to telecommunications, that cynicism is often justified. Too often, SA operators are big on promises and short on delivery. But Cell C’s new strategy may indeed shake up SA broadband.

Cell C CEO Lars Reichelt is a dynamic and colourful character. His colleagues at the cellular network operator say he works harder than anyone they’ve met, often pulling stints late into the night and insisting that his team be available to work similarly long hours.

And in the past few months, the Cell C crew has never worked so hard. Not only has the company (somewhat controversially) changed its branding, it’s also building a new network at great cost as it prepares to take the fight directly to bigger rivals Vodacom and MTN.

If the launch of the company’s new wireless broadband network in Port Elizabeth is anything to go by, its rivals have plenty to worry about.

Other cities will follow soon, with Bloemfontein and Durban rumoured to be going live within the next three weeks.

Reichelt says the new network will cover a third of SA’s population by the end of the year, two-thirds by mid-2011 and 97% by the end of 2012.

Cell C had long been confined to the margins of SA’s mobile industry, forced, by virtue of its technology platform, to focus on the low-margin prepaid voice market. It lacked the network to offer broadband to high-end consumers.

Not anymore. The company will spend more than R5bn this year building an ad- vanced third-generation (3G) mobile network using a chunk of radio frequency spectrum that gives it big advantages over Vodacom and MTN.

By deploying its new network at 900MHz, instead of the 2,1GHz band used by its rivals, Cell C is able to build a broadband network at lower cost. And at 900MHz, cellular signals travel further and penetrate buildings more easily.

MTN and Vodacom can’t “refarm” their 900MHz allocation because that spectrum is already heavily utilised by their 2G voice customers, especially in the urban areas.

Cell C is also using the very latest 3G wireless technology capable of delivering speeds of up to 21 Mbit/s. I tested the network in Port Elizabeth last week and managed to achieve speeds in excess of 12 Mbit/s indoors. That’s faster than the fastest broadband speeds available on Telkom’s fixed lines.

The operator is already testing the wireless network in 10 cities, and will launch services commercially in Cape Town and Gauteng before the end of the year, Reichelt says.

But it’s in pricing that Cell C has dropped the biggest bombshell on its rivals. It has slashed broadband tariffs to as low as R33/GB, making Vodacom and MTN suddenly look very expensive indeed. Though Reichelt says the low rates are part of a launch campaign, it is likely a new base has been set and unlikely rates will rise later.

MTN and Vodacom will retaliate — they have no other option — by slashing their own data prices and investing even more aggressively in the latest wireless broadband technologies.

Already, Vodacom is building fibre to about 1 000 of its base stations so it can improve speeds to its customers; and MTN has completed substantial upgrades to its network.

Of course, there are dangers for Cell C in its new strategy. It’s not as well funded as its bigger rivals and a protracted price war could harm it more than MTN and Vodacom.

But Reichelt is doing what long needed to happen at Cell C: he’s taking a cellular minnow and giving it what it needs to be a meaningful competitor in SA telecoms.

  • Duncan McLeod is editor of TechCentral
  • This column, which is also published in Financial Mail, is taking a break and will return in the week of 27 September 2010

22 Comments

  1. As a cynical South African, I will wait to see if VC/MTN react in the next year, if at all.
    Were they (CellC) not using Vodacom’s network before?

  2. Clever move. If Vodacom and MTN also lower prices their networks will roll-over as they are much heavier loaded. Got to give Cell C credit for cunning. One caveat is that I read somewhere that Cell C have provisioned 100Mbs per base station backhaul. This will very quickly become the main bottleneck at these speeds.

  3. I find this starry-eyed reaction by the press a bit disconcerting. So far we’ve seen a few test towers up in a lightly loaded area (PE). Of course they’re going to perform well. And based on this, journalists are raving about the new Cell-C network.

    Questions Techcentral should be asking include:
    1) When and where will the network roll out in Gauteng and the Western Cape?
    2) How will Cell-C ensure decent levels of throughput across the network?
    3) How will Cell-C compensate for the loss of 2G channels on 900, voice being their only source of revenue today?
    4) Why is it that Cell-C only offer cash-up-front deals to the tune of thousands of rands when their target market are exactly the type of people that cannot afford it? 5) 5) How can Cell-C claim they have a ‘better’ network than MTN and Vodacom if it is exactly the same technology?
    6) Why is Cell-C continuing to claim a 4G network in the media when the CEO & CIO openly stated it’s not a 4G network?

