The MD of South Africa’s fourth mobile network operator, Telkom Mobile, has pooh-poohed suggestions that merging the company with Cell C would make sense for Telkom. Attila Vitai has told TechCentral that the move would make more sense for Cell C, South Africa’s third network operator, than it would for Telkom.

Both Cell C and Telkom Mobile have introduced aggressive new tariff plans in an effort to take market share from larger rivals Vodacom and MTN, which were licensed long before the two smaller players.

“I don’t understand why [Cell C CEO] Alan Knott-Craig thinks it would be a great move for us to buy Cell C and we move ourselves from a loss-making fourth operator to a loss-making third operator,” Vitai says.

Two weeks ago, Knott-Craig said in a radio interview that Cell C had held discussions with Telkom about opportunities to consolidate South Africa’s mobile phone industry.

In response to a question on Talk Radio 702 about whether he had held talks with Telkom about consolidation, Knott-Craig replied: “I have addressed it with them, yes.”

He went on to say that such a move would “make sense” for both parties. “In my personal capacity, I think consolidation is one way to solve a lot of the problems.”

But Vitai — who emphasises he is also speaking in his personal capacity and “not necessarily” expressing a Telkom group opinion — says he understands why Knott-Craig is keen to do a deal.

“Alan Knott-Craig has been trying to do a deal with Telkom since I’ve been here. Their exit strategy is to sell to us or someone else. The investors want to exit and Knott-Craig is anxious to do a deal,” Vitai says. “The business is not really profitable and has huge debts. From Telkom’s perspective, I’m not sure [an acquisition] makes a great deal of sense.”

Cell C is controlled by the Saudi Oger-owned Oger Telecom. The other shareholders are Lanun Securities and black empowerment grouping CellSAF.

“If we were to combine Cell C and Telkom Mobile, we’d still be a loss-making third operator,” Vitai says. “If we are going to do an M&A deal, I can understand doing this theoretically … to propel us into the first or second spot because the dynamics of our business would change dramatically. We’d be a market leader with access to distribution. I could list all the benefits of being number one or two.”

If Telkom were to acquire Cell C, its “strategic positioning in the market wouldn’t change substantially”, he says.

But is a fourth operator sustainable in a market where the third player is burdened by debt and struggling to turn a profit? “We need time to leverage the competitive advantage that we have in terms of spectrum,” says Vitai. Telkom has access to a big chunk of spectrum at 2,3GHz that is well suited to delivering 4G mobile broadband.

Also, Vitai says the Independent Communications Authority of South Africa needs to slash wholesale inter-network call charges, known as mobile termination rates. This would help smaller players cut retail rates and take market share from Vodacom and MTN.