Cell C could be in deep, deep trouble: report


Cell C’s ability to pay back its debt could be under threat, should The Independent Communications Authority of South Africa (Icasa) fail to implement its new call termination regulations. This is according to Bloomberg, citing court documents.

Cellphone network operators MTN and Vodacom are challenging the introduction of new asymmetrical call termination rates.

These are the rates operators have to pay one another for calls to other networks.

Icasa wants to implement a set of regulations that will see these rates drop to 10 cents a minute in 2016.

But, for 2014, MTN and Vodacom will have to pay 44 cents a minute to smaller operators, while the smaller companies will have to pay only 20 cents, in an asymmetrical structure.

MTN and Vodacom want the 2014 regulations scrapped. Alternatively, they want interim relief to prevent the introduction of the new rates until they have been reviewed.

According to Bloomberg, Cell C is negotiating with lenders to amend debt covenants.

“Any material delay in the implementation of the 2014 regulations will have devastating effects on Cell C’s business,” chief legal officer Graham Mackinnon said in the

“Failure to reach agreement on this may affect Cell C’s sources of short-term liquidity, which, in turn, could affect Cell C’s ability to service its debts.”

Cell C has approximately $160 million of debt maturing in July 2015, according to data compiled by Bloomberg.

It noted that the operator’s debt is ranked junk by Moody’s Investors Service and Standard & Poor’s.

Questions have been raised about the financial standing of Cell C in the past. Paul Theron, CEO of Vestact Limited said in August last year that Cell C is “basically burning the furniture over there to stay in business,” and had to raise more money to stay afloat.

Cell C CEO, Alan Knott-Craig admitted last year that the group’s most recent $350-million cash injection was subject to “satisfactory regulatory outcomes”, adding that the group’s coffers may stop investing under the current regulatory framework.

“If the regulatory framework in this country is not conducive to investment, then clearly they won’t invest. So it is important that we get our regulatory framework correct. Right now it’s not.”

The industry veteran opined that, in general, South Africa has never been good at regulating the telecommunications space.

“Essentially it goes around MTRs (mobile termination rates)…and the second thing is symmetry,” he said, adding that while regulators did it with MTN and Vodacom until only recently, the same did not apply for 8ta (now Telkom Mobile) or Cell C when they came into the market as a third and fourth operator.

“These two operators, for that reason, never got off the ground,” he said.

In 2013, group received an injection of R5.7 billion from Oger Telecom, the Lebanese-controlled firm with an indirect 75% holding in the SA operator, which invested a further $350-million (around R3.5 billion) and key lenders “including Nedbank and the Development Bank of South Africa” which provided R2.2 billion.

BusinessTech approached Cell C for comment, to which the operator responded: “Cell C respects that the matter is now before the court and will reserve comment until the process has been completed.”