TeleMasters has made good on its expected gradual return to profitability, coming in bottom line positive in the first half of the year.
The company has had a challenging time as it has been converting from a least-cost routing (LCR) provider to a fully-licensed fixed-line telecommunication service provider operating in the corporate segment.
In the six months to March, it reported lower revenue of R70.75 million, down from R99.6 million, and slightly lower operating expenses, at R14 million, compared with R15.9 million a year ago. Its operating loss last year of R3.7 million turned into a R107 028 operating profit, and - post-tax - it made a R64 458 gain compared with a R2.9 million loss.
In the first three months of the year, it reported revenue of R33.3 million, compared with R56 million in the previous corresponding period, and made a total gain of R206 065, compared with a R1 million loss in 2012.
Despite the continued improvement, its share closed flat at 56c yesterday.
Change afoot
TeleMasters has been in the process of moving its customers onto its own network - Digital Direct - as it moves away from LCR. Several LCR providers were hard hit when mobile termination rates started dropping after the Independent Communications Authority of SA (ICASA) introduced a glide path.
In 2010, ICASA decreed cellular interconnect costs had to drop to 73c at peak and 65c during off-peak times, from March 2011. Last year, rates dropped to 56c and 52c, respectively. At the end of this March, wholesale mobile termination rates dropped to 40c, regardless of the time the call is made.
In its results commentary, TeleMasters says its conversion of customers from LCR technology to its new system is "proceeding at a constant pace and each month which passes results in a higher margin operation". It invested R2.9 million in new equipment during the period.
Revenue is lower as older LCR-type contracts were not renewed. Yet, its digital sales are becoming a bigger part of revenue, which it says ensures its profitability and sustainability over the long-term.
TeleMasters has said the LCR model no longer makes sense. Lower termination rates means some players in this sector have seen erosion of their margins.
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