IMPENDING cuts in the cost of making a cross-network cellphone call will dent the earnings of telecoms provider Vox, but the company believes it can ultimately benefit from the enforced need to widen its service offerings.
Vox makes much of its money by routing calls from one network to another and undercutting the rates that business users pay for that service.
But parliamentary pressure on the operators to slash their profit- packed interconnection fees threatens the livelihoods of companies offering that least-cost routing service.
As the cost of cross-network calls falls, there will be less need to use least-cost routing services, so providers that offer that as their sole service are under threat.
Vox is not reliant on just one offering as it also houses corporate and consumer internet service providers and supplies video conferencing services.
But CEO Tony van Marken said the key strategy now was to persuade its most important corporate clients to transfer all their incoming and outgoing calls to a network that Vox had built in its own right.
At the moment its largest division, , mainly handles outgoing calls to cellphones, which makes up 34% of typical corporate phone calls. Now it is aiming to handle all their outgoing and incoming calls, trebling the size of its market. “The key issue for Orion is how we are going to manage the cellular least-cost routing business in an industry with declining interconnection rates,” Van Marken said.
“We have to extend that revenue opportunity to cover every single traffic type to increase the pie.” There would initially be a negative effect on Orion’s profitability, but he was confident it could manage its way through and emerge with a stronger business.
Orion has identified 200 of its 7600 clients that generate about 50% of its revenue and is running a campaign to convert all their voice traffic to its own networks.
“Lower interconnection rates also create brand new opportunities which we have to exploit quickly,” he said.
To improve its opportunities further, Vox will continue to lobby the communications minister to take other steps crucial for boosting the telecoms industry. It is calling for full number portability so users can keep their existing number but switch to Vox instead.
It also wants legislation to introduce local loop unbundling, where the wires that link telephone exchanges to customer premises are accessible to all players, not just . Vox is also lobbying for carrier preselection, letting customers request which operator carries their call when they use a phone.
Results issued by Vox yesterday for the year to August 31 show revenue of R2bn, up 13% from R1,8bn, and a net profit up 60% from R38m to R60,7m. Headline earnings per share of 6,18c rose from 3,95c.
Vox had focused on improving internal aspects of its business, including its operational management and cash flow management, said Frost & Sullivan analyst Protea Hirschel.
What it could not control was the regulatory uncertainty around local loop unbundling, carrier preselection and geographic number portability. Lower interconnection fees were a threat to its business model and profit margins, but Vox had extended its offerings for increasingly price-conscious customers and that would set it apart, Hirschel said.
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