Cell C can’t compete on price alone: analyst
For Cell C to compete merely on the price alone will not ensure the group’s survival – or do the rest of the industry any favours.
This is according to Ian Duvenage, business unit leader for ICT at growth consulting firm, Frost & Sullivan, who says the group will need wins on the regulatory side in order to remain an industry player.
Paul Theron, CEO of Vestact Limited, recently argued that Cell C has decimated its own business case and will be dead by next year.
He added that the operator is hurting the mobile market in South Africa for everyone, including itself, with its aggressive pricing strategy.
“Cell C has been struggling for the last few years. The change in leadership has had a positive influence on the market perception of the company. However, it does not seem to have had the impact they required in order to ensure the company is sustainable,” Duvenage said.
He noted the group’s recent cash injection of R5.7 billion from Oger Telecom, the Lebanese-controlled firm with an indirect 75% holding in the SA operator, which invested a further $350-million (around R3.5 billion) and key lenders including Nedbank and the Development Bank of South Africa which provided R2.2 billion.
Duvenage pointed out that, while Cell C has grown its market share to between 13% and 14%, it has very little presence in the more profitable parts of the market.
“The very aggressive marketing strategy around the low price might have been costly, and it could be argued that the low impact on marketshare over the period does not reflect the uptake they expected.”
“The low-cost strategy from Cell C aimed to convert more clients to the network, with the quantity compensating for the low Arpu (average revenue per user) also has not worked out to date,” Duvenage said.
“The reduction in price would directly influence the average revenue per user (Arpu) and; thus, the profitability of Cell C,” the analyst said.
The operator announced at the end of July that it had signed up one million customers during the month, taking its subscriber base to 11.7 million.
F&S said that Cell C’s price cuts had also prompted other operators in the market to respond with competitive offerings of their own.
“One of the hindering factors of the network to date has been coverage, as well as quality of service, which is still a factor for them in the market,” the group added.
Duvenage pointed out that Cell C has also been placing increased pressure on the Independent Communications Authority of South Africa to introduce assymetric pricing, which would ultimately improve its profitability in the long term.
“For Cell C to remain a player, and to remain sustainable in the market over the long term, they would require some wins on the regulatory side. To compete merely on the price front will not enable them to survive, or do the rest of the industry any favours,” Duvenage said.
Other analysts however, believe that Cell C would not have received such a big cash injection if it was such a ‘basket case’.
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