Blue Label is not ‘stripping’ Cell C’s assets, Icasa hears

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Confusion over the difference between ownership and control has muddied the waters at Icasa public hearings into the transaction.

Cell C said its application to communications regulator Icasa for the transfer of control its network and spectrum licenses to The Prepaid Company (TPC) does not represent a “stripping of assets” by Blue Label Telecoms as some stakeholders, including Cell C’s empowerment shareholder CellSAf, have claimed.

Speaking at public hearings last week, Wim Trengrove SC, for Cell C, told a panel of Icasa councillors that the mobile operator will continue to own the licences, despite the transfer of control to TPC, which is owned by JSE-listed Blue Label.

“Some of the submissions reflect confusion about the nature and purpose of the application. CallSAf seem to think that, if the application is approved, the licences themselves will be transferred out of Cell C and that TPC will be the licence holder going forward. This is inaccurate,” Cell C said in a written submission to Icasa ahead of the hearings.

The application to Icasa by Cell C was triggered by TPC’s move to increase its stake in the mobile operator from 49.53% go 53.57%, meaning TPC will have control of Cell C.

Since this means TPC effectively controls how Cell C will make use of the licences granted to it by Icasa, the regulator has an interest in knowing who is in control of Cell C – or any other company licensed by Icasa, for that matter. Although the service and network (I-ECS and I-ECNS) licences are also important, it is the spectrum licence that are most contentious, because of the value of the spectrum, which runs into billions of rand.

Confusion

If the transfer of control is approved by Icasa, the name of the spectrum licence holder (Cell C) will not change, only the names of the shareholders. This also means that from an accounting perspective, the spectrum assets owned by Cell C will continue to sit on Cell C’s books and not those of TPC or Blue Label.

The confusion regarding the difference between ownership and control of communications licences has raised interesting questions, with the most pertinent being why Icasa wants to keep an eye on who controls spectrum licences, regardless of who owns them. The answer has a lot to do with preventing anticompetitive behaviour through spectrum monopolisation.

Read: Cell C was ‘handicapped from the start’: Jorge Mendes

The situation is best clarified by example. Prior to 2009, Telkom owned a 50% stake in Vodacom. Say, for example’s sake, that the same was true today, with Telkom also wholly owning its own mobile operator, Telkom Mobile. If Telkom then, in the same way TPC is doing, decided to increase its stake in Vodacom (and became controlling shareholder), it would effectively control Telkom Mobile’s spectrum licences as well as those of Vodacom, thereby monopolising, or at least consolidating, the telecoms market through spectrum acquisition. This a significant portion of why knowing who is in control of spectrum licenses is important to Icasa.

Similar concerns about anticompetitive behaviour were raised at the public hearings. Both MTN and Vodacom voiced concerns that by acquiring a controlling interest in Cell C, The Prepaid Company could be incentivised to exhibit preferential behaviour towards Cell C that marginalises the two larger operators in the prepaid airtime market.

“MTN has requested that the Icasa tribunal consider and test whether the proposed merger conditions adequately address the potentially adverse impacts on competition of the proposed transfer of control of Cell C’s licences. These considerations would not necessarily justify refusal of Cell C’s application but are relevant to Icasa’s decision-making process and any conditions Icasa may impose should it wish to approve Cell C’s applications,” MTN South Africa said in a statement.

Trengrove, however, dismissed these claims, describing the change to Cell C’s share ownership as “marginal” and “making no practical difference”. He said such any “bias” by TPC would have existed prior to acquiring a controlling interest in Cell C, yet no preferential behaviour has been exhibited by TPC in the past. He added that Vodacom and MTN’s prepaid products, by virtue of the two operator’s larger share of the market, represent a significant portion of TPC’s revenue, and it would not be in its own interests to relinquish this income by favouring Cell C.

Read: Why MVNOs are key to Cell C’s turnaround plan

Trengrove added that the approval by Icasa will not change how the spectrum used by Cell C is deployed. “Cell C will continue to hold its licences post-transaction and will continue to provide the licensed services in accordance with its licensing conditions,” said Trengrove. – © 2024 NewsCentral Media