AltX-listed Vox Telecom has moved to allay fears that the looming reduction in mobile interconnection rates could have a devastating impact on its business.
Vox’s biggest subsidiary, Vox Orion, is a significant player in the market for least-cost routing (LCR) solutions. LCR players are able to profit on arbitrage opportunities, particularly when interconnection rates are high.
Mobile interconnection rates — the fees cellphone providers charge one another and other operators to carry calls on their networks — will be reduced in peak calling times on 1 March 2010 from R1,25/minute to 89c/minute. Further reductions are expected thereafter.
Vox’s share price has come under sustained pressure in recent weeks on fears that the cuts in interconnection rates will undermine its profitability. In the past three months it has fallen by nearly a third. It closed on Wednesday at 41c.
In notes accompanying the group’s 2009 financial results, released on the JSE’s Sens news service on Wednesday evening, Vox says it is developing products in an effort to offset the impact of reduced rates on Vox Orion’s LCR business.
“The launch of Cristal Vox is in direct response to this change,” the group says. Cristal Vox is the group’s carrier-grade voice solution and uses Vox’s own telecoms infrastructure.
The majority of Vox Orion’s customers use LCR products. Historically, this has resulted in savings for customers who make outgoing calls from Telkom to the mobile operators.
Vox hopes to migrate these clients to the Cristal Vox product, but it admits that this could time time as the new product requires technical changes at customer sites and only certain customers are technically capable of being converted. As a result, Vox says it anticipates a “certain negative impact on profitability” in the Vox Orion business in the short and medium term.
“Over the longer term, Vox Orion will benefit from margin improvements once these customers have been converted.”
In the year to 31 August, Vox lifted net profit by 59,9% to R60,8m. Sales were up 12,8% to R2,1bn. — Staff reporter, TechCentral