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JEREMY MAGGS: Welcome to FixSA, the Moneyweb podcast where we explore solutions to South Africa’s critical challenges. Today, our focus is on the telecommunications sector and its ability to address well-known structural issues that hinder our country’s progress.
What am I getting at? We often deal with insufficient access to reasonably priced data, unreliable connectivity—particularly in rural regions—and the resulting barriers to education, entrepreneurship, and financial participation.
Today, I’m joined by Jorge Mendes, CEO of Cell C, a key player in South Africa’s telecom market. Jorge, thank you for joining us. Welcome to FixSA! Let’s dive right in: what do you see as the predominant challenge currently facing the telecommunications sector in our nation?
JORGE MENDES: Thank you for having me, Jeremy. There are many challenges, but I hope we’ve moved past the severe impact of load shedding. This has significantly affected our country and especially our industry.
I’m optimistic that we are progressing from this challenge as considerable investments are being made into energy resilience, which is vital for maintaining operations. This doesn’t directly generate revenue; it simply ensures that services remain functional—billions have been poured into this. Therefore, I believe energy resilience has been our greatest obstacle.
Right now, the industry is grappling with market saturation and low returns on capital expenditure, leading to a new focus on active infrastructure sharing models.
With multiple base stations placed side by side, each equipped with their own generators, batteries, and connections, it no longer makes financial sense.
As a result, I predict a noteworthy rise in collaborative infrastructure sharing, along with potential consolidation. Pursuing this approach in South Africa appears to be the right path. It would reduce operational costs while paving the way for improved infrastructure revenue and high-quality tech services, thereby increasing 4G and 5G availability to rural and underserved areas.
JEREMY MAGGS: Jorge, let’s explore the challenges you mentioned. Starting with load shedding, how severe has its impact been, and what strategies have you employed to mitigate this risk and adapt operations?
JORGE MENDES: Absolutely. Base stations are reliant on batteries that need to support operations for a specific duration. If load shedding extends beyond a couple of hours, the batteries need to be recharged once power is restored. As a result, we have had to boost the number of batteries per base station. Major operators typically handle 14,000 to 15,000 base stations, each needing several batteries.
Our investment in batteries has been substantial—easily in the R2-3 billion range annually in recent years just to sustain operational communication.
JEREMY MAGGS: Now turning to infrastructure collaboration, which reflects broader repairs needed across South Africa. How have you effectively navigated this from a philosophical, strategic, and practical perspective?
JORGE MENDES: We’ve taken a practical approach. Cell C has faced significant struggles over the years. Founded 23 years ago, we initially championed consumer rights, but we ran into obstacles requiring recapitalization, resulting in R44 billion 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 building a high-quality network comparable to the leading operators would necessitate an investment of around R35-40 billion in infrastructure to stay competitive. Additionally, we estimated needing about R10 billion each year to keep up with the market.
Consequently, we secured agreements with the top two players for a roaming arrangement, allowing us to tap into their technology services. We maintain our core operations, billing systems, and spectrum, but leverage MTN and Vodacom’s infrastructure for our radio access network to ensure the coverage we require.
This arrangement enables 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 opt for efficient models rather than duplicating their infrastructure.
JEREMY MAGGS: This creates an intriguing business model. You are competitors yet collaborators. What insights have you gained from managing this duality that could be applied to other sectors?
JORGE MENDES: This necessitates a complete shift in mindset. It might seem contradictory at first to buy services from competitors while also competing with them.
However, I perceive it differently, and I believe our partners share this perspective. For example, consider the baking industry: having four bakeries side by side does not make sense. Why not consolidate that capacity while differentiating our products through unique attributes or packaging?
Read: Demand for connectivity shaping new telecoms infrastructure deals across Africa
Ultimately, our distinction lies in how we market and package our offerings, rather than in fundamental services like megabytes or minutes. Extensive coverage may have been a competitive advantage during the early stage of network rollout, but after three decades, such factors are no longer defining elements.
As long as the service operates effectively, customers do not become enthusiastic at simply having a data connection; they expect it. The real differentiators are in the packaging and additional features we provide.
We are shifting toward this mindset. While I’ve faced questions about how we can procure services from major competitors while maintaining competitiveness, our partnerships are structured with sufficient margins to ensure viability for all involved.
