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JEREMY MAGGS: Welcome back to FixSA, the Moneyweb podcast where we explore solutions for the urgent issues facing South Africa. Today, our focus is on the telecommunications sector and its efforts to address various structural problems that persist and continue to hinder our nation’s growth.

What challenges are we discussing? These include limited access to affordable data, unreliable connectivity—especially in rural regions—and the resulting barriers to education, entrepreneurship, and financial inclusion.

With me today is Jorge Mendes, CEO of Cell C, a key player in South Africa’s telecom industry. Thank you for joining us, Jorge. Welcome to FixSA! Let’s dive in: what do you see as the most pressing challenge currently confronting our telecommunications sector?

JORGE MENDES: Thank you for having me, Jeremy. There are many challenges, but the one I hope we’ve overcome is load shedding. This has been a significant issue, particularly for our industry.

I’m optimistic that we’re moving past it, as considerable investments are made to bolster energy resilience, which is vital for maintaining operational communication. This kind of investment doesn’t directly generate revenue; rather, it guarantees operational functionality—which has required billions to ensure. Hence, energy resilience has been our primary obstacle.

At present, the industry is experiencing market saturation and decreasing returns on capital investments, pushing us towards adopting models such as active infrastructure sharing.

Having multiple base stations in proximity, each equipped with their own generators, batteries, and connections is no longer sustainable from an economic angle.

Therefore, I foresee a significant rise in collaborative infrastructure sharing and possibly some mergers. This approach appears to be the right path for South Africa. It would minimize operational costs and allow for improved infrastructure revenue and high-quality technology services, thus advancing 4G and 5G accessibility in rural and underserved territories.

JEREMY MAGGS: Jorge, let’s examine the challenges you mentioned, starting with load shedding. How severe has its impact been, and what steps have you implemented to mitigate this risk?

JORGE MENDES: Indeed. Base stations require batteries to ensure operational continuity. If load shedding occurs for more than two hours, we need to recharge the batteries when power is restored. Consequently, we have increased the battery count for each base station. Large operators generally maintain around 14,000 to 15,000 base stations, each necessitating several batteries.

Investment in batteries has been substantial—roughly R2-3 billion annually over the past few years just to sustain operational communications.

JEREMY MAGGS: The issue of infrastructure collaboration can be viewed as a broader metaphor for the necessary improvements within South Africa. How have you adeptly navigated this on philosophical, strategic, and practical levels?

JORGE MENDES: We’ve approached this with a pragmatic mindset. At Cell C, we’ve faced significant challenges over the years. Founded 23 years ago, we once championed consumer interests, yet faced setbacks that necessitated recapitalization, with R44 billion written off and two large-scale recapitalization efforts.

Read/listen:
Blue Label Telecoms finalizes Cell C restructuring deal
Transfer of Cell C mobile license to Blue Label encounters obstacles
Tech troubles: Can Cell C and MultiChoice endure?

We recognized that establishing a high-quality network comparable to leading operators would require an investment of approximately R35-40 billion to remain competitive. Additionally, we projected needing around R10 billion annually to stay aligned with market demands.

This realization led us to forge agreements with the two major players for a roaming arrangement to utilize their technological services. While we maintain our core functions, billing systems, and spectrum, we leverage MTN and Vodacom’s infrastructure for our radio access network to achieve the coverage required.

This arrangement allows us to offer world-class coverage while generating substantial revenue for our partners, enabling them to reinvest in their infrastructure.

I believe this collaborative model could become a global standard, where competing market players in saturated environments prioritize efficiency over duplicative infrastructure.

JEREMY MAGGS: This creates a fascinating business model. You act as both rivals and partners. What lessons have you learned from managing this duality that could benefit other sectors?

JORGE MENDES: It necessitates a profound shift in mindset. You rightly observe the contradiction in purchasing services from competitors while simultaneously competing against them.

However, I perceive it differently, and I believe our partners feel similarly. Take the bakery industry, for instance: having four bakeries clustered together is illogical. Why not consolidate that capacity and differentiate our products through unique features or branding?

Read: Demand for connectivity driving new telecoms infrastructure agreements across Africa

How we market and package our services is where we distinguish ourselves—not in basic offerings like megabytes or minutes. Extensive coverage may have been a key advantage during the initial rollout, but after three decades, such factors no longer set us apart.

