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Challenges, opportunities for Vox Telecom

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Vox Telecom has increased gross profits for the six months ended 28 February 2011 9% to R257-million, with cash in hand increasing by 15% to R122-million.

Profit before taxation and exceptional items down 4% to R34-million although headline earnings per share (HEPS) were down 7% to 2.14 cents per share.
During the six months under review, the group continued its focused conversion of existing least cost routing (LCR) customers onto Cristal Vox, thereby decreasing the risk of margin pressure on the group through the drop in call termination rates (CTR.
In addition, the group invested a further R32-million into its network and other fixed assets as well as further reduced long term debt obligations by R42-million. This has had the positive impact of reducing net finance charges to R2-million down from R4-million for the comparable period.
The implementation of the changed interconnect rates resulted in decreased revenue and profit and placed further pressure on our consumer divisions.
During the six months, the group’s staff complement decreased slightly to 775 employees, from 781 a year ago.
On 29 October 2010 ICASA issued a Government Gazette Notice that defines and addresses the wholesale call termination market that exists in South Africa. The change in the interconnect landscape now allows Vox Orion as well as other subsidiaries within the Vox Group to offer competitive outbound and inbound retail rates to their customers on all types of traffic, instead of merely focusing on capturing a customer’s cellular traffic.
Cristal Vox, which is a direct response to this change, is the result of four years of experience in the voice market and has positioned the group to provide a complete voice solution to service all of our customers` needs for both inbound and outbound calls.  The impact of this is reduced communication costs for customers and improved margins for the group.
Vox Orion is affected by changes in the CTR environment as the majority of its customers use cellular LCR products. This service has historically resulted in major savings when making outbound calls from Telkom to one of the mobile operator networks. In response to anticipated changes in CTR a process was initiated in 2009 to convert these customers from LCR services to Cristal Vox. This conversion process requires technical changes at customer sites and the signing of new contracts, which will take time.
Over the longer term Vox Orion will benefit from margin improvements once its major voice customers have been converted to the Cristal Vox solution.