    The pricing is a most definitely step in the right direction, but I feel Cell-C have managed in conning the technical publications (Techcentral, myBroadband, IT-Web, etc.) into an awestruck state.

    Are we seeing “Neotel – The Sequel”? Do we forget that easily?

  4. @Denis: my understanding is that MTN’s 3G network is running at about 10% of capacity after their recent big upgrades. Not sure about Vodacom, but I think MTN probably has scope to cut its prices without overwhelming its network. Duncan

    @Steve: Believe me, we’ve been asking those questions. With the exception of your question four, all of them have already been answered in other articles

  5. @Editor: Actually they’ve not been answered AFAIK. Can you point to the answers, please?

    1) Cell-C refuse to give details. Bloem and Durban are just rumours. I venture that Cell-C have realised they’ll cripple their current 2G voice network if they roll out in urban areas. If you’ve got R5B to recover, you’ll want to go for the high-density areas. Why are they not doing this? It’s counter-intuitive. The only reason can be that they ran into problems, which is not that surprising.

    2) As we know the big issue is backhaul to the towers, not the radio network. I’ve not seen any information from Cell-C on this. They claim the ‘fastest’ network. How are they going to achieve this?

    3) No-one has picked this up with Cell-C. It’s a fact they’ll loose around 50% of 2G voice channels to 3G. How will they address this drop in voice coverage? See 1) above.

    4) Why would Cell-C launch with a product that makes the barrier to entry so high (R2K+ cash)? Again, if you want to recover R5B, you want to sign up as many subs as possible. I suspect they can’t do usage billing.

    5) The ‘better’ and ‘most advanced’ network claims are just plain disingenuous, bordering on outright lying. They don’t have anything other than a few towers in PE and have no technical or statistical data to back this claim up. Yet they keep on making these claims. And the press keep on reporting it.

    6) The Cell-C CEO have admitted they only have a 3G network. Yet they (mostly he) carry on insisting it’s 4G. At least the CIO admitted in PE it’s not 4G, but his argument that if Sprint can lie about it, it’s OK for Cell-C to also lie about it, is just bad.

    We need more competition in the space and Cell-C do have substantial hurdles to overcome. But openly lying to try and achieve market awareness and share is a very dangerous policy and it can easily backfire.

  6. @Steve:

    1. Cell C has said Gauteng has proved “more challenging”. But that’s not surprising. It’s promising to launch before year-end. Let’s give the company the benefit of the doubt. I’ve been testing the network in Joburg and have been getting >3Mbit/s connections using Speedtest.net. And consistently. Not bad for a network that hasn’t launched officially. Let’s see what Cell C achieves when it comes to market with its broadband network. Getting all the IP microwave and fibre backhaul in place must surely be a big challenge in a big city like Johannesburg. I’m prepared to give Cell C the benefit of the doubt for now. Let’s not automatically default to cynicism (it’s too easy to do).

    2. Good point. Backhaul is crucial. But it’s too early to judge the company on this score. Shouldn’t we give them a chance before condemning them? Give them the opportunity to prove they can deliver before consigning them to the scrapheap.

    3. I have questioned the company on this issue. What I have been told is this: most of their 2G voice customers are on 1800MHz. Remember that when Cell C launched, it did not have access to 900MHz. Only when the ITU opened up the so-called GSM extended band did Icasa give Cell C access to 900MHz, so, unlike Vodacom and MTN, they have relatively few customers using 900MHz for GSM services. This makes it easier to “refarm” a portion of the 900MHz band for UMTS. But Lars Reichelt, the CEO, has made it quite clear that even with relatively few customers in the 900MHz band, it’s still a big challenge.

    4. That’s a good question, and one worth pursuing further. We will do so.

    5. I know Reichelt is an avid TechCentral reader, so I’d invite him to respond to your point here. But you are incorrect when you say they only have a few towers up in PE. They have already deployed 1600 towers countrywide, and (they say) they are working to get these ready for commercial launch as fast as they can. Presumably a lot of that work is related to backhaul. I’d also like to get more information on how the backhaul roll-out is progressing in places like Gauteng.