As long as the service operates efficiently, customers don’t get excited merely because a data connection exists; they expect it.

The differentiators lie in the packaging and additional features we provide.

We are transitioning to this perspective. While inquiries arise about how we can purchase services from major competitors while remaining competitive, our partnerships include adequate margins to ensure sustainability for all parties involved.

Read:
FNB Connect and MTN initiate new mobile agreement
Capitec Connect: ‘SA’s fastest-growing mobile business’

JEREMY MAGGS: That bakery analogy resonates well. Now, let’s address the critical issue in South Africa’s telecom landscape: affordable data, which you identify as crucial for diminishing economic disparity. What is your stance on this topic, and do you feel telecom providers are doing enough?

JORGE MENDES: Considerable efforts have been directed towards implementing competitive pricing strategies among all network operators. While I cannot speak for all, I can confirm that pricing has become more competitive due to various influences, including regulatory pressure from the Competition Commission.

No network operator is unwilling to reduce prices.

The real issue lies in the costs involved in delivering services amid ongoing infrastructure challenges.

Read:
‘Data prices must fall!’ – Competition Commission [Dec 2019]
High data costs? Don’t hold Vodacom and MTN accountable [Jun 2020]
Data pricing favors the wealthy, penalizes the underprivileged [Aug 2023]

As mentioned earlier, our investment in energy—spending R2.5 billion on infrastructure without a financial return simply to maintain operations—is quite challenging.

Operational costs generally escalate by approximately 3%-5% each year due to expenses like diesel.

Despite that, we have achieved notable progress in reducing prices. At Cell C, we are prepared to accept slightly lower margins to secure sustainable partnerships that benefit all parties. This has been my approach since I took over on July 3rd last year, and we will continue to strive for better pricing for our clients.

Stakeholders can also expect a rise in personalized pricing.

Engaging with customers through various platforms such as USSD or apps yields significantly better rates than typical pricing, thus creating a more personalized service.

JEREMY MAGGS: Balancing profitability with affordability must be a significant challenge for you.

JORGE MENDES: Indeed.

A mobile network operates in a highly competitive environment, necessitating infrastructure that can cater to peak demand.

During COVID, shifts in user behavior required us to rapidly increase capacity in residential areas versus commercial ones, highlighting the need for continuous adjustments.

The same logic applies to our product offerings. If we advertise large data bundles, they must be supported by sufficient network capacity; otherwise, we risk underdelivery.

Offering extensive data allowances at low prices is appealing, but if the network falls short, the perceived value vanishes.

We must ensure that our products not only promise high value but also deliver a usable experience, maintaining a delicate equilibrium.

Moreover, product personalization based on duration has grown in popularity—customers are increasingly opting for time-limited plans for voice, data, and social media bundles, which are proving effective.

JEREMY MAGGS: In addition to data affordability, there’s the urban-rural divide in telecom infrastructure. What systemic obstacles hinder your capacity, and that of others, to deploy further infrastructure in underserved areas? This issue is critical for broader improvements.

JORGE MENDES: A primary challenge resides in the infrastructure required to connect these locales; many areas lack reliable power and transmission options. Establishing connections often demands deploying multiple base stations to communicate, which restricts advancement.

The financial burden of connecting remote communities is considerable and complicates logistics.

This is why we are encouraged by innovations like Starlink and SpaceX. Should their claims prove accurate, satellite connectivity could offer a more economical solution in these regions. We are open to pursuing such options.

Read: ‘Starlinking’ South Africa via innovative methods?

JEREMY MAGGS: Yet progress appears slow.

JORGE MENDES: It’s a gradual process. I’m observing progress, and regulatory discussions are in motion that should expedite improvements. I’m hopeful for advancements within months rather than years. Both GSM and fixed-line operators are increasingly focusing on expanding into these regions.

We’re beginning to see the adoption of Wi-Fi mesh networks in rural settings, which is yielding promising results, particularly as fiber costs decrease.

While I agree there’s an opportunity for swifter action, we must also weigh return on investment while aggressively pushing our initiatives.

JEREMY MAGGS: What pressure is your sector applying on regulators? Are the responses adequate?

JORGE MENDES: We maintain a collaborative relationship with the regulator. Challenges remain, as they expect us to meet social responsibilities while upholding quality, and we advocate for policies that stimulate competition and benefit consumers.

There’s a necessary tension; we have often waited too long for spectrum allocations, which are critical for growth. We cannot afford any further delays.

