The changing regulatory telecommunications environment has had a notable impact on independent telecom provider Vox Telecom. The company's strategic decision to freeze the renewal of Least Cost Routing SIMs, in anticipation of the proposed changes inMobile Termination Rates, has taken a toll on earnings.

Vox released interim results for the six months ended 28 February 2010 yesterday, revealing stable revenues and gross profit over the comparable period last year, but a 19% fall in EBITDA to R76,4-million and an 18% drop in headline earnings per share to 2.3 cents. The main cause of this decline was the severe reduction in Connection Incentive Bonuses from R37,7-million to R3,4-million.
"This reporting period for Vox has been characterised by a slowdown in new client sign ups," remarks Frost & Sullivan ICT programme manager Birgitta Cederstrom. "However, one of the company's main assets is its already installed base of customers, acquired through a combination of well targeted acquisitions (@lantic and Orion) and an aggressive sales push."
Cederstrom notes that the company has sought to cross-sell into its existing base of more than 18 000 clients and gain greater value in this manner. This is a strategy that has been implemented by telecommunications operators across the world as they seek to minimise the impact of falling ARPUs.
"Vox continues to position itself as an alternative communications provider with the ability to reduce the costs of telephony drastically, but the past eighteen months have been challenging for the operator to live up to this value proposition, while maintaining margins," Cederstrom notes. "The market has become more competitive and there is continued downward pressure on prices. The market developments around interconnection rates have had a particular impact on the company and if ICASA's recommendations are realised, there is likely to be even greater pressure on the company."
Cederstrom does however suggest that Vox's company culture seems more flexible and ready to take quicker decision routes than other players in this space.
"Vox is well positioned in the South African market as an operator that is small enough to take care of SMMEs and yet sizeable enough to provide a high level of service to enterprise clients," she says. "Frost & Sullivan expects the company to push further into both of these market segments as the level of competition increases."
Frost & Sullivan expects that Vox is likely to continue to focus on its existing client base for immediate growth opportunities. A more aggressive marketing push in terms of its solutions portfolio, will be required if it is to capitalise on new opportunities.
"Frost & Sullivan believes that the company might have to rethink its previously cautious approach to geographic expansion," Cederstrom adds. "It should give serious consideration to the opportunities in neighbouring countries, before these markets also become too competitive."
Vox's introduction of uncapped ADSL services at reduced prices in mid March through @lantic.net will also be a development to watch closely in the coming year.
"Vox is revamping its broadband service and we expect to see a marketing and pricing war develop between the closest competitors in this segment," Cederstrom says.