Regulators, including Icasa and the Competition Commission, may have to be pragmatic and lenient about a looming expanded tie-up between Cell C and MTN South Africa if the former isn’t going to go to the wall.
Shares in Blue Label Telecoms fell sharply for a second day on Tuesday, apparently over growing investor worries about the JSE-listed group’s 45% investment in Cell C. Attempts to save the mobile operator may ultimately hinge on regulatory support.
That Cell C has become a millstone around Blue Label’s neck is clear — its shares have plunged by about 80% since it concluded the investment two years ago, wiping billions of its market capitalisation despite a reasonable performance by its core businesses (excluding Cell C). This won’t have been the outcome Blue Label founders, brothers Brett and Mark Levy, anticipated when they did the deal. The pressure is now well and truly on.
Despite reassurances by both Cell C and Blue Label management that a new planned recapitalisation involving businessman Jonathan Beare’s Buffet Consortium remains on track — and amid a planned new roaming agreement between Cell C and MTN South Africa — Blue Label shares plummeted by more than 11% by late morning on Tuesday, adding to a similar rout on Monday. At the time of publication, the shares were changing hands at R3.50 each, close to an all-time low. Could it be a forced seller in the market, or simply broad investor fears about Cell C’s prospects?
Blue Label is less than two weeks away from publishing its annual results on 27 August, which could be fuelling investor concern that the numbers will be poor. Cell C will probably provide an insight into its half-year financial results at the same time. (Blue Label had not published a trading update by the time of publication, but it’s fair to assume one will be published before 27 August.)
The poor performance of the Blue Label share price comes despite Cell C saying last Thursday that it is up to date with all payments to MTN for its national roaming agreement — after it apparently missed payment deadlines for May and June. Cell C said aspects of the roaming agreement with MTN were recently renegotiated and this has led to a reduction in the company’s roaming obligations.
MTN and Cell C recently signed a non-binding term sheet with a view to overhauling the roaming agreement, though neither company has provided much detail about what this new deal might entail — beyond that it will deepen the relationship.
At one end of the spectrum, it could simply give Cell C greater geographic access to MTN coverage areas, lessening the need for the former to roll out additional infrastructure (this is unlikely). At the other, it could mean something as radical as MTN buying out and managing Cell C’s infrastructure, with the latter becoming more of a service provider than a full-service network operator. Perhaps the outcome will be somewhere in between.
However, something akin to the latter option might be on the cards if one reads between the lines of a statement from Cell C CEO Douglas Craigie Stevenson last week. Announcing the term sheet, Stevenson said it “lays the groundwork for a broader national roaming agreement, supporting the (government’s) policy goals of avoiding network duplication and the burden on the environment, where shared infrastructure drives efficiencies in the delivery of services to consumers”.
At the very least, that hints at some sort of passive infrastructure-sharing arrangement — and possibly an active radio-sharing deal. If the latter is on the table, and especially if there is a pooling of the operators’ radio frequency spectrum resources, it would likely be closely scrutinised by regulators, including Icasa and the Competition Commission. The commission previously torpedoed Telkom and MTN from doing a so-called “active radio access network sharing” deal. And even though Icasa may be pressured (or even be required) to try to block such an arrangement, doing so could prove catastrophic for Cell C.
What’s becoming increasingly clear is that a major overhaul is needed to put Cell C on a sustainable footing, and regulators need to be pragmatic if they’re asked to consider such a development. Cell C’s survival might be dependent on maximum legally permissible leniency by regulatory authorities.
Perhaps something akin to Vodacom’s relationship with Rain — where the former is effectively utilising the latter’s spectrum assets to cater for the ever-expanding demand for data — would make a spectrum sharing and active network sharing agreement between Cell C and MTN possible.
In an interview with TechCentral last month, Craigie Stevenson said Cell C’s pending further recapitalisation and a clean-up and restructuring of the business is its last chance to fix itself and get onto a solid competitive footing. “We don’t have another chance to do this again. We have to do this right,” he said.
It’s all on the line, not only for Cell C management and its shareholders, but for its employees and the wider industry, where competition has demonstrably shown to keep prices in check.
The fight to save Cell C is on, and, when they’re asked — as they inevitably will be — to consider the impending tie-up with MTN, Icasa and the Competition Commission may need to resist the urge to stand in the way. — © 2019 NewsCentral Media
- Duncan McLeod is editor of TechCentral