Why Cell C must transfer control of its crown jewels

Fight the regulator or comply.

That is the choice Cell C faces with respect to transferring control of its network, service, and spectrum licences to parent The Prepaid Company.

Although no-one at Cell C will say it in so many words — at least not to the media — this is the story that emerges when you put all the available information together.

News that Cell C applied to cede control of one of its biggest assets to its largest shareholder emerged in December when industry regulator Icasa gave notice of it via Government Gazette.

According to the notice, Cell C applied to transfer control of its network (I-ECS), service (I-ECNS), and spectrum licences to The Prepaid Company, a subsidiary of Blue Label Telecoms and Cell C’s largest shareholder.

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 last year found that Cell C’s spectrum is worth between R3.8 billion and R6.2 billion.

Icasa’s notice immediately raised concerns that Blue Label was trying to secure one of Cell C’s most valuable assets in the event that the mobile operator goes bankrupt.

Cell C has repeatedly assured that this was not the case and that it was merely complying with the law.

Blue Label co-CEO Brett Levy has also said that nothing will change at Cell C after increasing their stake. They are on board with the company’s turnaround strategy and will not interfere with it.

After injecting more cash into Cell C, Blue Label effectively has a 63.19% stake in the mobile operator.

However, its voting power is capped at 49.53% until it gets approval from Icasa and the Competition Commission to take a controlling stake in the company.

Cell C also pointed out that it only applied for a transfer of licence control, not ownership. Icasa has separated the concepts of “control” and “ownership” of licences.

When MyBroadband asked whether the courts would see it the same way if Cell C were ever liquidated, the company refused to answer the question, dismissing it as “hypothetical”.

However, to Cell C’s creditors and minority shareholders, this question is far from hypothetical.

Cell C is totally insolvent, and the risk of the company being liquidated cannot simply be dismissed.

For creditors, the question of whether a R3.8 billion asset (minimum) goes into Cell C’s insolvent estate or becomes the sole property of The Prepaid Company is very real.

To Cell C’s credit, subsequent to its initial dismissal of our question about what happens in a liquidation, it has played open cards about the application it lodged with Icasa.

It provided a copy of the letter it sent to the regulator and showed us one of the forms Icasa asked it to complete — Form G for I-ECS/I-ECNS transfers.

It also pointed to a memo published in 2021 where Icasa clarified how it viewed control.

However, nowhere in the legislation, regulations, or clarifying memos does it ever say anything about a transfer of licence control being needed.

While the law says that network operators must get permission from Icasa if there is ever a change in control of the company, we could not find anything linking this to a licence transfer.

This also raises questions about South Africa’s other network operators that have parent companies with majority stakes.

Vodacom is a prominent example. Vodafone Group Plc, a UK company, holds a 65% stake in South Africa’s biggest mobile network operator.

Vodacom recently confirmed to MyBroadband that its network, service, and spectrum licences are under its control — not Vodafone’s.

Questioned about this, Cell C CEO Jorge Mendes explained that Icasa changed how it handles licence control in 2014.

We also contacted Icasa for comment, but its response only referenced the sections of the Electronic Communications Act stating that companies must seek permission to transfer control of their licences.

We then asked Icasa to clarify:

• Does The Prepaid Company taking a majority stake in Cell C trigger a transfer of control of licence?

The regulator did not provide an answer.

Regulatory expert Lisa Thornton told MyBroadband that nothing in law or regulation said Cell C should transfer control of its licences for The Prepaid Company to take a controlling stake.

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

Asked about Thornton and Vodacom’s feedback during a recent media briefing at Blue Label’s offices in Sandton, Mendes became visibly frustrated.

“I don’t know what else to say,” he said.

“We’ve shown you the documents… the forms we had to fill in… This is what the regulator requires,” he said.

Reading between the lines, whether or not regulations support Icasa’s requirements for this is entirely academic to Cell C.

It does not have the luxury to fight the regulator on this, leaving it with one option — comply.