Huge Telecoms is being sued by MTN Service Provider, which wants it to pay out R30 million over a breach in agreement.
However, Huge is defending the action and wants to instigate its own claim against MTN, which CEO James Herbst says will be far more than MTN's claim, and will top R100 million. MTN is suing for R30 million and interest, or alternatively, Huge's liquidation.
Herbst says the issue dates back to when MTN bought out the balance of iTalk Cellular, a deal that was wrapped up at the beginning of 2009. He explains MTN unilaterally changed the terms and conditions of its agreement with Huge, which the company fought.
In October last year, the parties reached a settlement, but Herbst alleges MTN then changed those terms and Huge refused to honour the deal. As a result, MTN is now trying to enforce the agreement, says Herbst.
Huge agreed to settle to protect the best interests of its customers as MTN threatened to pull its SIM cards, says Herbst. The MTN cards have since been replaced and Huge continues to fight to protect its interests as a much smaller company, he notes.
The matter went to court in January, but was then postponed. At the moment, Huge is confident of a settlement out of court. Failing that, Huge is set to counter-claim, and the amount will be “enormous”, states Herbst.
MTN was not immediately available to comment this morning.
Under pressure
Huge yesterday released its results for the year to February, just beating the JSE's deadline to publish by the end of the month or have trade in its shares suspended.
The company reported revenue of R523.8 million, compared with R573.5 million a year ago. However, net profit slumped from R8 million last year to a R16.9 million loss as it no longer receives interconnection bonuses from cellular operators.
In the 2009 and 2010 financial years, Huge's major subsidiaries, Huge Telecom and CentraCell, earned a total of R113 million in connection bonuses. However, this year the company only gained R13 million as mobile operators no longer pay these benefits, which resulted in a net R44 million negative impact.
Herbst says the loss of connection inventive bonuses hurt the company. Adding back the lost incentives, Huge would have reported a “good” R13 million profit, he says. “It would have been happy days.”
Huge made the decision to not walk away from the bonuses early, and benefited from the upside. However, says Herbst, the loss of the income has hurt the company and Huge needed to restructure to return to profitability this year.
Herbst explains Huge started seeing the benefits of its restructuring in February and significant benefits flowed through in May. The company has cut its expenses by R30 million a year, he adds.
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