An embattled Cell C is struggling to pay its bills – which is starting to hurt MTN, as is evident from the latter’s half-year results.
In May last year, Cell C began using MTN’s network, especially in smaller cities and rural areas where it doesn’t have its own coverage – after previously roaming with Vodacom. The MTN deal saw Cell C’s 4G coverage increase from 33% to 80% of its clients.
But Cell C, which has a debt burden of some R6 billion (with interest rates as high as 17%), has now fallen behind on payments for these services.
It left MTN with an unpaid bill of R393 million over the past six months. On Thursday, MTN announced that it has written off R211 million of the amount, and is now “evaluating a sustainable solution to the network roaming agreement with Cell C”.
The struggling Cell C is in serious trouble, and last month announced that it started talks with its creditors to delay debt payments. It is cutting costs and implemented a hiring freeze. On top of that, the company is also investigating its employees for irregular business practices.
Earlier, technology analyst Arthur Goldstuck told Business Insider SA that Cell C users should only start worrying when they struggle to connect to the network, which is highly unlikely.
“I don’t think Cell C is going to close down anytime soon. The reality is that they have a major subscriber base which is an incredibly valuable asset that is certainly not going to be dumped,” Goldstuck said.
“If things go seriously wrong someone like Telkom would likely buy it.”
MyBroadband recently reported that Cell C and MTN are developing emergency plans to ensure Cell C subscribers stay connected in the event of the company going bankrupt.
Goldstuck said Cell C’s major problem is that it is unable to monetise its massive subscriber base, while it has to keep up a vast infrastructure network to compete with Vodacom and MTN.
He suggested that Cell C “vigorously attack” its data prices to entice new consumers, and simplify the complexity of its packages for consumers.
Telkom, which offers simple packages with a clear focus on cheaper data, is the example Cell C should follow, he said. Telkom doubled its subscriber base the past year.
By mid-morning on Thursday, MTN’s share price was down 4% to R107.92, as the market digested its half-year results.
Its subscribers base grew by 7.7 million users and revenue from services increased by 9.7% over the past six months, with Nigeria (+12%) and Ghana (+19%) delivering the strongest growth.
In South Africa, revenue only rose 3.3% due to changes to out-of-bundle (OOB) tariffs and its problems with Cell C’.
Its headline profit fell to 195c a share, compared to 215c last year.
Last year, MTN came under immense pressure after it was hit by shock Nigerian government demands – first that it return more than $8 billion in dividends to the country, and then that it owes $2 billion in unpaid taxes.
The dispute over dividends was settled last year, while a Nigerian court will hear the tax case in October.