Read:
FNB Connect and MTN in new mobile deal
Capitec Connect ‘SA’s fastest-growing mobile business’
JEREMY MAGGS: That bakery analogy resonates with many. Shifting gears, the critical issue in South Africa’s telecom sector is affordable data, viewed as essential for bridging economic gaps. Where do you fit into this discussion, and do you believe telecom providers are taking adequate steps?
JORGE MENDES: A substantial effort has gone into competitive pricing strategies across all operators. While I can’t represent everyone, I can say that prices have become more competitive due to various pressures, including regulatory demands from the Competition Commission.
No network operator wishes to avoid lowering prices.
The underlying problem is tied to the costs involved in service production amidst persistent infrastructure issues.
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, penalise the poor [Aug 2023]
We previously mentioned energy investments; spending R2.5 billion on infrastructure without a financial return just to keep operations running is quite challenging.
Moreover, operational costs tend to rise by approximately 3%-5% annually due to expenses like diesel.
Nonetheless, we’ve made significant progress in reducing prices. At Cell C, we are prepared to accept marginally lower profits to cultivate sustainable partnerships allowing all parties to thrive. This has been our approach since I took over leadership on July 3rd last year, and we will continue to seek better pricing for our customers.
Observers can also anticipate an increase in personalized pricing.
By engaging customers through various platforms, such as USSD or apps, we can offer notably better rates compared to standard pricing—enhancing the overall experience.
JEREMY MAGGS: Striking a balance between profitability and affordability must be a demanding task for you.
JORGE MENDES: Indeed.
A mobile network is inherently competitive, requiring infrastructure to support peak usage.
During COVID, as user behavior shifted, we found ourselves needing to rapidly expand capacity in residential areas over commercial ones, necessitating continual adaptations.
The same logic applies to our product offerings. If we advertise large data bundles, they must be backed by sufficient network capacity; otherwise, we risk disappointing performance.
Offering generous data limits at low prices is attractive, but if the network cannot keep pace, the perceived value plummets.
Thus, it is crucial that our products not only promise value but deliver on usability, maintaining a delicate equilibrium.
Additionally, product personalization based on duration is gaining traction—customers often lean toward time-limited plans for voice, data, and social media bundles, which is yielding positive results.
JEREMY MAGGS: In parallel to data affordability, there’s also the urban-rural divide regarding telecom infrastructure. What systemic challenges limit your, and others’, capacity to deploy additional infrastructure in under-resourced areas? This is vital for nationwide solutions.
JORGE MENDES: A fundamental challenge lies in the infrastructure required to connect these areas; many are devoid of power and transmission options. Establishing connections often necessitates multiple base stations that can interact with each other, which ultimately hampers progress.
The expense of reaching remote communities is considerable and complicates logistics.
That’s why we welcome innovations like Starlink and SpaceX. If their promises hold true, satellite connectivity could prove more cost-effective in these regions. We are open to exploring such possibilities.
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Read: ‘Starlinking’ South Africa through unconventional means?
JEREMY MAGGS: Yet progress appears to lag.
JORGE MENDES: It’s an ongoing journey. I am seeing advancements, and discussions at the regulatory level are in progress that should accelerate developments. I remain hopeful for improvements in months rather than years. Both GSM and fixed-line operators are increasingly setting their sights on these regions for expansion.
We’re observing the emergence of Wi-Fi mesh networks in rural communities, showing promising results, particularly as fiber costs decrease.
While I concur that there’s room for quicker action, we must also evaluate the return on investment while remaining assertive in our efforts.
JEREMY MAGGS: Consequently, I’m eager to learn about the pressure your industry is putting on regulators. Are their responses satisfactory?
JORGE MENDES: Our relationship with the regulator is collaborative. Challenges remain, as they expect us to fulfill social responsibilities and ensure quality, while we advocate for progressive policies that foster competition and benefit consumers.
It creates an essential tension; how often have we experienced delays in spectrum allocations, which are crucial for growth? We cannot afford such holdups again.
Currently, I observe active efforts from both ministerial and regulatory levels to expedite processes.
JEREMY MAGGS: I’d like to revisit the idea of ‘social obligation.’ If you could implement any initiative to enhance digital literacy across South Africa, what would it entail? Enhanced internet access could bring substantial benefits to our nation.
