Cell C’s ability to pay back its debt could be under threat, should The Independent Communications Authority of South Africa (Icasa) fail to implement its new call termination regulations.<\/p>\n
This is according to Bloomberg, citing court documents.<\/p>\n
Cellphone network operators MTN and Vodacom are challenging the introduction of new asymmetrical call termination rates.<\/p>\n
These are the rates operators have to pay one another for calls to other networks.<\/p>\n
Icasa wants to implement a set of regulations that will see these rates drop to 10 cents a minute in 2016.<\/p>\n
But, for 2014, MTN and Vodacom will have to pay 44 cents a minute to smaller operators, while the smaller companies will have to pay only 20 cents, in an asymmetrical structure.<\/p>\n
MTN and Vodacom want the 2014 regulations scrapped. Alternatively, they want interim relief to prevent the introduction of the new rates until they have been reviewed.<\/p>\n
According to Bloomberg, Cell C is negotiating with lenders to amend debt covenants.<\/p>\n
\u201cAny material delay in the implementation of the 2014 regulations will have devastating effects on Cell C\u2019s business,\u201d chief legal officer Graham Mackinnon said in the
\ndocument.<\/p>\n
\u201cFailure to reach agreement on this may affect Cell C\u2019s sources of short-term liquidity, which, in turn, could affect Cell C\u2019s ability to service its debts.\u201d<\/p>\n
Cell C has approximately $160 million of debt maturing in July 2015, according to data compiled by Bloomberg.<\/p>\n
It noted that the operator’s debt is ranked junk by Moody\u2019s Investors Service and Standard & Poor\u2019s.<\/p>\n
Questions have been raised about the financial standing of Cell C in the past. Paul Theron<\/a>, CEO of\u00a0Vestact Limited<\/a>\u00a0said in August last year that\u00a0Cell C is \u201cbasically burning the furniture over there to stay in business,\u201d and had to raise more money to stay afloat.<\/p>\n Cell C<\/a> CEO, Alan Knott-Craig<\/a> admitted last year that the group\u2019s most recent $350-million\u00a0cash injection was subject to \u201csatisfactory regulatory outcomes\u201d, adding that the group\u2019s coffers may stop investing under the current\u00a0regulatory framework.<\/p>\n \u201cIf the regulatory framework in this country is not conducive to investment, then clearly they won\u2019t invest. So it is important that we get our regulatory framework correct. Right now it\u2019s not.\u201d<\/p>\n The industry veteran opined that, in general, South Africa has never been good at regulating the telecommunications space.<\/p>\n \u201cEssentially it goes around MTRs (mobile termination rates)\u2026and the second thing is symmetry,\u201d he said, adding that while regulators did it with MTN<\/a> and Vodacom<\/a> until only recently, the same did not apply for 8ta (now Telkom Mobile<\/a>) or Cell C when they came into the market as a third and fourth operator.<\/p>\n \u201cThese two operators, for that reason, never got off the ground,\u201d he said.<\/p>\n In 2013, group received\u00a0an injection of R5.7 billion from\u00a0Oger Telecom<\/a>, the Lebanese-controlled firm with an indirect 75% holding in the SA operator,\u00a0which invested a further $350-million (around R3.5 billion) and key lenders \u201cincluding\u00a0Nedbank<\/a>\u00a0and the\u00a0Development Bank of South Africa<\/a>\u201d which provided R2.2 billion.<\/p>\n BusinessTech approached Cell C for comment, to which the operator responded: “Cell C respects that the matter is now before the court and will reserve comment until the process has been completed.”<\/p>\n Is Cell C making money?<\/strong><\/a><\/p>\n Cell C\u2019s Knott-Craig warns backers may stop investing<\/strong><\/a><\/p>\nMore on Cell C<\/h3>\n