Currently, I observe proactive efforts at both ministerial and regulatory levels to accelerate these processes.

JEREMY MAGGS: Returning to the topic of ‘social responsibility,’ if you had the opportunity to initiate a program to enhance digital literacy throughout South Africa, what would it be? Improved access to the internet could offer substantial benefits for our country.

JORGE MENDES: Telecom companies are ideally positioned to lead this initiative. We play a crucial role in facilitating digital economic inclusion, spanning education, financial services, and more.

Improving access to smartphones is key; that’s why we advocate for regulatory adjustments to lessen taxes on these devices and discourage the import of 2G technology, creating more affordable alternatives.

Listen: The digital divide: Risks and opportunities

Smart devices foster education, financial inclusion, and the potential for digital innovation.

We’ve accomplished a lot in terms of providing accessible educational resources by zero-rating various platforms and services for students.

Numerous initiatives exist to enhance connectivity for schools, transforming them into ICT hubs equipped with technological capabilities.

JEREMY MAGGS: Is this progress adequate? Would a unified approach among primary telecom operators yield better results?

JORGE MENDES: We are operating within a unified framework, and the regulator encourages greater cooperation among us. While we target different geographical areas, this focused engagement amplifies overall impact.

JEREMY MAGGS: In terms of broader contributions, there’s a perspective that telecom companies should do more toward national development goals. If you concede that point, how could this be implemented more effectively?

JORGE MENDES: The telecommunications sector significantly contributes to stimulating economic growth. For example, the last spectrum auction generated over R14 billion, which directly supports public finances.

The critical aspect is how that revenue is subsequently utilized, which lies beyond our influence.

Our high-quality services have the potential to improve economic performance greatly, especially for small businesses and rural entrepreneurs reaping the advantages of connectivity.

JEREMY MAGGS: Let’s take a step back. We currently operate in a coalition government environment. I’ve heard the term ‘green shoots’ more than I can count. With that said, Jorge, do you perceive 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’m feeling more optimistic than before.

Importantly, we’re observing a rise in competition among ministers, which is leading to positive changes. This push for enhanced service delivery is encouraging.

However, much work remains—particularly regarding job creation. It’s crucial that growth translates into job opportunities, as long-term reliance on social grants is unsustainable. We need to emphasize developing skills for future roles, which necessitates incorporating these needs into educational systems.

While South Africa exhibits remarkable resilience, we often underestimate what we’re accomplishing. Acknowledging the pressing issues of poverty and unemployment is essential—we must strive for more.

As collaboration between private and public sectors intensifies, I believe we’re on the brink of accelerating progress.

JEREMY MAGGS: How is your company adapting to the rise of artificial intelligence? How can it be utilized to further improvements in our nation?

JORGE MENDES: That’s a vital question; we need to address these technologies proactively. This is a global trend we cannot overlook.

Focusing on cybersecurity during this era of advanced technology is critical; we must create robust defenses around our digital infrastructure.

Listen:
What will a cybersecurity breach cost your business?
Cybersecurity deemed crucial for financial institutions in 2024

Additionally, as we incorporate machine learning and AI, ethical considerations escalate in importance. Implementing algorithms to ensure dependability and prevent issues such as misinformation or fraudulent activities is paramount, requiring continuous testing and oversight.

Investing in these areas is vital for safeguarding both our organization and consumers, ensuring technology serves a productive purpose.

JEREMY MAGGS: As a final thought, if the presidency contacted you today and granted you a day as Minister of Telecommunications with the power to enact one reform for nationwide connectivity, what change would you prioritize and why?

JORGE MENDES: That’s an intriguing question. I would passionately advocate for increased collaboration within the industry, underscoring the benefits of infrastructure sharing.

Our industry could accomplish far more collectively than by competing over redundant infrastructures; this is essential. While competition among brands is beneficial, it’s equally crucial to ensure efficient resource management.

For instance, rather than each operator striving for spectrum dominance, incentivizing collaborative spectrum sharing arrangements would provide greater benefits for all consumers.

Clearly, we still have significant work ahead regarding the implementation and management of such initiatives, but optimizing how we share and deploy our resources can substantially enhance our industry’s sustainability.

JEREMY MAGGS: Thank you, Jorge Mendes, CEO of Cell C, for sharing your insights on this episode of FixSA, here on Moneyweb.

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