Mobile operator Cell C is steadily showing improvements in profitability and operational efficiencies as progress is made in the embattled company’s phased turnaround.

The operator implemented a new operating model and network strategy and attracted new customers through product and service innovation, under the transition and evolve phase of its three-part turnaround strategy.

The transition and evolve phase runs from 2021 to 2023 and includes the new business model and network strategy, reductions in network expenses, finance leases and capital expenditure, the introduction of new products to the market, optimisation of the customer base and the long-awaited recapitalisation to strengthen the balance sheet.

“Our financial performance has improved, and we are making good progress on the three-year transition to a virtual radio access network, the implementation of our new business model and the introduction of new products to market,” says Cell C CEO Douglas Craigie Stevenson.

For the first six months of 2021, Cell C posted a R148-million profit before tax, a turnaround on the R7.6-billion loss reported in the six months ended June 30, 2020.

The improvement is attributed to the significant impairment of network assets in the previous financial year and operational expenditure savings during the current financial year, the latter of which decreased 25% to R1.7-billion year-on-year, owing to a reduction in network expenses and administration costs, he explains.

Cell C’s gross margin declined by 15% and overall direct expenses increased slightly to R3.6-billion during the six months to June 30, 2021.

Earnings before interest and taxes increased to R736-million in the first half of 2021 from a loss of R5.3-billion in the first half of 2020.

Total revenue for the six-month period under review decreased 5% to R6.6-billion, with the largest part of the revenue contribution from Cell C’s prepaid base at R3-billion and a reduction in its postpaid base by 25% to R563-million.

“The contract and broadband revenue decrease is in line with Cell C’s approach to optimise its customer base,” explains Craigie Stevenson.

In line with this, Cell C has entered into a commercial agreement with Comm Equipment Company and Vodacom to improve the overall operational efficiency and returns of managing its 1.6-million postpaid and contract broadband subscriber base.

“Underlying this decision was the opportunity to move away from heavily subsidised devices, which Cell C could not get a return on, owing to its network shortfall,” he says, noting that the company will offer products based on customer needs rather than driven by the device subsidy.

Further, the company successfully migrated 40% of its network on to partner networks – four provinces, namely the Eastern Cape, the Free State, the Northern Cape and Limpopo are now fully migrated – with access to 7 500 towers, 95% of which are fourth-generation/long-term evolution-enabled.

“We will continue to add new sites which will reduce our network deficit. In two years, we will have access to more than 12 500 sites across the country improving the quality and coverage of our network,” he says.

As Cell C focused on more profitable customers, the average revenue per user was sustained at R66 year-on-year.

The total subscriber base expanded to nearly 13-million during the first half of 2021, up from 11.7-million in the first half of 2020, with its prepaid customer base increasing by 15% to 9.6-million.

“These interim results highlight that Cell C is a stronger business, is generating cash and is more competitive in the market. We are championing value and bridging the digital divide by making Internet access affordable for all, while doing what is best for the customer,” adds Cell C CFO Zaf Mahomed.

However, despite improvements in the income statement and being on track to return Cell C to profitability, a recapitalisation is needed to address the debt on the balance sheet.

“A recapitalisation is the final pillar in Cell C’s turnaround strategy and will provide momentum to effectively manage the transition, focus on profitable revenue growth and the overall simplification of the cost base, putting Cell C on the path to long-term sustainability,” he concludes.