Cell C’s R10 000 reward for switching service providers raises eyebrows

“Clearly Cell C is positioning itself again as a trend setter – like before I expect that when this campaign goes pear-shaped the struggling operator will run as fast as it can to Icasa, the industry watchdog, to ask for a bailout via regulatory intervention.”

By Gugu Lourie

Cell C is dangling a whopping R10 000 reward to new customers who ditch contracts with Vodacom and MTN and sign up with South Africa’s third largest mobile service provider – but the unprecedented move raises sustainability questions.

Cell C is yet to deliver its first bottom line profit after 14 years in existence.

That said, Cell C is following international trends in which operators entice customers contracted to other service providers by offering to pay early termination fees.

Mobile operator Sprint is doing the same thing in the US. Sprint, not only pays early termination fees, but also covers the settlement balance on phone instalment plans.

Cell C boss Jose Dos Santos has identified early termination fees as being a major stumbling block that deters contract customers from switching service providers.

“So many South Africans are feeling trapped in long-term contracts by their providers that ask for extortion cancellation fees for early termination,” said Dos Santos.

Cell C CEO Jose Dos Santos
Cell C CEO Jose Dos Santos

“Cell C’s contract buy-out proposition releases customers from those fees by offering to help buy themselves out of their existing contracts.”

The R10 000 payment is expected to woo disgruntled Vodacom and MTN contract subscribers.

In theory new customers are expected to move in droves to Cell C – but as with many other campaigns this one is unlikely to have a significant impact.

Cell C’s buyout proposition has so far drawn mixed reactions on TechFinancials.co.za social media platform.

Edwin Naidu tweeted satirically: “Voda-con going to take a hit. Cell C offering users R10 000 to cancel Vodacom, MTN contracts.”

While Tshepo Bailey, tweeted: “Not feasible” and @KinxD_sse tweeted: “How is this sustainable”.

That said, let’s step out of the normal and ask radical questions regarding this Cell C’s proposition to entice rivals customers to switch to its network.

Cell C is not Sprint and it’s not a profitable entity

 South Africa’s third largest mobile operator has massive long-term debts that runs into billions of rand and its main shareholder Saudi Oger Telecom wants to sell its shareholding in the company.

One wonders if Saudi Oger Telecom is still injecting equity capital into the struggling business.

Granted desperate times call for desperate measures – but can Cell C’s offer to Vodacom and MTN customers to settle their contract buyout fees change its fortunes?

Apart from the incentive, why would customers want to be contracted to Cell C?

Why would a Vodacom, MTN contract user opt to switch to Cell C network, which is still playing a catch-up with its rivals?

Why would Cell C want to pay its rivals to let go of contract customers, especially considering that porting is a messy affair in South Africa?

Does Cell C offer a better network than MTN and Vodacom, including Telkom?

Finally, is this buy-out promotion a grandstanding by Cell C to say things are well and we have the cash to compete?

Frankly Vodacom and MTN could create a similar, but better promotion anytime and add more value for customers. Both Vodacom and MTN have very deep pockets to counter Cell C’s proposition.

Cell C has in the past positioned itself as a “champion of the consumer” when it comes to voice calls. But it has failed to attract millions of disgruntled customers from both Vodacom and MTN.

Will this new proposition be any different? Prepaid customers who have ported to Cell C complain that the operators’ network is unreliable.

What is going on at Cell C could in future prove to be a disaster.

Clearly Cell C is positioning itself again as a trend setter – like before I expect that when this campaign goes pear-shaped the struggling operator will run as fast as it can to Icasa, the industry watchdog, to ask for a bailout via regulatory intervention.

In short, Cell C is trying to use money to force Vodacom and MTN customers to fall in love with it, without offering them alluring innovative products, services or a better network.

What’s even more perplexing is that Cell C is trying to entice contract customers, who are already enjoying the benefits of 4G/LTE investments from Vodacom and MTN.

Cell C is still planning to plough R8 billion into building 4G/LTE network.

Maybe just maybe Cell C – in its current fragile financial state – has enough cash stashed somewhere to sustain this buyout promotion?

It will be interesting to find out how Cell C’s want-away main shareholder, Saudi Oger Telecom, react to a possible drain on the company’s coffers in an ambitious, but risky attempt to entice customers from rival network operators.

At this stage, I will not second guess Cell C, but would advise the company to tone down on positioning itself as a marketing company.

 

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