Cell C’s Knott-Craig warns backers may stop investing

·29 Aug 2013

Cell C CEO, Alan Knott-Craig says that the group’s recent $350-million cash injection is subject to “satisfactory regulatory outcomes”, adding that the group’s coffers may stop investing under the current regulatory framework.

In July, South Africa’s third operator received a boost from Oger Telecoms, the Lebanese-controlled firm with an indirect 75% holding in Cell C, which invested a further $350 million while additional key lenders “including Nedbank and the Development Bank of South Africa” provided a sum of R2.2 billion.

Knott-Craig said that the money would be primarily used for network roll-out, particularly in the Gauteng area, which has seen voice traffic double over the past year and a bit.

Earlier this month (22 August 2013) Cell C announced that it would roll out an additional 100 sites in Johannesburg over the next three months at a cost of R200 million, in an effort to alleviate its strained network in the province.

However, the company lead stressed that if the regulatory framework in SA is not conducive to investment, his backers wouldn’t invest.

Knott-Craig told CNBC Africa earlier this week: “I must say that the injection is subject to satisfactory regulatory outcomes. What they are saying is, if the regulatory framework in this country is conducive to investment, they will invest.”

“If the regulatory framework in this country is not conducive to investment, then clearly they won’t invest. So it is important that we get our regulatory framework correct. Right now it’s not.”

The industry veteran opined that, in general, South Africa has never been good at regulating the telecommunications space.

“Essentially it goes around MTRs (mobile termination rates)…and the second thing is symmetry,” he said, adding that while regulators did it with MTN and Vodacom until only recently, the same did not apply for 8ta (now Telkom Mobile) or Cell C when they came into the market as a third and fourth operator.

“These two operators, for that reason, never got off the ground,” he said.

“The reason why you licence a third and fourth operator when you are heading toward 100% saturation anyway, is only to get prices down. If you don’t make it possible for them to be financially sustainable in taking market share from other operators – which is the only way prices come down anyway – then don’t do it; don’t license them and be happy with the status quo.”

Knott-Craig pointed out that the $350 million cash injection continues to flow, “its not just one shot”.

“They decided to put the money in because the regulator did decide to look at the remedies, and do so urgently,” he said, highlighting a deadline of October 26.

The Independent Communications Authority of South Africa (Icasa) has promised an extensive review of the South African telecommunications sector, with publication of final call termination regulations expected on 25 October 2013.

Some analysts have questioned Cell C’s survival, while Knott-Craig has himself said that operators needed a minimum of 25% market share in order to be profitable.

The operator announced recently that it had signed up one million customers in July 2013, taking its subscriber base to 11.7 million and giving it a market share of around 15%.