Blue Label Telecoms may launch a new empowerment equity deal for struggling mobile operator Cell C in the future, to strengthen the company’s status.
The JSE-listed company, best known for selling electricity and airtime prepaid vouchers, is in the process of taking control of Cell C, which has 8.5-million subscribers, by increasing its stake to 53.5% from 49.5%. It has asked the Independent Communications Authority of South Africa and the Competition Commission to approve the transaction.
In an interview with Business Times this week, Blue Label joint CEO Brett Levy said “there is a need for a whole restructure of BEE in Cell C. The idea is to do it when we get control. It will come, not that we have anything in the pipeline currently, but it’s definitely on our radar.”
He said getting control of Cell C was important and would play a huge part. “No-one wants to see the company struggle. We want to clean up the business, the structure, equity and other things and let Cell C be on a path for growth.”
In recent years, Cell C’s long-standing black equity partner CellSaf has had its shareholding in the company reduced to about 1% from an initial 25% obtained in 2001, when the third largest mobile operator was started, after recapitalisation programmes aimed at rescuing the ailing company. Cell C’s management and employees also have shares in the company through trusts and special-purpose vehicles.
Describing the relationship with Cell C, Levy said for the first time since Blue Label bought into the company, “we are really working well with management. I believe there is a lot for Blue Label and Cell C to do together.”
We see ourselves as the largest virtual mall. We do all the thinking in the back-end. One of the main objectives is to take products to the people
— Blue Label joint CEO Brett Levy
Over time there will be cross-selling of products between the companies. Cell C is headed by Jorge Mendes, a former executive at Vodacom, who has since recruited a number of his former colleagues.
Levy said Cell C “in a Blue Label world is a very good investment. I think everyone underestimates the power of Cell C’s brand. In the middle to lower segment Cell C has been the champion for years; it was always the cheapest and has a loyal base. It has a massive role to play for the consumers. It can be a nice small third or fourth telco.”
Blue Label provides a range of consumer services and products like tickets for entertainment and sports events as well as transport, prepaid vouchers for airtime and electricity, and a universal voucher that allows customers to pay for services such as betting. It also builds platforms that companies use to offer their own branded products.
“We see ourselves as the largest virtual mall. We do all the thinking in the back-end. One of the main objectives is to take products to the people,” said Levy.
Electricity is one of Blue Label’s key focuses. In addition to selling prepaid electricity vouchers, the company’s Cigicell subsidiary, which it jointly owns with black-owned firm Sangrilor, owns, deploys and manages customised technology for bill payments, which allows customers to pay their municipality bills online and at retail points.
“For us, Cigicell is probably the most exciting space for the next five years,” Levy said.
Electricity revenue generated on behalf of the utilities increased by R1.8bn or 11% to R18.9bn and the net commission earned, mainly calculated based on a kWh usage, increased by R4m to R146m. The limited growth in commissions was primarily due to inflationary increases based on kWh usage offset by a marginal decrease in electricity usage resulting from a higher frequency of load-shedding and margin compression.
Blue Label said load-shedding continues to be a significant challenge as it has negatively affected the sale of prepaid electricity, prepaid airtime, starter packs and call centre operations, all of which are significant revenue streams for the group.
Another focus for Blue Label is expanding distribution channels for Ticketpro, which Levy said is “not a very big profit earner” for the company but a “great product to have”.
Gross ticketing revenue for the six months to November increased by R208m, or 44%, to R681m, primarily from revenue generated through commuter bus channels.
The plan is to have Ticketpro in more stores and banking platforms.
“In retail, we are predominantly in Spar. We want to expand further to other retailers, banks, as well as independent mom-and-pop stores.”
What makes Ticketpro unique is that a lot of content is exclusive to the company. “When you compete for space in the stores, we become a very attractive proposition for people because of that content,” said Levy.
Blue Label also wants to sign up more bus companies to Ticketpro. “Events and sports are nice to have but not profitable. They are good for branding and people understanding our systems, but from a cash point of view the commuter side is better.”
Asked about potential acquisitions, Levy said Blue Label, which last made an acquisition seven years ago, had no immediate plans, but if it had to it would be a bolt-on acquisition of unique products and distribution channels. “In the past, we were very aggressive with acquisitions and now it’s more organic growth around products and distribution.”
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