Thought Leadership | 21 August 2023
Author: Jorge Mendes, Cell C CEO
Published: The Sunday Times . 20 August 2023.
There is a beautiful scene in the cult favourite TV show Ted Lasso - about an unlikely coach who is brought in to turn around an underperforming English football team - where he finds himself in a high stakes dart game against a detractor. He shares the famous Walt Whitman quote "Be curious, not judgmental" to illustrate that people often underestimate that which they don't seek to understand. In that moment, as the penny drops, he goes on to score unexpected points and claims victory in the game.
After one month in the seat gaining insights into our unique strengths and challenges, I can confidently say that the opportunity that Cell C has to rewrite its story is evident, notwithstanding its fair share of challenges and criticisms over the years.
In 2019, the company implemented a turnaround strategy to ensure its long-term sustainability, focusing on rightsizing and optimising the operations through operational efficiencies, reducing operational expenditure and allocating capital expenditure through a differentiated network strategy, as well as significantly reducing its debt through a recapitalisation to deleverage its balance sheet and change its debt structure.
There is an ambitious game plan, and the industry is ripe for it. Critical to the plan is our capex-light network strategy and business model.
Taking advantage of a changing industry
In its research report, "The Evolving Telecoms Value Chain", Africa Analysis forecasted that in South Africa the 5G population network coverage would reach 60% by 2030. To achieve this coverage, a single mobile operator would need to deploy 18 000 5G base stations to reach 60% population coverage (2.5GHz).
5G is an inevitability, but unless we as an industry make dramatic changes to the traditional models of network rollout, it's unlikely that it will make the impact we are hoping for.
In the quest to optimise the business for sustainability, Cell C faced a crossroad – our industry requires continuous investment in costly infrastructure, which offers diminishing returns for operators. The capital investment in LTE and LTE-Advanced will be small in comparison to the investments required to cover the same footprint with 5G technology.
Cell C has taken a differentiated approach. There was a realisation as we embarked on our turnaround that the rules of the game were changing, and these rules provided not only possibility, but the opportunity to redefine our game plan to not only survive relegation, but to win in the long term and secure a place in the premier league.
Using a historical average capex per base station of R2,64 million, (MTN and Vodacom average shows that a single mobile operator would need to invest R47.5 billion) five mobile operators and the WOAN would need a cumulative capex investment of R285 billion.
The report makes the point that there is a telecom revenue-capex disconnect. Digital services companies create and will continue to create the demand for digital services. However, it is the network operators that need to enable the delivery of these services. This shift from a network to service-based consumption and billing world has led to a disconnect between network operator revenue and capex. This disconnect will grow as the digital services demand grows.
The significant change in mindset will be needed to drive an evolution of the network and infrastructure-based competition if telecoms providers are going to give customers a 5G service at an affordable price. By removing the burden of individual infrastructure investment by each provider and allowing the Megabyte (MB) and the Minute to become the tools of provision rather than the product, providers are more likely to find value and still give customers what they want.
The market is now made up of those that own infrastructure and those that buy it. Owning infrastructure is no longer the only measure of competitiveness. Sharing is now the name of the game – sparking a healthy new state of play of "co-opetition". There exists now a nice mix of co-operation in terms of infrastructure sharing (because 5G is exorbitantly expensive to roll out) and competition in terms of customer offerings (the fun and creative side of the business, which is where our strengths lie).
This infrastructure play also benefits the partners, because we provide a new revenue stream to contribute to building out their networks — and 5G and 6G cost an arm and a leg. In terms of 3G and 4G, the South African market is fully covered, so why not take advantage of that instead of trying (and failing) to build the same network for our customers? The beauty of this arrangement is that we no longer have a network deficit. And everyone wins.
Cell C's network strategy effectively increases competition in the South African market embracing new infrastructure partnerships and leveraging important advances in technology.
Cell C has migrated its network and is now operating with access to circa 14,000 towers countrywide, with more than 13,000 sites 4G/LTE enabled on the MTN network and circa 14,000 on the Vodacom network.
This means expanded national coverage, and greater network stability also during load-shedding. But critically, it means Cell C becomes a pure-play digital service provider.
Cell C is a leading mobile provider in South Africa offering a wide range of products and services, including voice, data, device and SIM deals to more than 20 million customers.
