SA’s cellular communications market is about to get a big shake-up as two players, one new, Telkom Mobile, and one reinvigorated, Cell C, get ready to go toe to toe with each other and incumbents MTN and Vodacom.
SA’s smallest mobile operator, Cell C, has never had an easy time of it. Launched a decade ago after a particularly troubled birth, the operator has faced an uphill battle against dominant incumbents MTN and Vodacom.
It has managed to secure about 10% of the market, but a crippling debt, incurred in building its network, left analysts with doubts that the company would ever amount to much.
Those analysts clearly hadn’t reckoned with Lars Reichelt. Replacing the charismatic Jeffrey Hedberg, who had helped turn around Cell C’s fortunes operationally, Reichelt has set the company on a new course that could save it from its status as industry laggard.
Reichelt has wasted no time identifying Cell C’s strengths and weaknesses. He realised it needs to improve its image and overhaul its network.
He has convinced the shareholders to convert a big portion of their debt into equity; he’s in talks with banks about raising new financing; he’s outsourced the company’s customer contact centres to Dimension Data; he’s reinventing the brand; and he’s building a R5bn third-generation (3G) broadband network.
It’s a big and risky job he’s taken on. Cell C has never been a big player at the high-spending top end of the market. Rather, its main successes have come in the prepaid space, where consumers are disloyal and switch networks easily for better tariffs.
In building a 3G network, Reichelt will be hoping to tap consumers who have tended to remain loyal to incumbents Vodacom and MTN. To do that, Cell C will have to offer products and services its rivals can’t match or aren’t prepared to match.
The company’s biggest strategic advantage is that it’s building its 3G network in the 900MHz band, which has distinct benefits over the 2,1GHz band used by Vodacom and MTN. At 900MHz, radio wavelengths are longer, meaning cellphone signals are able to penetrate buildings much more easily, resulting in better and more stable coverage.
Signals are also able to travel further from the base station, making it simpler to build 3G networks in rural areas profitably. Cell C is building the first widespread network that can provide download speeds of up to 21 Mbit/s.
The second area where Cell C can beat its rivals is in customer service. This is arguably harder to get right than building a robust network, and Cell C hasn’t done a particularly good job of it until now. Outsourcing to Didata’s Merchants subsidiary was an inspired start, though.
Answering customers’ calls promptly, and being able to provide them with relevant answers to their questions, would surely help Cell C gain market share. The company’s rivals are far from perfect in this regard.
Under Reichelt, then, Cell C is making all the right moves.
There’s just one big unknown on its horizon: Telkom. The incumbent fixed-line operator is also spending billions of rand on a 3G network, with plans to launch consumer and corporate mobile services before the end of the year.
Telkom, now led (in an acting capacity) by Hedberg, is not short of financial muscle and won’t be shy about investing big to build market share. Reichelt and Hedberg, both ambitious and competitive men, could soon find themselves engaged in full-scale battle.
With two big players in Vodacom and MTN desperately defending their turf, the stage is set for a fascinating showdown.