Knott-Craig opens up on Please Call Me court case, a precedent maker for SA business

Cell-C CEO Alan Knott-Craig came to the studio to chat about the first R200m allocation of a further  $350m cash injection by his company’s parent Saudi Oger. We ended up chatting about the reason why he’s been in the news so much of late. Knott-Craig, founder and former CEO of Vodacom, has been sucked into a high profile law suit filed by one of that company’s former employees.  It goes back 13 years but has serious implications for all South African businesses. Because he is such a recognisable figure, the media interest in the now famous “Please Call Me” court case has been focused around Knott-Craig. But as he explains below, he was far from being directly involved in what happened and, strangely as he is no longer with the company, is the only witness from Vodacom to be called.  Before getting onto that story, we spoke at length about the reasons why Cell-C’s parent is taking such a big bet on what has thus far been a disappointing number three player in the SA market. Fascinating stuff all round. – AH 

To watch the full interview on video click here.

ALEC HOGG: Cell-C will roll out an additional 100 base stations in Gauteng, worth R200 million, over the next three months. This will

Alan Knott-Craig: Made history last week by becoming the first father to follow his son on consecutive CNBC Power Lunch shows.
Alan Knott-Craig: Made a little bit more history last week by becoming the first father to follow his son on consecutive CNBC Africa Power Lunch shows.

increase its network capacity and improve quality. Chief Executive Alan Knott-Craig is with us in studio to talk about this, but we’ve got to go back a bit, Alan. You’re at Cell-C. You’ve been there for a couple of years now.

ALAN KNOTT-CRAIG: 18 months.

ALEC HOGG: 18 months. Counting the days?


ALEC HOGG: And you’ve been given good support from the parent in the public domain. It was a $200 million injection last year, another $350 million injection this year, and more to come in 2014.

ALAN KNOTT-CRAIG: Yes, I must say that the injection is subject to satisfactory regulatory outcomes, so what they’re saying is, if the regulatory framework in this country is conducive to investment, they will invest. If the regulatory framework in this country is not conducive to investment, then clearly they won’t invest. So it is important that we get our regulatory framework correct.

ALEC HOGG: And the key issue there is call termination regulations?

ALAN KNOTT-CRAIG: I think there are a number of issues. In general, we’ve never been great at regulating telecommunications, at least in my opinion. Other people probably have different views, but essentially it goes around MTRs – Mobile Terminating Rate, which becomes the floor to any price, or any tariff. That’s why it’s important And the second thing is the symmetry. Symmetry is when you bring new players into the market, just like when Vodacom and MTN came into the market in South Africa they had a very big symmetry with Telkom. They never did that with Cell-C or 8ta when they came into the market, so the symmetry there was almost nothing. These two companies, for that reason, never really got off the ground.

What you have to ask yourself is why would you licence a third and a fourth operator? The reason you licence third and fourth operators, when you’re heading towards 100% saturation, is only to get prices down. If you don’t make it possible for them to be financially sustainable, in taking market share from the other operators – which is the only way prices come down anyway – then don’t do it. Don’t licence it. Be happy with the status quo. And the status quo unfortunately today is that we’ve gone from a number five in 1970 – in terms of being regarded as the positioning of a Telco in the world, to 117 out of 140. That’s just not okay. We did so well in the 90s. And we now find ourselves in a position of which we cannot be proud of.

ALEC HOGG: But that $350 million (cash injection by Cell-C’s parent Saudi Oger), when it did come into the country was it linked to progress?

ALAN KNOTT-CRAIG: Yes and it continues to. They decided to put the money in because the Regulator wanted to look at the remedies and do so urgently. We expect an outcome from him by 26th October. So they’ve given dates and deadlines. Yes, they are expecting the Regulator to follow best practice in the world, nothing special in South Africa, just follow world class best practice.

ALEC HOGG: Clearly though, Alan, you are presuming that this is going in the right direction, because it’s rational and it’s logical. You’ve invested heavily in gaining market share this past year.

