News of Cell C’s 57.4% headline earnings jump has been greatly exaggerated. That headline was based on IFRS Ebitda – an accounting reporting trick that should be seen more as a reference image the company takes to the hairdresser than what the actual haircut looks like on them – of R5.5-million.
Daily Maverick wasn’t on the results announcement call, but company CFO El Kope was quick to walk back the bold declarations on the press materials, acknowledging in our interview that “all these one-offs that then happen in the year affect your net reported number”.
To address this, management presented a H2 FY26 normalised standalone view to help investors “understand what to expect going forward”. That number instead sits at R2.381-million.
Not a cash cow
Then there was another problem. Before listing on the stock market, Cell C told investors they expected to bring in R1.5-billion to R1.8-billion in spare, usable cash each year. They missed that target because the first half of the year was dragged down by paying off old, messy debts.
However, the CFO explained that things turned around in the second half of the year, when they generated R703-million in cash. If they keep this pace for a full 12 months, they will bring in R1.4-billion to R1.5-billion next year.
She also explained that they spent more than R230-million just on the costs of getting listed on the stock exchange, and gave away too many big discounts to retail agents selling their airtime.
The other big concern and a possible future block on profitability is the mobile termination rates situation where Cell C is actually paying more to other networks than it receives, because of changing customer behaviour.
“So the mobile termination rates is a bit of a tricky one because it should in some instances, if the traffic patterns don’t change, kind of be net neutral,” explained CEO Jorge Mendes.
“You reduce the revenue, you reduce the cost, but traffic patterns start changing in terms of on-net[work] off-net propositions. And so we are actually a net payer at the moment.”
Mendes said the special, protective higher rates Cell C was allowed to charge (known as asymmetry) were falling away, and a final rate cut next year would force a total reset of this revenue bucket.
On the back foot in fiscal midyear
Government is bringing in strict rules (the End-User Subscriber Charter) that will stop networks from selling short-term data bundles (like those lasting under seven days) and will force Cell C and other mobile network operators to let users roll over unused data.
This will reduce out-of-bundle revenues and lower data margins. Instead of fighting this in court as other operators might, Mendes says Cell C is choosing to embrace the rules because protecting consumers is the right thing to do.
And this is an unavoidable shift in the market that all mobile network operators will have to contend with. Traditional phone calls – which used to be a major goldmine for mobile companies – are permanently dying out. Today, customers are swapping voice calls for internet data (using apps like WhatsApp instead).
For Cell C, traditional voice call traffic fell by 4%, while internet data traffic exploded by 47%.
MTN put out its half-year results this week, and they experienced the same shift from voice. However, they kept their prepaid business anchored by selling more data, with prepaid data revenue growing by 4.4% in the first half of the year and picking up even more speed to 5.0% growth in the second quarter.
A new kind of mobile network
South African mobile networks are officially moving away from a numbers game. Instead of bragging about handing out millions of cheap SIM cards that just sit in drawers (which Mendes calls “plastic SIMs”), they are focusing on active, paying customers.
For MTN, it has to contend with a prepaid division that saw its revenue slide by 3.3%, but this was actually a deliberate move.
They tightened their borrow now, pay later airtime service (read: Airtime Advance) to filter out unreliable borrowers. Then they cut back the amount of borrowed airtime from 42% of all recharges down to 34%.
This move worked: their in-month payback rate jumped to 70%, meaning they are losing far less money to unpaid debts.
Mendes is fully on board with focusing on real users instead of empty volume. He supports regulatory cleanups to clear out the junk, noting that these cleanups could sweep away up to 10 million inactive SIM cards a month from South Africa’s networks. As Mendes puts it, the goal is to focus on “real human beings rather than plastic SIM cards being arbitraged” (which refers to traders exploiting cheap, temporary SIMs for pricing tricks).
Virtual battle lines
But the two networks are meeting out in the customer battlefield where MVNOs (mobile virtual network operators) are the new corporate turf war. Instead of being a small side project, hosting virtual brands like FNB Connect or Capitec Mobile has turned into a massive cash generator.
They are currently the undisputed king of this space. Controlling more than 80% of the market is Cell C. The number of piggyback customers connected to their system jumped by 27.3% year-on-year, reaching a massive 5.713-million.
MTN wants a bigger piece of the action and are aggressively chasing Cell C’s crown. MTN’s wholesale division grew by a strong 13.7% as they try to win over new virtual brands.
This is a significant redrawing of the mobile network operators landscape ahead of another spectrum auction that will decide the fate of advanced 5G connectivity and incoming low earth orbit satellite data transmission – Cell C is courting both Amazon and Starlink.
But before that, Mendes wants investors to know that Cell C has officially survived its “emergency room” phase. The massive debts have been restructured, the business is listed on the stock exchange and it is finally running like a healthy, competitive corporate citizen.
“FY26 was the year Cell C’s turnaround became a platform for growth. We completed our restructuring and listing, integrated CEC, strengthened our balance sheet, and demonstrated that our asset-light, partnership-led platform can deliver growth with discipline. FY27 is about converting that platform into higher-quality growth, stronger cash generation, and lasting shareholder value.”
There will still be friction to come, but Mendes explains that they are investing in the future-facing technologies today, even if the financial reward takes six months to a year to show up.
It’s fighting talk from the CEO, and a statement on the inflection point the mobile networks are facing right now. DM
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