For a market fixated on competition as a cure-all, the SA telecom sector has long been a lesson in misplaced illusion. SA’s ambition to break the stranglehold of MTN and Vodacom by injecting new players into the ecosystem has, in reality, yielded little more than wishful thinking. Despite two decades of survival, Cell C has yet to prove its relevance in the pricing calculus of its larger rivals.
Now, as Blue Label Telecoms prepares to spin it off, the market is reacting, not with enthusiasm for a rejuvenated challenger, but with a quiet relief of a burden lifted. The sharp rise in Blue Label’s share price after the announcement is less a sign of confidence in Cell C’s prospects than investors saying “good riddance”. Any spin about a rebirth feels more like a corporate sleight of hand than a serious attempt to reshape the industry.
Cell C’s pitch to investors will inevitably centre on its capital-light model, its ability to roam on the networks of competitors rather build its own. But this supposed agility reads more like outsourced dependence. MTN and Vodacom price their products as if Cell C doesn’t exist, as the Competition Commission inquiry found in 2021, and that is unlikely to change just because Cell C adopts leaner operations.
The debt-to-equity conversation cleans up the balance sheet but doesn’t erase the fundamental issue: Cell C was never structurally equipped to be a disrupter. It has neither the financial clout nor the consumer trust to lighten the duopoly’s grip on the sector. More players don't automatically mean more competition, especially when staying competitive and profitable requires north of R20bn in investment in digital infrastructure.
Regulators see Cell C as a competitive necessity, but the financial markets see a bottomless money pit.
For one thing, Blue Label itself learnt this the hard way. After buying 45% of Cell C for R5.5bn in 2017, it had to write down its investment to zero by 2020 as Cell C defaulted on debt amid financial meltdown. This contrast is telling. Regulators see Cell C as a competitive necessity, but the financial markets see a bottomless money pit. Competition regulators could see Cell C’s mooted listing as a victory for competition policy, but investors, on the other hand, likely view it as Blue Label ring-fencing problematic assets.
The latest striking example of how regulatory idealism clashed with financial realism was when the Competition Tribunal threw cold water on a R14bn tie-up between Vodacom’s fibre business with Masiv. The deal would have given Vodacom a 30% stake in Masiv, combining the country’s largest mobile operator with a major fibre infrastructure network. Regulators balked, fearing reduced competition. In blocking the deal, they also blocked a huge injection of capital and the faster rollout of fibre internet that Vodacom’s involvement was set to bring.
Against this backdrop, touting a fresh Cell C initial public offering (IPO) would feel almost fanciful, both from regulatory and investor viewpoints. New investors would have to buy into a turnaround story that so far has few hard signs of success beyond balance sheet tinkering. The truth is that an IPO would simply pass the buck of Cell C’s problems to public shareholders, who may find themselves in Blue Label’s shoes, asking what went wrong.
For regulators, Cell C stands as a monument of winning in theory and losing in reality. An insistence on a certain market structure doesn’t automatically translate into a competitive market if some entities are too weak to matter. There is a fine line between preventing anticompetitive concentration and preventing progress. Regulators risk crossing the latter. In the quest to avoid too much power in one company’s hands, the greater danger is tying the hands of the entire industry.
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