Is Cell C Sustainable?

I am willing to bet that if Cell C fully disclosed its financial statements of its operations over the last 14 years, one would not find a healthy state of affairs.

by Gugu Lourie

Common sense tells me that Cell C cannot survive much longer without being profitable, the more so if it continues to play hide and seek with the market over its finances.

The signs are everywhere that Cell C is struggling – its public relations efforts are not exactly masking the problem.

Last week, the company disclosed that in December it had lodged papers requesting the Gauteng High Court to review call termination regulations. Cell C was also quoted by Business Day as saying that it would “vigorously challenge” Vodacom’s planned R7bn acquisition of Neotel, and would pursue every legal avenue to stop the deal.

Perhaps the problem is that the third-biggest mobile operator is trying too hard to punch above its weight.

There is also an unstated assumption that its customers fully understand what “drop calls” are.

However, one thing I do know is that Cell C’s balance sheet is shielded from public scrutiny because it is not a listed entity, and therefore not compelled to disclose its finances.

That said, this week City Press published a report which places the spotlight firmly on Cell C’s financial health.

Saudi Telecom Company, which indirectly owns a significant stake in Cell C, has reportedly reduced its investment in the mobile operator by a whopping R1.2bn.

The newspaper also added that Reuters reported that Abdulaziz al-Sugair, Saudi Telecom Company’s chairperson, said the firm was “evaluating options” over its international portfolio.

But Cell C’s boss, Jose Dos Santos, insists that his company is not about to go under. He told the newspaper that he was neither concerned about the Saudi Telecom chairperson’s remarks, nor about the impairment.

I am willing to bet that if Cell C fully disclosed its financial statements of its operations over the last 14 years, one would not find a healthy state of affairs.

The comments made by Dos Santos remind me of similar sentiments made by Leo Kirkinis when he was chief executive of African Bank.

Amid reports of serious financial challenges, Kirkinis always urged investors and shareholders to remain confident about African Bank and its prospects for success.

The ensuing disaster that unfolded at African Bank is well documented. Despite Kirkinis’ assurances, the bank let down numerous investors and customers. It also failed the banking sector and the country as a whole.

It feels like déjà vu – Dos Santos still wants to convince everyone who cares to listen that things are hunky-dory at Cell C.

Not even this major decision by the company’s strategic shareholder to write down the asset seems to bother Dos Santos. He also seems oblivious to the veiled threat by Saudi Telecom to take its business elsewhere.

This surely must be a red flag, which points to the possibility that the financial viability of Cell C is not on stable footing.

For now Cell C continues to flex its muscles by taking the industry regulator and disgruntled customers to court. It’s a pity that the public is not privy to the details of the Saudi Telecom write-down.

We can, in the circumstances, speculate that Saudi Telecom wants to disengage from the not-so-profitable Cell C.

It is unlikely that Cell C will reveal its numbers in the coming weeks.

It is predictable that when Cell C publishes its financial figures the market will have access to statistics about subscriber numbers, market share, new products and how the business continues to place the customer at the centre of everything it does.

It would be a mistake, however, to stop questioning the executives of Cell C about the sustainability of the business.

The write-down could be a sign of a restless shareholder.

If Cell C was a listed entitled on the Johannesburg bourse I estimate that its share price would be in the range of 1c to 10c a share – so low that many fund managers would simply ignore it.

But South Africans can’t afford to ignore Cell C. It employs thousands of people and supports numerous suppliers in its value chain.
The challenge to Cell C would be to quickly find a shareholder with big pockets to take it forward – that is, if Saudi Telecom completely disengages.

Evidently, what subscribers want is to know is why they should continue to trust Cell C.

Are Dos Santos’ verbal assurances enough? That is the question.


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