    6. Is this really such a big issue? Some local websites appear to have an obsession with the “4G” and “4Gs” issue. I agree that Cell C’s network isn’t technically 4G, according to the ITU definition of the term, but who actually cares? Most consumers don’t. In fact, most consumers don’t have the slightest clue what terms like 3G or 4G mean. I think it’s a storm in a teacup.

    I have no particular brief for Cell C. But as an independent outsider and journalist, I am impressed with Reichelt’s attempts to turn around an operator that was going nowhere fast. As someone who supports risk-taking in a free market, I say good luck to him and good luck to Cell C.

    Viva competition, viva.

    Duncan

  7. @ Steve:
    1. don’t venture, Cell C has committed to cover 34% of population by year-end 2010
    2. Cell C achieves this through a good mix of fiber and IP-microwave. We have to date rolled out over 1600 km of fiber with our partners DFA and Neotel
    3. Majority of our sites are 1800 Mhz GSM as we originally started out with 1800 Mhz only… 900 Mhz came later. After analysis performed by the radio planner who designed the world’s first UMTS 900 network (Elisa in Finland) we concluded we could “refarm”, ie. move traffic from 900 Mhz GSM to 1800 Mhz GSM. Limited impact on customers during “refarming”, which is now well behind us. The entire network has been refarmed. Incidentally, Release 7, which is what our entire new network is working off (it also is Release 9 compliant btw) offers significantly higher voice and data capacity and around 3 Million customers in this country have UMTS 900 capable handsets
    4. We can do usage based billing (otherwise we would not know if a customers goes past her/his usage limits), but we are indeed targeting segments we have not targeted before (see launch press release from August), customers like you!
    5. Our network runs on HSPA+ 900 Mhz which no other operator in this country is doing, in addition we are using 2100 Mhz band for capacity infills, ie. we have more capacity than the competition, if and when we need it.
    HSPA+ 900 provides for wider and deeper coverage and better throughput at cell edge in addition to enhanced voice coverage, which is empirically proven based on the experience of Elisa in Finland and CSL in Hong Kong.On top of this the entire new network is all-IP and runs on Release 7, which again differentiates us from the competition and the transmitters are all SDR (software defined radio), ie. we can upgrade to all future foreseeable generations via software update – again an advantage over our competition. Furthermore we have already deployed over 1600 transmitters, whereas the most recent press releases of our competitors talk about 120 transmitters working with HSPA+ on 2100 Mhz (http://www.moneyweb.co.za/mw/view/mw/en/page295027?oid=485418&sn=2009+Detail&pid=292671)
    6. Sprint and T-Mobile in the US, Telia Sonera in Sweden and Norway, Telenor in Norway and Sweden, Netcom in Norway, Truphone and Clear Mobitel in the UK among others are marketing their networks as 4G, although they are technically not IMT advanced. As a matter of fact Vodafone (majority owner of Vodacom) is talking about launching 4G as is MTN, while technically they are not IMT Advanced (http://en.wikipedia.org/wiki/LTE_Advanced) which is the proposed standard, dubbed in the vernacular as 4G.

    Contrary to the examples above Cell C is clearly stating that our network and value proposition to our customers is 4GS, ie. 4 Great Speed and for 4 Great Service, based on the fact that our network is technically a step ahead of our competition (see above), is designed for lower latency, higher voice and data capacity and in addition we strive for great service by changing our approach to customer care, by deploying a world class customer care & billing system, changing our store layout and service concept, making changes to our value propositon and a launch services that are new to the market (eg Photocode), ie. an overall better user experience. We are not advertising 4G.

    Also please note that we have announced at launch in PE, that we will upgrade out network in PE to 42 Mbps in the next 6-8 months, ie. not a single site trial but metro-wide coverage at 42 Mbps. In addition it may interest you that Nokia Siemens Networks have successfully demonstrated HSPA+ running at 112 Mbps in Barcelona this year

    Hope that clears some of the confusion.

    Best

    Lars P. Reichelt
    CEO
    CELL C

  8. Thanks Reichelt. I am definitely holding thumbs and am sure (from what i’ve read) i’m not alone. I hope you customer service gets better as well. CAN’T WAIT FOR CAPE TOWN!!

  9. Impatiently Waiting! on

    I for one am impatiently awaiting arrival of the service in JNB.

