Cable & Wireless (C&WJ) revenues from landlines slipped $2 billion in the year ending March 2013 which helped push the company’s operating income into a loss before an exceptional charge of $2.75 billion relating mostly to reduction in staffing. A $670 million increase in mobile revenues could not prevent a slide of $1 billion in overall revenues which came in at $19.1 billion versus $20.4 billion in the previous year. In spite of the fall in revenue, a $1.5 billion drop in out payments made to other carriers offset by $500 million increase in other cost of sales resulted in gross profit slipping by just $340 million.
New rates | Last year June, when it announced radically new low rates, “the company indicated that it hoped the “game-changing” Talk EZ plan will double its market share from 18 per cent to 36 per cent within three years. It currently has 400,000 pre-paid customers and 50,000 subscribers, according to a Jamaica Observer report. The initial up take of the service last year suggested that they were on target to achieving that target with 250,000 new subscribers by the end of December but by March this year the numbers melted down to a 16 percent net increase or just under 100,000.
More customers | For the September quarter, the company stated that the mobile customer base increased by 20% and that they attracted 100,000 customers within 100 days of launching the new plan. Extrapolating, they started off with 500,000 mobile customers which reached 600,000 by September. In March the company shifted the tax of 50 cents per minute on cell calls to customers which they had absorbed from July last year when it was 40 cents per minute. This shift seems to have resulted in the attrition in new customers. Our estimate is that C&W decision to absorb the cell tax, cost the company about $500 million, a cost that won’t be repeated this year.
Banking | The company is banking on the recent reduction in termination rate to hand it an advantage, as they retain more of the amount customers spend with them, as they talk more with the new rate for both local and overseas calls to other networks. Down the road they expect that number portability will also present them with another opportunity as mobile users will be freer to switch networks.
Going forward | “Now that we have the new, lower Mobile Termination Rate that will be almost 90 percent less than what it was a year ago, LIME is in a better position to increase subscriber numbers and grow revenues,” management said in an exclusive response to IC Insider.
What seems logical is that persons will be less concerned about what number they are calling once the various rates are close to each other. So the scenario where customers were ring fenced to calling within their network due to the high cost of calling other network will no longer exists, allowing for freer calling and quite likely more time spent talking.
It will also reduce staffing and related costs and have a net benefit as a result of outsourcing the repairs and servicing to Ericsson. The first quarter of the last fiscal year had a lower margin on calls made to other networks as the termination rate came into effect in July 2012. In this year’s first quarter, C&WJ will enjoy a higher margin on cross network calls, helping improve the bottom line.
The savings to come from outsourcing of the field service support and from the absorption of the mobile call tax plus some growth in net cell revenues suggest that the company should be much closer to a profitable position, if not a profit, in the current year from normal operational expenses, assuming they maintain substantially existing business and continue to add mobile customers and get more talk time from existing ones.
Stock outlook | The stock last traded at 16 cents with a bid of 17 cents. The company has a negative net book value and it owes the parent company $28 billion which attracts interest at Treasury bill rates plus 1 percent. Working capital is negative with current assets being less than current liabilities.
