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Jul 26, 2012

Cell C’s Knott-Craig shaking up SA mobile market

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South Africa’s third-largest mobile operator Cell C’s aggressive refocus is setting the scene for the change new CEO Alan Knott-Craig wants to see in the industry.

Knott-Craig, who took the reigns three months ago, drastically cut local and international voice call rates and implemented simple and transparent tariffs in a country that held the seventy-third most expensive pricing structure globally.

The 60-year-old Knott-Craig stepped down as Vodacom CEO in 2008, after cofounding the group almost 20 years ago and guiding it to become the country’s leading telecommunications company.

In terms of pricing, the new Cell C head noted that the rest of the world “has moved on”. A three-and-a-half-year hiatus from the telecommunications industry has made him see the industry with “fresh eyes”, he told Engineering News Online, adding that consumers should not be paying the high prices currently offered by industry players.

He pointed to high mobile termination rates (MTRs) which result in it being cheaper to call internationally than call locally, as MTRs were cheaper in other countries.

Termination rates needed to decrease, Knott-Craig said, noting that many consumers were paying more than they thought as most were unaware of which network they were calling, owing to number portability, and whether the prices they were paying were on-net or off-net.

Initially R1.25 a minute in 2009/10, the MTR – as stipulated by the Independent Communications Authority of South Africa (Icasa) – has gradually dropped to the current peak rate of 56c a minute. Both peak and offpeak rates would be reduced to 40c a minute by March 2013. Off-peak MTRs were currently 52c a minute.

Icasa sought to balance the need to ensure fair consumer prices, promote competition and ensure a favourable investment environment.

Smaller mobile operators with less than 25% of the market share could charge an asymmetric rate 15% above the set rate between March 2012 and February 2013, and 10% above the set rate from March 2013.

The on-net/off-net pricing should be made flat as part of the process of simplifying and ensuring transparency in tariffs, Knott-Craig commented.

Despite earlier stating that the “basics” would be correctly established at the firm before embarking on any drastic changes, Knott-Craig launched, almost immediately, a price market shake-up, citing the need to maintain growth and increase revenues.

Cell C, which would soon have 50 countries listed on its 99c tariff plan, gained some traction in the market with the addition of over one-million new customers in a seven-week period after a new price was implemented, and it experienced a push into positive revenue territory as customers increased volumes and traffic.

This offset the group’s continuing network clean-up, which was removing all “dud” customers from the subscriber numbers.

Knott-Craig, delivering on his promise of ensuring the company was focused, with little bureaucracy and quick decision-making ability, kicked off a price-cut spree in May with postpaid, hybrid and prepaid rates dropping 34% to 99c a minute with per second billing locally, regardless of the network or time of day. This was further extended internationally over the following month and was expected to extend to over 50 countries in the near term.

“The company cannot fight back and gain its targeted 25% market share by doing the same thing tariff-wise,” he explained. “It just so happens that the way to fix this company is in the consumers’ interest,” he said, adding “it does not feel bad” that some good is the result.

Analysts previously commented that the group, which currently held a 15.4% market share with over eight-million customers on its network, would start to attract more low-income users on the back of a number of changes and price reductions on voice and data service at the company.

It was an easy thing to do, he added, believing that Cell C was perfectly positioned as it had “nothing to lose”.

Since his appointment, Knott-Craig has restructured its organisation, hired new employees, established six regional operations – with more expected by the end of the year – redesigned part of the network, worked on the billing system and embarked on building a good-quality voice and data network.

The network build was progressing well at 60% complete, with three to four base stations built a day, and was expected to be 100% complete within the next nine months.

Cell C currently covered about 93% of South Africa’s population and anticipated increasing this to 98% by year-end. Further, 90% of the mobile operators' traffic was now directed on Cell C’s own network with only 10% covered through a roaming agreement with Vodacom.

He stressed that restructuring the organisation, which “flattened” the organisational structure, has resulted in the same number of people employed at Cell C as when he started the process. Many people were relocated to regional offices in Bloemfontein, Port Elizabeth, Cape Town, Durban and Pretoria, where the operations were short-staffed. These regional operations also hired more staff. Some other employees were shifted to various different divisions, and many took the retrenchment packages offered by Cell C.

Since April, over 30 people from rival groups have joined Cell C, and while Knott-Craig welcomed and invited the skills, owing to a shortage in engineering skills, he was not approaching or poaching them.

Further, the group is set to move into a new, consolidated premises at developer Atterbury’s Waterfall Business Estate development, in Woodmead, Johannesburg, in December 2013.

July signalled the start of the construction of the 46 000 m2 head office campus, which would house, besides others, a customer walk-in centre, shops, offices, an IT centre and a warehouse, as well as run central and regional operations.

Waterfall Business Estate would become a 1.6-million m2 mixed-use commercial development.

A 15-year lease would also offer Cell C about 14 000 m2 of future development potential, which was expected to house distribution warehouses, shopping malls, fast food companies, offices and residential accommodation.

Cell C also landed a R1.5-billion equity investment earlier this year from its majority shareholder, Dubai-based Oger Telecom.

Oger Telecom holds a 60% direct shareholding in Cell C, as well as a 15% indirect shareholding through its wholly owned subsidiary, Lanun Securities. Black economic-empowerment partner CellSaf owns the remaining 25%.

While Knott-Craig noted that he has only been in the position for three months, people held high, sometimes unrealistic expectations, but he stressed that the many tasks ensuring the sustainability of a business takes time, including building a network, hiring people and optimising the network. He added that Cell C still had a long way to go, with a lot of work yet to be undertaken.
 

Edited by: Mariaan Webb
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