ALAN KNOTT-CRAIG: We’ve invested heavily in that. I think we have made a difference, and we have shown the government and the public that it is possible to bring prices down. That has been part of our strategy: demonstrate that you can do this. We’ve worked very hard with government and the Regulator over the last 18 months. So I’m not basing my confidence just on ‘maybe they’ll come up with the right decision.’ We have done a lot of work which doesn’t mean they will come up with the right one. But I think the likelihood that they will come up with a practice, which is accepted around the world, is good.

ALEC HOGG: I’m one of the many who switched across to you in the last year, but I am a little disappointed that I see you’re only investing R200 million – not disappointed in that, but there is a doubling in the traffic, and it’s just a 10% increase in the base stations.

ALAN KNOTT-CRAIG: That’s just the increase we’re putting in. We’re building a lot more than 100 base stations in Johannesburg; in fact, we build about 120 per month, in the country, a large portion of which are in Joburg. This is just an extra boost for Johannesburg. Its difficult to believe that the traffic can grow that much in a market which has got this much saturation already.

ALEC HOGG: How much of that has been market share gains?

ALAN KNOTT-CRAIG: Well, we’ve increased our customer base by 30% in the last year and a bit and that brings with it a lot of traffic. So the traffic has doubled, and that is the voice traffic. When you come to the data traffic it’s quadrupled. That requires a huge amount of network infrastructure, and in the Johannesburg area in particular, we seen consumers going for a better price. The data prices today are very low, and voice prices today are quite competitive. They weren’t that way two years ago. We have got to get our act together in Johannesburg and make sure the quality comes right, and we will do that.


ALAN KNOTT-CRAIG: End of November. We’ve put a very strong, well-qualified team in place, just for Johannesburg, and their brief is everything has got to be perfect by the end of November.

ALEC HOGG: And I know you. If it’s perfect in your terms it’s going to be more than perfect for me. It’s not bad, Alan, but I think that when you look at the arithmetic, doubling your traffic on the network, you would wonder, is R200 million enough of an investment?

ALAN KNOTT-CRAIG: Well, remember, this R200 million is incremental.

ALEC HOGG: You also made a bit of history here today. I don’t think we’ve ever had a son and a father on consecutive days on Power Lunch. You must be proud of Alan Junior and what he’s doing with free WiFi into Africa.

ALAN KNOTT-CRAIG: Yes. He told me that he’s doing free WiFi and I say nothing’s free, so someone is going to have to pay for this thing. He never wants me to say that. But the fact of the matter is, he really believes in that. He believes in this country and in Africa more than most people. He’s very bright. Youngsters like him will make a difference in our country.

ALEC HOGG: Well, he certainly is. We spoke with him yesterday on this programme, and already 25,000 people who would otherwise not have access to the Internet, have got it. More strength to his elbow. Just to close off with our newsroom is talking about the “Please Call Me” court case. You’ve been in the media on that. I’m a little confused. What’s happening?

ALAN KNOTT-CRAIG: In the year 2000, which is aeons ago for me, there was a young chap in Vodacom who came up with an idea. Now, that idea turned into a product, and some eight years later he would like a cut of the revenues. It is really just about ideas belonging to companies, or to individuals that work in a company? So I think it’s an interesting case from that point of view, because whatever the courts decide it is going to set a precedent for this country.

When people work in companies the whole idea is that they build companies, they build value, they bring ideas, they work for the betterment of the company, and they get wealthy through shares or share options, or phantom shares or bonus. That’s the way that they make their money. Not really out of taking a share of every idea that comes out of every mouth. I don’t work there any more. I’m just a witness, which is quite interesting, and it’s difficult to remember exactly what happened 13 years ago.

Why the youngster didn’t come to me is beyond me. He should have walked into my office, like everyone else does. No one gives a damn, they just walk in and say whatever they want to. He should have just done that, in the year 2000, and it would have been sorted out there and then. It quite an important case in terms of setting a precedent.

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