Is Change Imminent in South Africa’s Telco Landscape?

Digging into the telco challenge in South Africa and what this could mean for the consumer and the business

Cell C’s financial complexities and rollercoaster-style ups and downs have been part of South African conversations for years. Now, however, as the embattled telco enters the last half of 2022, strategic moves and smart decisions have shifted the company’s axis. Keoikantse Marungwana, Senior Research and Consulting Manager, Telco & IoT Lead Sub-Saharan Africa at IDC, explains that the company has done the right thing to remain a competitor in the space, retaining its brand capital with a core network that’s got immense potential.

“The company moved all their customers to other networks, some to Vodacom, some to MTN, and essentially exited the network infrastructure business,” he continues. “All that remains is the core network where the intelligence about customer databases, how to route calls, service bundles, customer subscriptions and billing, which is a big part of where the value lies. This move has freed up cash flow and allowed for the company to consolidate its intellectual property.”

Marungwana believes that Cell C should consider becoming part MVNE and a “cloud-native digital telco as-a-service player”, transitioning the core network into a cloud-native core network that aligns with the current trend towards the softwarization of telecom companies. Many are moving from owning core networks on their own data centre infrastructure to AWS, Microsoft or VMWare telco clouds, to name a few. By moving clients onto another company’s RAN infrastructure, the customers are retained directly in terms of the brand and the income is used to improve the network by transitioning to a cloud-native core network infrastructure. 

“This can be further enhanced by partnerships with ecosystem players in the telco space, or with financial services companies that are already playing in the mobile services space,” says Marungwana. “These steps will ensure that the company remains relevant while leveraging its intellectual property.”

There remains a risk, however, that South Africa’s current telco landscape will see a slide down to two operators in the market, a risk that would impact the consumers directly. Already, South Africa has some of the most expensive data charges on the continent, despite being a leader in this space, so if the picture changes down to two it could impact the market across multiple levels.

“This has always been a challenge, where the Competition Commission, ICASA and even government policy has been directed at bringing additional players into the telco space due to current costs,” says Marungwana. “In addition to the risk of increased charges and costs, having only two players will limit innovation and market development. Hopefully the minimum it will go down to is three if this consolidation continues.”

Of course, there remains plenty of chatter around the idea that Cell C may end up being sold, and there are questions about who would purchase the company and what benefit this would add. As one of Cell C’s drawcards is its customer base, this could make it a solid prospect for a smaller company as both Vodacom and MTN still run those customers on their networks and see revenue from Cell C as a roaming partner. 

“Ideally, it should be one of the smaller players in a bid to increase their customer base as part of a pure focus on market consolidation, or even a player from adjacent sectors coming into a telco play,” says Marungwana. “However the real conversation will be about Cell C’s legacy debt.”

That said, Cell C remains an attractive company with a solid customer base, a lot of brand value and they had an excellent customer acquisition strategy. The company has depth and value, and it holds  spectrum which is another invaluable asset for anyone interested in taking on the company. 

“After all, Cell C grew its spectrum assets during the high-demand spectrum auction and this adds value to any prospective buyer,” concludes Marungwana. “What this shows is that the telco market is still in flux and that what happens next is still, as they say, anyone’s guess.”