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Cell C swaps debt for equity

Johannesburg - South Africa's third-largest cellular network operator, Cell C, said on Wednesday its shareholders have agreed to convert debt to equity in the company. Cell C has also claimed increased revenues and market share.

CEO Lars Reichelt said shareholder loans of R6.4bn have been converted into equity.

"This is a sign of the faith that our shareholders have in both our company and this market," he said. "Quite frankly, I'm grateful to our shareholders for putting their money where their mouths are."

With the conversion, Cell C now has a debt to earnings before interest, taxes, depreciation and amortisation (Ebitda) ratio of 4.8, whereas it was at 9.5 before. This leaves the company with around R6.6bn in debt, about half of what it was.

Reichelt said Cell C has also increased its total revenues from R8.6bn to R9.9bn in 2009 - a 14% growth year-on-year.

"2009 was possibly the toughest year the cellphone industry has seen in this country, thanks to the 3 Rs - recession, Rica and reduction," he said.

Reichelt feels the Regulation of Interception of Communications Act (Rica), which requires subscribers in South Africa to register their SIM cards, has had a negative impact and not improved security - which is what it was intended to do.

"Between July and the end of the year there was a net reduction of 3.8 million SIM cards in the market. Still today the Rica processes are not working as they should. It has made becoming a mobile customer a daunting exercise and introduced complexities that are not entirely warranted," said Reichelt.

He added that, despite the challenges, Cell C has grown.

"At the end of last year we had 6.9 million customers. This is less than what we hoped for but has grown our market share from 13.4% to 14.5%," he said.

"We measure this based on customers that have been active in the last three months. Our subscriber acquisition costs have also decreased by 16%," said Reichelt.

He said that Cell C has achieved Ebitda growth of 67% from R0.8 billion in the 2008 financial year to R1.4 billion in 2009.

Cell C spent R2.1bn in capex in 2009, which it used to expand its tower network by 23%. Reichelt said that this has improved voice quality on its network. In 2010 the company will spend over R5bn.

Reichelt also provided an update on a potential deal that would see Cell C selling some of its infrastructure to a foreign company, and then leasing it back. He said that three companies were being considered in this regard.

"It's important to note that this relates only to passive network components," said Reichelt. "It essentially allows us to monetise dormant assets. This is best practice in developed markets.”

He also announced a Pan-African roaming agreement with Zain Telecoms that will be activated in time for the 2010 Fifa World Cup. This will allow Zain customers to recharge with Cell C prepaid vouchers in South Africa, and vice versa for South Africans travelling to other African countries covered by Zain.

Cell C is also building a new customer care centre and is replacing its billing and customer care systems in a move that Reichelt said will bolster ease of use and the ability of customers to service their own accounts online.

"We are also rolling out over 100 Cell C stores with a new look and feel," he said.

Reichelt said that Cell C has also signed Nokia Siemens Networks as a second infrastructure partner, alongside China's ZTE for the continued rollout of its network.

  - Fin24.com
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