TELECOMS

S.AFRICA'S CELL C EXPECTS VIRGIN VENTURE DEAL SOON

South Africa's third-ranked mobile operator Cell C expects to unveil a joint venture with British entrepreneur Richard Branson's Virgin Group before the end of the month, Cell C said on Thursday.

Cell C said it was poised to unveil the tie-up with part of the Virgin empire, which would give the world-famous Virgin brand a long-coveted foothold in Africa's biggest market.

"Discussions with Virgin to form a joint venture service provider in South Africa are progressing well and we expect to be able to make an announcement in this regard before the end of September," the company said in a statement.

Analysts say the deal could pave the way for more foreign mobile firms to enter the South African market by piggybacking on existing operators, which could cut high call tariffs.

"I think Virgin will try and leverage its brand rather than cutting prices aggressively, but this deal will open the way for more virtual operators, which will eventually cut prices," said Citigroup telecoms analyst Rhys Summerton.

Cell C declined to say whether the Virgin service, called Virgin Mobile South Africa, would be cheaper than other operators, saying only that "brand helps a lot".

South Africa's communications regulator is investigating high mobile tariffs and has said tighter regulation or more competition is crucial to ensure a cheaper service.

Virgin pioneered the concept of a so-called mobile virtual network operator (MVNO), under which it avoids hefty investment by piggybacking on partner networks and Branson has long angled for a foothold in South Africa's booming cell phone market.

Unlisted Cell C said Virgin would act more like an enhanced service provider, since MVNOs were still illegal in South Africa's recently liberalised telecoms industry.

Virgin was not immediately available for comment.

Cell C Chief Executive Talaat Laham told a news conference the Saudi-backed firm had no immediate plans for a stock market listing but that it may be a possibility in two to three years.

In results released to bond investors two days ago, Cell C said it increased its subscriber base to 2.49 million in the second quarter from 2.17 million and swung to a core profit.

Earnings before interest, tax, depreciation and amortisation

(EBIDTA) increased to 87.7 million rand ($13.48 million) in the quarter ended on June 30 from a loss of 3.5 million in the year-ago period.

Company spokesman Jonathan Newman told Reuters revenue in the second half would exceed that of the first half, and said the company was aiming to increase EBITDA to 9-10 percent of sales the full year, versus a negative margin in 2004.

Market share dipped to 10.5 percent from around 11 percent.

One analyst who asked not to be named said he believed Cell C, which launched in 2002, should sacrifice profit in the short term and focus on market share.

"I think they should have really invested to get market share up to 25 percent and stuck with a negative EBIDTA for longer," he said.

Cell C last month sold a $270 million senior subordinated bond and 400 million euros of first priority high-yield notes.

The company estimated it would probably spend less than its planned capital expenditure of 950 million rand this year and said it would not have to refinance again, but was finalising arrangements for a 50 million rand revolving loan facility with a local bank.

http://today.reuters.com/business/newsArticle.aspx?type=telecomm&storyID...

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