Vox sees interconnect gains

Vox Telecom will continue to lobby government for more liberalisation as it anticipates seeing the benefits of lower interconnect rates.

The company, the largest listed black-owned telecommunications group in SA, says it wants geographic number portability, carrier pre-select and local loop unbundling changes to be enacted.

Vox expects these changes to “lead to a more competitive telecommunications environment, which will be to the benefit of all customers”. The change in interconnect rates is already set to improve the company's profitability, as margins on some of its products will be enhanced.

Late yesterday, Vox published its year-end results, and said revenue grew 13%, to R2.1 billion, for the year to August. The company also maintained its gross margins at 25%, with gross profit moving up 15%, to R523 million.

Net profit improved 60%, to R61 million, and earnings per share moved up 45%, to 549c, while headline earnings per share improved 53%, to 618c.

The product, says Vox, is the “result of four years of experience in the voice market and has resulted in the launch of a telco-grade quality voice solution”. Cristal Vox allows Vox Telecom to provide a full service for inbound and outbound calls, reduce customers' communication costs and increase its overall margins.

Earlier this month, communications minister Siphiwe Nyanda said the interconnect rate would drop to 89c in February, and then to 85c a year later, and 80c in 2012.

Vox says the change in interconnect rates will make Vox Core and Vox Telepreneur more profitable, as interconnect margins improve along with the staggered drop in termination rates.

However, while the company will be able to move some of its least-cost routing customers, who are served by Orion, over to the product, the short-term effect will be a decrease in profitability, it says.

“It will take time to convert our customers to this new voice product as it requires technical changes at customer sites and only certain customers are capable of being converted,” says Vox. Margin improvements will, however, be seen in the longer term.

Vox's shares opened at 41c this morning, and were trading slightly lower at 40c in mid-morning trade.

Frost & Sullivan ICT industry analyst Protea Hirschel says: “Vox has started its comeback from the Dealstream debacle that severely affected its bottom line.

“We now expect it to start developing at least part of its own physical infrastructure to reduce reliance on the incumbents. This will set it up well for future growth in a less regulated environment.”

Vox has already converted its VANS licence to an ECNS licence, allowing it to offer fully-fledged telecommunications services. However, the pace of regulatory change in SA is still slower than the company would like, Hirschel adds.

“Regulatory uncertainty around local loop unbundling, carrier pre-selection and geographic number portability are challenges the company can do little but wait out,” Hirschel says. “Telkom's recent poor results also suggest it may be more reluctant to do things that will further threaten its market share. This will inevitably impact on Vox.

“The company's main competitive advantage will remain in its pricing models. In this period, it extended its service offering in this area by introducing the Telco Toolbox, allowing customers to better manage telecommunications expenditure. It is this extended range of services for increasingly price-conscious customers that set it apart.”

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