Cell C explains why it is transferring control of its crown jewels

Cell C has applied to transfer control of its spectrum, network, and service licences as part of a larger application for The Prepaid Company to take a controlling stake in the mobile operator.

The Prepaid Company (TPC) is a subsidiary of Blue Label Telecoms and Cell C’s largest shareholder.

As part of a deal to provide further financial support to Cell C, The Prepaid Company is increasing its 49.53% non-controlling stake to a majority shareholding of 53.57%.

“The Prepaid Company has injected funding of R5.5 billion into Cell C, settled creditors’ claims, and granted Cell C a R1.03 billion loan,” Cell C said in a cover letter signed by regulatory executive head Themba Phiri.

“The Prepaid Company provides significant financial support to Cell C.”

Phiri noted that despite having a large percentage of the shareholding in Cell C and holding the majority of the debt, Blue Label Telecom does not have control or an effective say over the management of Cell C.

“Through its shareholding and financial assistance to Cell C, [Blue Label] has both significant exposure to Cell C and a vested interest in ensuring that Cell C succeeds and would like to ensure that the value invested in Cell C is protected,” stated Phiri.

“The Prepaid Company requires a controlling interest in Cell C so that it has the ability to control its recovery, given the huge investment [it] has made.”

News that Cell C applied to cede control of one of its biggest assets to its largest shareholder emerged in December when the Independent Communications Authority of South Africa (Icasa) gave notice of it via Government Gazette.

According to the notice, Cell C applied to transfer control of its Individual Electronic Communications Service (I-ECS), Individual Electronic Communications Network Service (I-ECNS), and spectrum licences to The Prepaid Company.

An I-ECNS licence permits companies to sell wholesale access to physical network infrastructure.

I-ECS licences let companies like Cell C sell telecommunications services directly to end-users.

The spectrum licences Cell C applied to be transferred are its 2100MHz, 900MHz, and 1800MHz assignments. This is all of Cell C’s premium raw wireless network capacity.

An analysis by Daily Investor earlier this year found that Cell C’s spectrum is worth between R3.8 billion and R6.2 billion.

Although Cell C insists that the Electronic Communications Act requires it to transfer control of its licences for The Prepaid Company to take a majority stake, regulatory expert Lisa Thornton disagrees.

Thornton explained that getting Icasa’s approval for The Prepaid Company to take a majority stake and transferring control of licences are two separate things.

Cell C must get approval for The Prepaid Company to increase its stake over 50%, but it need not transfer control of its licences.

MyBroadband also asked Vodacom for insight on the matter, as it is majority-owned by Vodafone and recently received control of Dark Fibre Africa’s network and service licences.

Vodafone Group Plc, a UK company, holds a 65% stake in Vodacom.

Asked if Vodafone controls or owns its spectrum, Vodacom spokesperson Byron Kennedy provided the following statement:

“Spectrum is assigned by the applicable regulator to each of Vodafone Group Limited’s respective subsidiaries.”

Regarding the transfer of control of DFA’s licences, we asked if something in DFA’s licence conditions or Icasa regulations stipulated that it needed to be transferred to Vodacom as part of the Maziv transaction.

“No, nothing like this exists,” Kennedy stated.

Thornton agreed, saying it was unlikely there were conditions on licences stipulating that they must be transferred in the event a shareholder takes control of a company.

Cell C has assured that it would continue to own the licences and provide the services for which Icasa licensed it — offering cellular services to consumers and businesses.

Minority shareholder CellSAf said this week that it had filed a formal objection to the transfer of licence control, arguing that Blue Label’s 54% ownership of Cell C should not give it 100% control of its licences.