Recapitalisation of Cell C will keep the giants on their toes
The heavy concentration of market power in the hands of a minority of economic players often reduces competition and harms consumers, who end up with limited product choices and exorbitant prices.
By and large, our economy is dominated by monopolies, duopolies, and oligopolies, which by their nature are shielded by high entry barriers that make it difficult for new competitors to challenge established players.
The mobile telecoms sector is one of the industries that is dominated by two large players, Vodacom and MTN, owing to their first-mover advantages gained in the 1990s when these companies were granted maiden operating licences in South Africa.
Cell C's entry in the telecoms sector in 2001, and that of other cellular phone network operators such as Virgin Mobile and Telkom Mobile in later years, challenged what was effectively a duopoly that had sewn up the market between the two aforesaid players, Vodacom and MTN.
Thus, the recapitalisation of Cell C, the country's third-largest network operator, will ensure that the telecoms giants are kept on their toes for the foreseeable future.
The recent ruling by telecoms regulator Icasa, that Cell C had followed correct due process in notifying the regulators about its recapitalisation plan, should be welcomed as it will ensure the gains that have been made in making the telecoms sector more price-competitive are not reversed.
Though small operators are giving Vodacom and MTN a run for their money, these two giants still control the lion’s share of the market for mobile phone subscribers.
Vodacom has 37.1 million subscribers in South Africa, which equates to about 42.1% of market share, followed by MTN with 30.8 million subscribers and a 34.9% market share.
Cell C with 15.3 million subscribers controls 17.3% of the market and Telkom with 4 million subscribers has a 4.5% market share.
A better capitalised Cell C and a more competitive Telkom Mobile is what our country needs. Cellphones have evolved from being a luxury commodity to a basic need. We use cellphones to communicate, to access the internet, to consume content, to buy and sell goods and services, and to send and receive documents.
Cellphones have virtually become computers on our palms for communication, entertainment and conducting business.
Consumers must be able to access this basic commodity. Hence there is a need to facilitate affordable access to mobile phones through regulation and competition.
Competition is key to driving down broadband internet data costs, which South African consumers have complained are excessive.
Compared to other small operators, I believe Cell C is better placed to challenge the established players to drive down these costs.
The new shareholders of Cell C, Blue Label Telecoms and Net1 UEPS Technologies, who have been roped in through the recapitalisation process, will infuse much-needed competitive energy and steer the company towards a sustainable path.
Cell C has indicated that the recapitalisation has increased the ownership of the company by South African shareholders from 25% to more than 86% and that the ownership by black investors has also risen from about 25% to more than 30%, including for the first time management and staff in the equity of the company.
It was quite clear that Cell C had outgrown the support of its original backers and controlling shareholder, UAE’s Oger Telecom, which played a critical role in giving the company a foothold in the South African market.
It is hoped that the restructuring of the company will take its game to the next level, help it create more jobs and open doors to local suppliers to access meaningful opportunities in its supply chain.
The company has indicated that the recapitalisation will lead to a reduction of its debt, significantly improve earnings, place it in a favourable position to boost investment in its latest-generation network, and enable the company to expand its provision of innovative telecoms products and services.
The combination of the reduction in debt and an expected increase in earnings will create an opportunity for investors to earn healthy dividends from their investment in Cell C.
A potential future listing of the company will also present an opportunity for its investors to generate considerable wealth from share price growth.
In the meantime, as consumers of mobile telephone services, we will be watching developments in the market with keen interest.
We are expecting to benefit from price wars between competitors, a wider choice of innovative services, and high-quality networks that cover even the most remote rural areas of our country.
Andile Ntingi is the chief executive and co-founder of GetBiz, an e-procurement and tender notification service.
The views expressed here are not necessarily those of Independent Media.
-BUSINESS REPORT