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JEREMY MAGGS: A warm welcome to FixSA. This Moneyweb podcast explores solutions to South Africa’s urgent issues. Today, we focus on the telecommunications sector and how it can resolve the various structural challenges that are extensively documented yet continue to hinder our country.
What challenges am I referring to? Often, it involves the insufficient access to affordable data, unreliable connectivity—particularly in rural areas—and the resulting barriers to education, entrepreneurship, and financial inclusion.
Today, I am joined by Jorge Mendes, CEO of Cell C, a crucial entity in South Africa’s telecom landscape. Jorge, thank you for being with us. Welcome to FixSA! Let’s dive right in: what do you see as the most significant challenge currently confronting our telecommunications sector?
JORGE MENDES: Thank you for having me, Jeremy. There are many challenges, but one I hope we have overcome is electricity, particularly load shedding. This has dramatically affected our country and especially our industry.
I’m hopeful that we are moving past this as significant investments are being made in energy resilience, which is essential for keeping communications up and running. This doesn’t necessarily translate into revenue; it simply ensures functionality—billions have been invested in this. Thus, I believe energy resilience has been our greatest challenge.
Presently, the industry is grappling with market saturation and low returns on capital expenditures, leading to a shift towards models like active infrastructure sharing.
Having multiple base stations situated next to each other, each requiring different generators, batteries, and connections, is no longer economically viable.
Therefore, I foresee a substantial rise in collaborative infrastructure sharing, possibly leading to some level of consolidation. Pursuing such paths in South Africa appears advantageous. This would reduce operational costs while enabling improved infrastructure revenue and high-quality technology services, therefore expanding 4G and 5G services to rural and underserved communities.
JEREMY MAGGS: Jorge, let’s explore the challenges you’ve mentioned. Starting with load shedding, I’m interested in understanding how severe the impact has been and what steps you’ve taken to manage this risk and adjust your operations.
JORGE MENDES: Absolutely. Base stations require batteries to keep operations running for a predetermined time. If load shedding exceeds two hours, recharging the batteries upon power restoration becomes necessary. Thus, we’ve had to increase the number of batteries per base station. Major operators typically oversee 14,000 to 15,000 base stations, all of which need several batteries.
Investment in batteries has been substantial—easily around R2-3 billion annually over the past few years just to preserve operational communications.
JEREMY MAGGS: The other topic revolves around infrastructure collaboration, which serves as a broader analogy for the necessary reforms throughout South Africa. How have you successfully navigated this on a philosophical, strategic, and practical level?
JORGE MENDES: We have approached this matter with a pragmatic mindset. At Cell C, we’ve faced serious challenges throughout the years. Since our launch 23 years ago, we were once a strong consumer champion, but we encountered difficulties that necessitated recapitalization, culminating in R44 billion being written off and two major recapitalization efforts.
Read/listen:
Blue Label Telecoms seals Cell C restructuring deal
Transfer of Cell C mobile licence to Blue Label hits snags
Tech troubles: Can Cell C and MultiChoice survive?
We recognized that constructing a high-quality network that rivals leading operators would require about R35-40 billion in infrastructure for competitiveness. Additionally, we projected needing roughly R10 billion annually to keep pace with market growth.
Consequently, we established agreements with the top two players for roaming access to their technology services. We maintain our core operations, billing systems, and spectrum, while our radio access network benefits from MTN and Vodacom’s infrastructure, enabling us to provide requisite coverage.
This arrangement allows us to achieve world-class coverage while generating significant revenue for our partners, who can reinvest in their infrastructure.
I believe this collaborative model could become a global standard where competing market players in saturated environments prioritize efficiency over redundant infrastructure.
JEREMY MAGGS: This creates an intriguing business model. You are both rivals and partners. What insights have you gained from balancing this duality that could be beneficial to other sectors?
JORGE MENDES: It necessitates a complete transformation in mindset. You rightly point out that purchasing services from competitors while also competing against them seems contradictory.
Nevertheless, I adopt a different perspective, and I believe our partners do as well. Take the baking industry as an example: having four bakeries situated side by side is illogical. Why not pool that capacity and distinguish our products with unique features or packaging?
Read: Demand for connectivity shaping new telecoms infrastructure deals across Africa
Ultimately, our differentiation lies in how we market and package our offerings—not in generic services like data or talk minutes. While having extensive coverage may have been a distinguishing advantage during initial network rollout, after three decades, such factors aren’t as decisive.
As long as services function effectively, customers aren’t thrilled merely because a data connection is established; it’s an expectation. The real differentiators emerge in the way we package our offerings and the additional features we provide.
We are shifting towards this approach. While questions arise about how we can buy services from leading competitors and still remain competitive, our partnerships have sufficient margins to ensure viability for all parties involved.
Read:
FNB Connect and MTN in new mobile deal
Capitec Connect ‘SA’s fastest-growing mobile business’
JEREMY MAGGS: The bakery analogy resonates well. Moving on, an urgent concern in South Africa’s telecom sphere is affordable data, which you identify as essential for mitigating economic disparities. Where do you stand on this matter, and do you think telecom providers are doing enough?
