TeleMasters has moved around half of its base onto its own network, away from least-cost routing, and the shift is paying off in the improvements in its gross profit, despite a decline in revenue.
The group's half-year income was R55 million, compared to R70.7 million a year ago. However, thanks to a decrease in its cost of sales, its net profit went from R64 458 to R2.3 million.
As a result, earnings and headline earnings per share also improved in the six months to December. The group has seen its revenue declining since the quarter to March 2012, although its margin - now at 28.77% - and its bottom line have been trending upwards.
CEO Mario Pretorius says the group wants its gross margin to move to the high 40%-range. TeleMasters has also improved its cash generation, with cash generated from operating activities growing to R2.6 million, compared to the negative R2.5 million a year ago.
Pretorius says the margin improvements have come as the group moves its base from LCR to its Digital Direct offering. TeleMasters says it is converting and recapturing market share, which was lost as a result of the changes to the interconnect pricing model in previous years, which it attributes to the "superior quality" offering of Digital Direct.
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 that cellular interconnect costs had to drop to 73c at peak and 65c during off-peak times, from March 2011. In 2012, rates dropped to 56c and 52c, respectively and then to 40c, regardless of the time the call is made, last March.
ICASA has since mooted dropping interconnect rates all the way down to 10c in 2016.
Pretorius says, so far, about half the base has been moved and the company is gaining momentum, clients, and new distribution avenues. Just after half-year, it also spent R600 000 to buy Spice Telecoms, which Pretorius says was in the same game, but gave it added business.
TeleMasters, which has bought about five similar companies in the past, will continue to seek out such deals as the sector consolidates, says Pretorius.
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