Blue Label Telecoms is confident that Cell C, SA’s fourth-largest mobile operator, has turned around its business after languishing for years under a mountain of debt and an uncompetitive structure.
“Cell C has turned the corner. Cell C is looking good and there’s no more requirement of money from Blue Label to Cell C,” Brett Levy, co-CEO of Blue Label Telecoms, told Business Day.
As Cell C’s largest shareholder, Blue Label completed the long-awaited recapitalisation of the troubled mobile company in September 2022. Since then, the group has tried a number of times to fix the operator’s business, including poaching talent from rival firms, reducing capital expenditure, signing on new enterprise customers, refreshing Cell C’s brand and simplifying its operating structure.
“Blue Label has taken a lot of pain. And rightfully so. We went into this eyes wide open in our support of Cell C. That [the pain] is coming to an end now, which is a good thing. It means we now have the ability to build,” Levy said.
The mobile network operator has struggled to make a profit since it opened in 2001. It had been laden with long-term debt of R8.7bn, prompting Blue Label and Lesaka Technologies (formerly Net1), which previously had a 15% stake, to write down their combined R7.5bn investment to nil.
Four years after this writedown, Blue Label said in February 2023 it had revalued the Cell C investment on its books to R962.5m, showing evidence of some positive momentum in the mobile business.
“We’re excited that Cell C now stands on its own. Blue Label has the ability to regroup, fix up our own balance sheet, which we have. We’ve paid back a good amount of the debt that we had,” said Levy.
In 2023, Blue Label began taking control of the cellphone provider with plans to move from a 49.53% stake to about 53%, with requisite applications having been made to local authorities.
Brother and co-CEO Mark Levy hopes Blue Label will now be judged on its performance as a prepaid platform as opposed to simply being a proxy for Cell C.
Blue Label reported modest growth in headline earnings per share (HEPS) at the halfway stage of its financial year as revenue declined 4%.
The group, which sells prepaid vouchers for cellphone data, airtime and electricity, reported HEPS of 46.01c for the six months ended November from 45.91c a year ago.
Revenue was 4% lower at R7.24bn.
As only the gross profit earned on “PINless top-ups”, prepaid electricity, ticketing and universal vouchers is recognised as revenue, on imputing the gross revenue generated from these sources, the effective growth in revenue equated to R3.5bn (8%), resulting in a total revenue of R47.4bn compared with R43.8bn in the prior period, Blue Label said in a statement on Thursday.
Profit for the period declined to R398.9m from R413.2m before.
The proceeds from the sale were transferred from CEC to The Prepaid Company (TPC) and ultimately to Cell C through the acquisition of airtime, it added.
Cell C recorded earnings before interest, tax, depreciation and amortisation that were 87% higher at R783m, from revenues of R6.746bn for the interim period.
Business Day reported in January that the Independent Communications Authority of SA (Icasa) approved the transfer of Cell C’s spectrum and network licences to Blue Label.
The licences, which will remain under Cell C’s name, will now fall under the control of Blue Label subsidiary TPC. The transaction will cause Blue Label to increase its stake in Cell C to 53.57%, giving it majority ownership.
MTN SA, one of Cell C’s largest competitors, has flagged potential competition concerns and called for a comprehensive evaluation of the deal.
It has requested that the tribunal consider and test whether the proposed merger conditions adequately addressed the potentially adverse effects on competition of the proposed transfer of control of Cell C’s licences.
Update: February 20 2025
This story has been updated with new information.
With Nompilo Goba
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