JORGE MENDES: Telecom companies are ideally positioned to take the lead in this area. We play a critical role in unlocking digital economic inclusion, encompassing education, financial services, and beyond.
Improving access to smartphones can dramatically shift the landscape; that’s why we advocate for regulatory reforms to lower taxes on these devices and discourage the import of outdated 2G technology to offer more affordable options.
Listen: The digital divide: Risks and opportunities
Smart devices support education, financial inclusion, and the potential for digital innovation.
We’ve made progress in providing accessible educational resources by zero-rating multiple platforms and services for students.
Many initiatives exist to facilitate connectivity for educational institutions, transforming them into ICT hubs equipped with technology.
JEREMY MAGGS: But is this progress adequate? Wouldn’t a collaborative approach among major telecom operators yield better results?
JORGE MENDES: We function under a unified framework, and the regulator encourages us to work together more effectively. While we focus on different geographical areas, such targeted intervention enhances the overall impact.
JEREMY MAGGS: In terms of broader contributions, there’s an argument that telcos should contribute more to national development objectives. If you accept this premise, how could this be pursued more effectively?
JORGE MENDES: The telecom industry plays a vital role in promoting economic growth. For instance, the last spectrum auction generated over R14 billion, which directly supports public finances.
What’s critical is how that revenue is utilized afterward, which operates outside of our control.
Our world-class services possess the potential to significantly enhance economic performance, particularly for small businesses and rural entrepreneurs who benefit from connectivity.
JEREMY MAGGS: Let’s take a step back for a moment. Today, we are in a coalition government environment. I’ve heard the term ‘green shoots’ more times than I can recall. With that in mind, Jorge, do you notice a shift in sentiment in this country? As a prominent CEO, where does your confidence lie, and what concerns do you still have?
JORGE MENDES: Overall, I am feeling more hopeful than before.
Importantly, we’re observing increased competition among ministers, leading to positive changes. This pursuit for improved service delivery is a good sign.
However, much work remains—especially regarding job creation. It’s essential that growth translates into employment opportunities, as reliance on social grants is not a sustainable long-term strategy. We must focus on developing skills for upcoming jobs, which necessitates integrating these needs into educational frameworks.
Although South Africa has remarkable resilience, we frequently underestimate what we are accomplishing. While it is crucial to recognize the pressing concerns of poverty and unemployment—we must strive for better outcomes.
As collaboration between private and public sectors intensifies, I believe we are poised for accelerated progress.
JEREMY MAGGS: How is your organization adapting to the rise of artificial intelligence? How might it be utilized to foster improvements in our nation?
JORGE MENDES: That’s a pertinent question; we need to approach such technologies proactively. This is a global trend that we cannot overlook.
Highlighting cybersecurity in today’s technological landscape is essential; we must build strong defenses around our digital infrastructure.
Listen:
How much will a cybersecurity breach cost your company?
Cybersecurity mission-critical for financial institutions in 2024
Moreover, as we incorporate machine learning and AI, ethical frameworks become increasingly important. We need to implement algorithms to ensure reliability and prevent challenges such as misinformation or fraud, necessitating constant testing and oversight.
Investing in these areas is vital for safeguarding both our organization and consumers, and for ensuring technology serves a constructive role.
JEREMY MAGGS: As a closing thought, if the presidency were to call you today and grant you a day as Minister of Telecommunications with the authority to enact one change for nationwide connectivity, what reform would you prioritize and why?
JORGE MENDES: That’s a fascinating question. I would strongly advocate for better collaboration within the industry, emphasizing the benefits of infrastructure sharing.
Collectively, our sector could accomplish significantly more than by competing in redundant infrastructures; this is crucial. While competition among brands is healthy, efficient resource use is equally important.
Rather than each operator vying for spectrum supremacy, incentivizing cooperative spectrum sharing arrangements would yield greater advantages for consumers overall.
Clearly, we still have work ahead in terms of executing and managing such initiatives, but optimizing how we share and deploy our resources can considerably boost the viability of our sector.
JEREMY MAGGS: Thank you, Jorge Mendes, CEO of Cell C, for your valuable insights on this edition of FixSA, here on Moneyweb.
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