In an investor roadshow presentation published by 45% shareholder Blue Label Telecoms late last week, Cell C also said it was gaining market share.
Mergence Investment Managers portfolio manager Peter Takaendesa said it was "very unlikely" that industry giants Vodacom and MTN would get regulatory approval to acquire Cell C, given market concentration concerns.
"That means the only possible consolidation within the mobile market is between Cell C and Telkom," Takaendesa said.
"I do not think Telkom is willing to let go of its mobile business as they want to sell a converged communication offering of fixed, mobile and IT services."
As such, Cell C would be the only realistic potential target, he said. Other firms could look to acquire the company to enter SA's mobile market. "The challenge is always going to be the price that Blue Label will expect and what the potential acquirer is willing to pay for a subscale third mobile operator - same reason Telkom walked away from Cell C recently."
Cell C's total revenue rose 11% year on year to R7.7bn in the first half of its current financial year, though the company reported a net loss of R588m.
Its total active subscriber numbers rose 12% to 15.7-million, while data revenue leapt 33% to R2.6bn. According to the company's presentation, growth had been "stifled by limited capital investment and narrow commercial focus whilst securing recapitalisation".
Cell C's recapitalisation programme led to Blue Label acquiring a 45% stake and Net1 UEPS Technologies taking 15%. This gave rise to legal and regulatory probes, with the Independent Communications Authority of SA (Icasa) saying Cell C should have filed an application for change of control.
Cell C said in its presentation that "based on the many and various detailed legal opinions from eminent senior counsel obtained by the parties to the recapitalisation, Cell C has, in fact, followed the correct process".
The company had made "extensive" written and oral submissions to Icasa providing details of the structure and effect of the transaction.
World Wide Worx MD Arthur Goldstuck said that if Cell C remained unprofitable, it might become a takeover target, assuming that regulators would be open to consolidation in the industry. "The procedure for Cell C and Neotel to get licences in the first place was incredibly complex and drawn out.
"Even now, there are question marks over Blue Label taking over Cell C. So consolidation doesn't look very likely - the regulator and Competition Commission don't like consolidation in this sector and there aren't too many players.
"You might see consolidation of peripheral players - fibre providers, for example - where there's tremendous competition," Goldstuck said.
While a merger of Cell C and Telkom's mobile business was "possible", it would be a "long-term prospect".
Takaendesa said that if Cell C's numbers were accurate, it meant it had gained market share over the reporting period as it had grown service revenue ahead of Vodacom and MTN SA. Telkom Mobile and Cell C were growing service revenue ahead of their bigger rivals due to more attractively priced mobile data packages.
Cell C chief financial officer Tyrone Soondarjee and chief strategy officer Robert Pasley were not available for comment on Thursday.
Source: Business Day
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