Vodacom in ongoing talks to buy Cell C subscribers

Vodacom is in talks with Cell C about taking on the smaller rival’s contract-paying cellphone customers, a move that would strengthen its position as SA’s telecom market leader.

Vodacom would gain just more than a million high-paying subscribers from the deal, said the people, who asked not to be identified as the discussions are ongoing. The talks are at an early stage and could still fall apart, they said.

Cell C and its biggest shareholder, Blue Label Telecoms, are looking at ways to cut costs and strengthen the balance sheet as they battle to service a R9bn debt. Transferring the customers to Vodacom would attract a fee and free Cell C from the cost of servicing clients, including handset subsidies and credit checks, said the people. The carrier could also cut jobs

The real questionis what it would cost. At 37% EBITDA margin, it would cost Vodacom R1.3bn to acquire these customers

and close stores after slimming down operations, they said.

Old Mutual analyst Philip Short said if such an arrangement were to go through, it would probably have to go through Competition Commission, “but if it does happen it can go a long way to pay down Cell C’s debt”.

He said the Competition Commission might be an issue for Vodacom given its size in the market but not for smaller player Telkom, if they wantedthe same subscriber base.

Vodacom and Blue Label representatives declined to comment. A spokesperson for Cell C said the company did not respond to speculation. Blue Label shares rose as much as 2.4% to R3 on the JSE on Tuesday, the highest in more than a month.

Cell C generated about R3.6bn in revenue from its postpaid customers in the year through May, about 30% of sales from cellphone subscribers. Cell C will be left with those who pay as they go, who don’t spend as much on average as those with contracts.

With Vodacom’s earnings before interest, tax, depreciation and amortisation (ebitda) margin at 37%, Short said Vodacom would probably get more margin out of the move because there is no customer acquisition cost and systems are already in place.

He added that the real question for Vodacom, or anyone looking to acquire that specific subscriber base from Cell C, is what it would cost. At 37% EBITDA margin, it would cost Vodacom R1.3bn to acquire these customers.

Vodacom has about 5.8 million post-paid subscribers in SA, meaning a successful deal would see it leapfrog MTN with 5.9 million and increase its lead in the market. BDlive