8ta-Cell C merger a new axis of competition: F&S
A potential merger between mobile operators, 8ta and Cell C, would present a real challenge to Vodacom and MTN’s entrenched market position, says market research group Frost & Sullivan.
Earlier this month, Business Day reported that several meetings between senior executives at Telkom and Cell C had taken place earlier in the year, while “the two parties are now said to be working on the finer details of a potential merger,” the business scribe said.
Cell C CEO, Alan Knott-Craig told BusinessTech that market consolidation is inevitable. “Margins are thinning and smaller operators’ ability to compete is being hampered by lack of scale,” he said.
Shares in Telkom rallied in excess of 9% as investors warmed to the idea of a potential tie-up between 8ta, and Cell C.
Ishe Zingoni, ICT industry analyst at F&S said: “An 8ta-Cell C merger bodes well for the two entities, especially as they have separately sought to drive profitability and grow market share in an increasingly tough and mature market.”
“Should the tie-up between 8ta and Cell C come to fruition, the ensuing entity would bring a new axis of competition to the market, and present a real challenge to Vodacom and MTN’s entrenched market positions. This scenario has been long-awaited, and it seems the market is finally ready for consolidation.”
Zingoni noted that, since its re-branding in 2010, Cell C has relentlessly focused on adding subscribers and building market share, while Telkom has struggled to turn 8ta into a profitable unit.
“There will definitely be operational synergies to be realised as Cell C would be able to bring in valuable experience and retail capabilities, while 8ta, through Telkom, would be able to provide access to an unrivalled infrastructure base: all vital ingredients to genuinely challenge the incumbent operators,” Zingoni said.
“In an increasingly saturated market like South Africa’s, it will also be imperative for any potential challenger to bring in new products and services to the market, and to be able to change the paradigm. In this regard, converged services in a number of areas such as fixed-mobile convergence, and voice and data convergence will be critical differentiators going forward.”
“However, these convergence services cannot attain mainstream adoption at the currently high price levels. It will be essential for this anticipated merger to bring added competition and hence accelerate the reduction in prices,” the analyst said.
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