Listed telecommunications operator Vox Telecom's profit growth in the first half of the year was hampered by a 29% drop in call termination rates in March last year.
However, Vox has already converted almost half its monthly least-cost routing (LCR) minutes to the higher margin Cristal Vox offering, which runs on its own network. Once Vox has moved its LCR customers over to Cristal, the margin improvement will show in better profitability.
Cristal allows the listed telco to offer a range of voice communication services instead of only competing on outbound calls, which accounts for around a third of all voice traffic in minutes. CEO Douglas Reed says the company still has about two years to convert its LCR customers to Cristal before the business model dies.
Vox yesterday released its half-year results to February and said revenue was 11% lower, at R925 million, from R1 billion a year ago. Net profit was slightly lower, at R23.9 million, from R25.5 million. Reed says Vox is well-positioned to grow in the next five years.
“We remain in a deflationary environment in terms of voice and data,” says Reed. “Under these circumstances, we are pleased with our ability to increase gross profits and look forward to next year when our growth will return to historical levels.”
Vox grew gross profit 9%, to R257 million, and bolstered cash-on-hand to R122 million, a 15% gain. It invested R32 million in its network and fixed assets, and expects to continue to invest about R80 million to R100 million a year.
Making money
retail rates. Vox Orion provides LCR services, currently a small part of its business.
“Ironically, both the LCR and dial-up services remain highly cash-generative, which is giving us the time we require to transfer these valuable customers to our platforms. Targeting a brand new customer base is a far more time-consuming and expensive exercise,” says Reed.
The March interconnect rate drop was voluntarily initiated by cellular operators and was followed in October by an announcement of a regulated drop. The Independent Communications Authority of SA said mobile interconnect rates would settle at 40c a minute from March 2013. Fixed rates for local calls will end up at 12c, while interconnect for national calls will be 19c a minute.
As the LCR business is under pressure due to interconnect cuts, Vox has to prove it can convert its customers to different services on its network. It says converting LCR customers to the Cristal Vox voice service is going well.
Over the longer term, Vox Orion will benefit from margin improvements once major voice customers have been converted to the Cristal Vox solution.
At full year, Vox reported a R679.7 million loss due to once-off items, mostly related to writing down the value of its LCR business. Adding back impairments, the company reported headline earnings higher at R71.7 million.
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