    I’ve sourced my Internet from wireless operators ever since I arrived in ZA nearly 5 years ago:

    1. Iburst 1 year
    2. Vodacom 2 years
    3. Neotel 13 months
    Next….
    4. Cell C

    Mr Richelt, if you are reading this, I would love to be one of your friendly testers in JNB (Linden, Randburg) 🙂

  10. I am very proud of the effort Cell C has taken make its customers happy, i take my hat off for Mr. Lars Reichelt , he is really turning Cell C into a competitive network, I foresee a great future for Cell C if they continue to put the power in their customers..

  11. @Lars: Thanks for the feedback. I do hope your venture will provide the return on investment you’re aiming for. It’s a huge challenge to be the late entrant and it’s going to be an uphill battle for you guys.

    I do believe you stand a good change though, but must at all times remember the consumer base is watching you – “like a hawk!” and you should not engage in any activities that could make you lose the high ground you gained via the price drops. For example this whole silly 4G / 4Gs debate which we all know is an (extremely) thinly veiled attempt to put one up on MTN and Vodacom!

    I, for one, don’t believe you need to do this. Rather let the pricing and speeds speak for themselves. If indeed, you are aiming for the target market that can pay thousands in cash upfront for a service, they’re are a pretty well-read bunch.

    On the 900/1800 issue; While it’s true that you launched on 1800, the vast majority of handsets out there are still 900, especially in your traditional voice market.

    Reducing your 2G-900 coverage, in the bottom of the pyramid, in lieu of potential data uptake, at the top, is quite a leap of faith!

    As a ‘data guy’, I like it!

  12. @impatiently waiting: we’ll see what we can do, how to contact you?
    @ Steve: data will grow faster than anything else and we are happy to play in that field, wrt to the “debate” there are some who want to misunderstand and I agree it’s silly. The facts are clear, Cell C has a couple of advantages (HSPA+ all the way, use of 900 MHz and 2100 Mhz, all-IP, R7… see above) and it is only fair to let customers know about those advantages, wrt to customers and our current offers, customers in PE seem to be quite happy with the four packages out there, wrt to dual-band GSM phones, we have sufficient bandwidth for GSM in the 900 band and per GSM Arena there are over 3300 phone types that support dual-band GSM, so it should not be an issue. BTW over 400 devices today support UMTS/HSPA 900 as per the GSM Suppliers Association.

    We have been hard at work since July 2009 and hopefully you and others can give us a little time and show a little patience… and when we are in your neck of the woods give us a try! 🙂

  13. @Lars: Hats off to you for being in touch with the reality i,e, the customers. I for one will pay R1.5 cash just for a start to get that 24 Gig of data when the services come to GP. Much respect.

  14. Arno van der Walt on

    WOW, what a brilliant article and discussion, Techcentral is on FIRE!

    It’s impressive that the new base stations can improve speed with a mere software upgrade. Surely it must be possible to do the same with the modems. This way a client could simply pay for the upgrade as the telcos do.

  15. I think this is fantastic Vodacom and MTN need a run for there money they have been robbing the South African public for far to long and there arrogance or there lack of caring for want of a better word towards both individuals clients small business and big business is pure daylight robbery and may CELL C have every success in taking on these larger companies Awesome article

  16. What would make these data products perfect, would be the addition of a soft-cap option, like iBurst does. So you pay a small fee (R50/month?) and when you hit your monthly cap you get limited to 64kbit or 128kbit.

    My mother can’t get ADSL coverage, and I chose iBurst for this reason; she has a 5gig + soft-cap. She almost always hits her cap, but I never get called about it because she can still get her banking and online stuff done – she just knows that at the end of the month “the internet gets a bit slow” and she musn’t bother trying to skype my brother in Aus.

  17. Wow. A comments section where the signal to noise ratio is inverted. Great stuff Duncan (and the readers of course).

    Very impressed by the frank and insightful feedback from Lars. The value of engaging directly with your (potential) customers is invaluable.

  18. Lars, it seems as if you are the real Cell C CEO, and when I say CEO, I mean Customer Experience Office.

    Does that mean Trevor is the Chief Executive Officer? Worrying 🙂

    Great Stuff.

  19. Great job Duncan – as usual. Nice to see Lars here too – other CEOs could learn a thing or two from him about making their presence felt where it matters. After 16 years with Vodacom, I’m going to vote with my feet and give Cell C a try.
    @ Lars – tell me how to port while keeping my sanity.

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