JORGE MENDES: Considerable efforts have been made across all network operators to develop competitive pricing strategies. While I can’t speak for everyone, I can confirm that competitive pressures, including those from the Competition Commission, have driven prices down.
No network operator is unwilling to decrease prices.
The crux of the matter relates to the costs of delivering services amidst ongoing infrastructure hurdles.
Read:
‘Data prices must fall!’ – Competition Commission [Dec 2019]
High data prices? Don’t blame Vodacom and MTN [Jun 2020]
Data prices favour the wealthy, penalize the poor [Aug 2023]
Previously, we touched on energy investments; allocating R2.5 billion on infrastructure with no financial return to merely maintain operations poses a substantial challenge.
Operational costs generally rise by about 3%-5% each year due to expenses such as diesel.
Despite this, we’ve made significant progress in reducing prices. At Cell C, we are open to accepting slightly lower margins to foster sustainable partnerships that enable both parties to thrive. This has been our guiding philosophy since I took leadership on July 3 last year, and we will continue working towards better pricing for our customers.
Observers may also notice an increase in personalized pricing.
Engaging customers through various platforms, like USSD or apps, yields significantly better rates than standard pricing—resulting in a more customized experience.
JEREMY MAGGS: Striking the right balance between profitability and affordability must be quite a challenge for you.
JORGE MENDES: Absolutely.
A mobile network is inherently competitive, necessitating infrastructure designed to accommodate peak usage.
During the pandemic, shifts in user behavior compelled us to rapidly expand capacity in residential areas compared to commercial zones, requiring ongoing adjustments.
The same principle applies to our product offerings. If we advertise large data bundles, they must be supported by sufficient network capacity; otherwise, we’re at risk of under-delivery.
Offering vast data allowances at low prices is enticing, but if the network cannot keep pace, the overall value diminishes considerably.
We must ensure that our products promise high value while also delivering usability, maintaining a delicate equilibrium.
JORGE MENDES: Additionally, we’ve seen growing interest in product personalization based on duration—customers are increasingly opting for time-limited plans for voice, data, and social media bundles. This approach is proving successful.
JEREMY MAGGS: No discussion on data affordability is complete without addressing the urban-rural divide in telecom infrastructure. What systemic barriers limit your ability, and that of others, to deploy further infrastructure in underserved regions? This is critical for broader solutions.
JORGE MENDES: A major challenge remains the infrastructure required to connect these areas; many lack power and transmission capabilities. Building connections often involves establishing multiple base stations that must communicate with one another, ultimately impeding progress.
The expense of connecting remote communities is profound and complicates logistics.
This is why we hold innovations like Starlink and SpaceX in high regard. Should their assertions prove accurate, satellite connectivity might present a more cost-effective solution in these areas. We are open to exploring such options.
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Read: ‘Starlinking’ South Africa through unconventional means?
JEREMY MAGGS: However, progress appears to be slow.
JORGE MENDES: It is a gradual process. I am noticing progress, and discussions at the regulatory level are underway that should expedite updates. I remain hopeful for advancements within months rather than years. Both GSM and fixed-line operators are increasingly focusing on these areas for expansion.
We are witnessing the growth of Wi-Fi mesh networks in rural regions, which is yielding promising outcomes, especially as fiber costs decline.
While I agree there’s potential for faster action, we must also weigh the return on investment while pursuing our initiatives vigorously.
JEREMY MAGGS: As such, I’m keen to hear about the pressure your industry is exerting on regulators. Are their responses adequate?
JORGE MENDES: Our relationship with the regulator is cooperative. While challenges persist—such as meeting social obligations alongside maintaining quality—we advocate for policies that foster competition and consumer benefits.
There exists necessary tension; how often have we experienced delays in spectrum allocations that are critical for growth? We cannot afford those delays anymore.
Currently, I observe active endeavors at both ministerial and regulatory levels aimed at quickening processes.
JEREMY MAGGS: I’d like to revisit the concept of ‘social obligation.’ If the presidency called today and granted you a day as Minister of Telecommunications with the power to implement one change for nationwide connectivity, what initiative would you prioritize and why?
JORGE MENDES: That’s an intriguing proposition. I would staunchly advocate for enhanced cooperation within the industry, emphasizing the benefits of infrastructure sharing.
Our industry could collectively achieve so much more than by individually competing on duplicated infrastructures; this approach is vital. While brand competition is healthy, it’s equally important to ensure efficient resource allocation.
For instance, instead of every operator striving for spectrum dominance, encouraging collaborative spectrum sharing arrangements would provide broader benefits for consumers.
Clearly, there is still work ahead concerning the implementation and management of such initiatives, but optimizing how we share and deploy our resources can greatly improve the viability of our sector.
JEREMY MAGGS: Thank you, Jorge Mendes, CEO of Cell C, for sharing your insights in this edition of FixSA, here on Moneyweb.
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