Cellphone operator is cutting its franchisees loose and, to make matters worse, many are losing their investment, writes Hendri Pelser

Cell C Connect franchises across the country are either closing down or are not operating.

By July next year the cellphone operator's entire franchise concept will be relegated to history, leaving a wake of financial destruction in its path.

Franchisees lay the blame directly at the feet of the master franchise holder. They say the concept and business model sold was a viable one, but that its execution was the problem.

Stakeholders have inundated It's My Business with tales of deceit and broken promises leading to the downfall of the franchise concept, which is now threatening their livelihoods.

• What's going on

Cell C Connect is a direct distribution franchise operated by Upliftment Outsourcing CC. The company concluded an agreement with the network operator Cell C whereby commission was earned on Cell C contracts and products. Upliftment Outsourcing, trading as Cell C Connect, in turn sold franchises across the country.

The master franchiser's contract with Cell C was only valid for three years and was not renewed last year. As a result, franchisees were given the boot.

But the uproar this caused forced the network operator to extend the contract to July next year.

Upliftment Outsourcing would not confirm how many franchisees it sold, but according to some franchisees figures quoted by the company's management exceeded 350.

Cell C Connect is not a member of the Franchise Association of South Africa.

• The accusations fly

Shaheed Domingo leads a group of 106 disgruntled franchisees. He and several other franchisees confirmed that they were unaware of the time limit that Upliftment Outsourcing's contract placed on the lifespan of their businesses.

"If we had known, we would never have signed with them," he says, adding that the original contract with franchisees was valid for 24 months with the option to renew.

Franchisees receive 3% of a client's expenditure with Cell C for all prepaid customers signed up, and 5% for all contract or post-paid customers recruited.

This commission is supposed to be a steady revenue stream for as long as the customer keeps the same number and stays on the Cell C network.

Signing up customers also resulted in an immediate connection bonus, ranging between R15 and R350.

Shaheed explains that the ongoing commission was the most attractive part of the business model as it created a passive and growing income stream.

Seemingly, once Upliftment Outsourcing's new contract with franchisees expires, these annuities will also fall by the wayside.

Franchisees say that anomalies between the promises made and reality surfaced early on. Andrew Chan Yan owns a franchise in Kimberley and says "it was a rotten egg from the word go".

He explains that on the first day of an induction course, he was promised dummy handsets to use as marketing tools. The following day, he was told that there were not enough phones to go around.

Subsequently, a franchise was sold to an operator just a couple of hundred metres from his premises. "They promised us all these wonderful deals with service that is non-existent. They promised us meetings and training on an ongoing basis and we haven't had a meeting in years. I have not seen a Cell C Connect sales rep in three years."

Rodney Swanepoel from Johannesburg echoes this: "Everything has just been negative since day one. None of their promises have come to turn . "It is hard to run a business when they shut you down on every corner."

Franchisees say their barrage of complaints were hardly ever acknowledged and never dealt with. Rodney is the only franchisee that It's My Business spoke to who had recouped his investment. Nevertheless, he says the R300 monthly profit the business showed thereafter was "ridiculous".

Shaheed's group even brought in legal counsel to take the franchiser to task but this initiative had to be stopped due to the costs involved.

• Dishonesty

There have been several other complaints made against Cell C Connect and its parent company Upliftment Outsourcing.

This includes judgments by the Advertising Standards Authority and a wave of public anger at a recent call centre-driven, direct-marketing campaign.

In addition, Upliftment Outsourcing has been using various company registration numbers in its communication with franchisees.

While Upliftment Outsourcing's correct registration number appears on contracts, two different registration numbers appear on its letterheads. These different closed corporations all belong to the same shareholders.

Neither Cell C nor Cell C Connect were willing to comment on this matter.

• Hands tied

In the new contracts offered to franchisees last year, Upliftment Outsourcing seemingly changed the rules of the game. These include a restraint of trade on franchisees for two years and barring the use of call centres or websites.

At the same time, several franchisees accuse Cell C Connect of setting up its own call centre and attempting to poach their clients - before and after the new interim contract with Cell C came into being.

Shaheed adds that he has been told that he is no longer allowed to use the Cell C logo. "They renew our contracts but tie our hands. You buy into a brand when you buy a franchise."

Rodney agrees: "It is hard to run a business when they shut you down on every corner. I had to close down my website and I can't use sales reps any more."

He adds that Cell C Connect sold a franchise to his biggest corporate client a few years ago, decimating this revenue stream.

• The rebuttal

In response to It's My Business' queries, Sue Kennedy, Cell C's executive head for sales and distribution issued a statement saying that Upliftment Outsourcing's contract was extended so that it could continue to service its franchisees.

"This was done despite the fact that the legal obligations to the franchisees remained with Upliftment Outsourcing CC.

"Cell C is not in a position to comment on the exact nature of the relationship between those franchisees and Upliftment Outsourcing CC," Sue's statement reads in response to the allegations made by franchisees on the limited scope of the new contracts offered.

"Furthermore, Cell C cannot disclose details about the contract between itself and Upliftment Outsourcing, which expired on April 30 2009, or the aforementioned limited agreement between Cell C and Upliftment Outsourcing CC to enable it to continue to service its franchisees," it reads in response to questions regarding compensation, loss of income for franchisees and the income generated through franchise sales.

Upliftment Outsourcing's CEO, John Williams would not answer specific questions either, and also chose to release a statement.

"We operate under strict conditions of mandate imposed on us by Cell C in the Dealer Principal Agreement.

"In this position we have been able, subject to the parameters of our mandate, to provide Cell C Connect franchisees the opportunity to conduct direct marketing activities in relation to Cell C products.

"The effect of this new (principal dealer) agreement necessarily impacted on our business and that of the franchisees, the latter of who (sic) were only marginally effected (sic), apart from those who operated a call centre or a website as these methods of trading are no longer permitted," the statement reads.

When pushed to respond to specific complaints and allegations, John responded by saying that "Cell C Connect has and always will honour all its contractual obligations to our franchisees and we therefore do not believe that this is a matter for public debate".