Huge Group subsidiaries Huge Cellular and Huge Telecom are not entitled to urgent relief they’re seeking against Cell C to prevent it from suspending services at the end of this month that could cut off telephone services to 16 000 Huge clients, the mobile operator said.

In a replying affidavit filed at the high court in Johannesburg, Cell C Service Provider Company (Cell C SP) has disputed the claim by Huge that it is entitled to an accumulated “shortfall” of airtime minutes up to February 2022. Huge said this amount is likely to be R50-million on the date of the termination of the agreement, namely 28 February 2019.

In the responding affidavit, written by Cell C chief executive for wholesale business Björn Flormann, the mobile operator said Huge Group breached the provisions of the enterprise supply agreement between the parties. Cell C SP is entitled to terminate the services that it renders in terms of the agreement at midnight on 28 February, after which Huge is not entitled to any further benefits or services, Flormann said.

“The cause of action relied on by Huge is contrived and designed not to avoid any unlawfully threatened harm but rather to attempt to claw back the proceeds of the alleged overpayments it has made in terms of the agreement to Cell C SP… That issue will be determined in arbitration if necessary.”

He said the “real cause” of Huge’s “predicament” is its decision not to extend the agreement “as it had agreed to do in October 2018”. He accused Huge Group’s management team of failing to “take any steps at all to prepare for the pending termination”. Cell C, Flormann said, is prepared to continue to provider services to affected customers of Huge Telecom after 28 February, but only on “strict terms and conditions”.

TechCentral first reported on the legal dispute between the companies last week.

Third addendum

Huge Cellular’s founding affidavit said that under a third addendum of the enterprise supply agreement between the parties, which was signed on 14 February 2017, the company agreed to purchase services from Cell C, to be measured in minutes, in advance, and agreed to pay a minimum monthly amount for this. Cell C agreed to provide enhanced functionality in respect of the services it would provide.

Importantly, if Huge didn’t use the airtime, it would be carried over to the following month, it said. Huge Cellular was entitled to carry the shortfall forward on an “uncapped” basis until July 2019 and thereafter up to a maximum of 250 million minutes until February 2022. The accumulated shortfall would then only expire at that time.

Huge Cellular argued that it had the prima facie right to use the accumulated airtime shortfall even after the expiry of the agreement given that the agreement’s third addendum explicitly stated that the shortfall would only expire in February 2022.

However, Flormann has rejected this, saying in his replying affidavit that the so-called “minimum purchase commitment” (MPC) mechanism was never intended to constitute “some form of advance payment credit scheme”.

“The MPC is an actual minimum committed purchase of voice minutes for the month in question,” he said. “The shortfall was a monthly carryover and not cumulative so that when the agreement terminated, no further MPCs were payable (and) nor could any shortfall be carried over beyond the termination of the agreement.”

The sixth addendum to the agreement gave Huge a significant “MPC holiday”, Flormann added. The parties agreed that “as consideration therefore, Huge would deliver a renewal notice to Cell C SP. The MPC holiday and reduced rates were intended to be granted conditionally on the renewal of the agreement.”

Cell C said that by allowing the agreement to lapse, Huge Cellular avoids the obligation to pay an additional R255.4-million excluding VAT in MPC due for the months March 2019 to February 2022, renewal fees of R9.8-million (also excluding VAT) and a monthly administration fee of R200 000 (total: R5.2-million) due for the months March 2019 to February 2022.

“Huge’s management obviously took a gamble that Cell C SP would capitulate and renegotiate more favourable rates for Huge yet again. The gamble failed.”

Flormann said it is “not inevitable” that Huge Telecom customers be cut off as a result of the fallout between the companies. “What is required is that Huge Telecom pay proper rates for such usage until it is able to swap the Sims to those of other service/network providers. The published financial statements of Huge Group disclose that Huge Telecom should have no difficulty paying for the services. Huge Telecom has no right to preferential pricing for the services. Nor does Huge once the agreement ends.”

‘Reputational damage’

In its founding affidavit, Huge warned that 16 000 corporate and small and medium enterprises would have their services cut off if Cell C did not honour the agreement. “If Cell C discontinues the provision of cellular services on 28 February, then each of the 16 000 customers will have their telephones cut off and will be unable to conduct any part of their business which is reliant on having a working telephone.”

It said, too, that Huge Group and Huge Telecom “could suffer enormous reputational damage” if the lines were summarily disconnected with no alternative in place.

“To replace the Cell C Sim cards with Sim cards from another mobile operator, Huge Cellular and Huge Telecom would have to visit each of the 16 000 customer sites. It cannot be done before 28 February 2019.”