Least-cost routing specialist TeleMasters has reported an operating loss of R1,4m in the three months to December 2011, from a profit of R5,1m previously, as a result of the loss of two big contracts and the market shift away from least-cost routing (LCR) solutions.
LCR providers like TeleMasters had taken advantage of the arbitrage opportunities available to them when wholesale termination rates — the fees operators charge each other to carry calls onto their networks — were higher. As the rates have come down, LCR companies have been forced to reinvent their businesses to offset reductions in revenues.
In the three-month period, TeleMasters’ revenue fell to R56m, from R86,2m in the corresponding period a year ago. Operating expenses declined only marginally, leading to a sharp fall in operating profit. As a result, headline earnings fell from R3,4m a year ago to a loss of R1,1m.
“The first quarter reflects management’s expectations as voiced earlier that 2012 will be a tough transitional year,” the company says in an update to shareholders. “The traditional LCR turnover decreased by 35% over the corresponding previous period due to the loss of two large clients that reached the end of their tender periods.”
The company says it expects no new LCR tenders to be issued in future. “The challenge is to exceed the loss of revenue with the conversion of 600 long-standing current clients and the acquisition of new clients to the company’s Digital Direct service,” it says. “A further R1,6m has been invested in capital acquisition in order to upgrade the interconnect facilities to be independent of third-party vendors and so increase the quality of service.”
TeleMasters says it is taking “active measures” to address the fact that operating expenditure has remained constant over the past year. It says it has sufficient financial reserves to ensure the roll-out of needed technology. It has reduced its dividend from 4c/share to 1c/share to “allow for conservative cash-flow management.”
Shortly after publishing the first quarter financial update, TeleMasters was trading down 3,9% on the JSE at R1,25/share. The counter is trading at the same level it was 12 months ago. — Staff reporter, TechCentral
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