Cell C’s 5 biggest assets – and what the facts say
Blue Label Telecoms co-CEO Brett Levy said they are upbeat about Cell C’s prospects because it has five very good assets.
These assets are Cell C’s brand, spectrum, assessed losses, the prepaid engine, and the mobile virtual network operator (MVNO) market.
Levy told analysts there is a place for Cell C in South Africa, and they now have a better understanding of its place than before.
It followed a lengthy recapitalisation process to lower Cell C’s debt, deleverage its balance sheet, and give it enough liquidity to operate.
Levy said they started the recapitalisation process in August 2019, which was finally completed in October 2022.
“The process is now complete, and the money has been paid over. It now gives us an opportunity to move on as Cell C and build the company we believe it can be,” he said.
Levy said they are looking forward to the next 24 months and executing their plans for the mobile operator.
As part of its strategy, Cell C will focus on capturing market share in areas where it did not operate before.
It will also enter the fintech market with a novel approach and its own platform. Levy said details about this plan would be released at a later stage.
Cell C brand
Levy told analysts Cell C had spent hundreds of billions of rands on its brand, adding that it has a very strong brand in the market.
Levy’s estimate of how much Cell C spent building its brand is highly inflated, and it can be assumed that he messed up the numbers.
It is true that Cell C has a strong challenger brand in the South African mobile market and is seen as an alternative to Vodacom and MTN, along with Telkom.
However, Cell C’s brand is also associated with poor service levels and a network which falls short of its competitors.
Research by Analytico showed that only 3% of people said they would pick Cell C for a new fixed LTE or 5G service.
It shows that Cell C’s financial and operational challenges have filtered down to consumers in terms of brand awareness.
Spectrum
Levy said Cell C has valuable spectrum assets which can be quantified following the recent spectrum auction. He added that what they are doing with their spectrum makes it a great asset.
He is correct. Cell C’s 94 MHz of mobile spectrum is worth billions and is an underestimated asset which is not shown in the company’s balance sheet.
The Communications Minister’s recent draft spectrum policy proposed legalising spectrum trading, which will play into Cell C’s hands.
Analysys Mason valued Cell C’s spectrum at R10 billion. It looks high, but it indicates the value of spectrum.
Assessed loss
Levy said Cell C has an assessed loss of R8 billion. Therefore, the mobile operator only has to pay tax on 20% of its taxable income in years to come, which has great value to Cell C and Blue Label.
Levy is correct. Cell C’s assessed losses translate to an unrecognised deferred tax asset of around R8 billion.
This asset will likely be recognised in stages as Cell C starts to generate profits. It can be carried forward indefinitely and will add to Cell C’s bottom line if it makes profits.
The prepaid engine
Levy said Cell C now has 4G and 5G coverage in areas where it did not have any coverage before. He added that Cell C could gain market share in these areas and increase the ARPU of users.
It is inaccurate. Cell C CTO Schalk Visser confirmed that Cell C does not have 5G coverage, which puts it at a disadvantage against Vodacom, MTN, Rain, and Telkom, which all have 5G networks.
He is correct that Cell C’s roaming and network deals with MTN and Vodacom provide it with wider 4G coverage and, in turn, a larger addressable market.
So, while Cell C does not have a 5G network, its improved 4G coverage gives it the opportunity to grow its subscriber base with attractive products.
Cell C has a challenge with a shrinking contract and broadband base, and many of its prepaid customers are not loyal and jump between many networks.
However, a group of South Africans prefer to support an underdog – instead of Vodacom and MTN – which is where Cell C is strong.
MVNO market
Levy said there is a place for MVNOs in South Africa, which is a great product for Cell C. They have a great system with good margins.
Levy is correct. The growth potential for Cell C in the MVNO market is substantial, and it has recently signed up Capitec as an MVNO partner.
Cell C already hosts over 20 MVNOs, through which it serves 2.1 million subscribers. Its clients include large banks, retailers like Shoprite and Mr Price, and other big brands.
It has a big advantage over competitors like Vodacom and MTN in the MVNO market because of its experience and platform.
