WorldCall Telecom Limited is one of the prominent telecommunication and multimedia service providers in Pakistan. Fifteen years on since its launch, the company offers an array of services in service segments like data, entertainment and voice. WorldCall became an associate company of Oman Telecommunications which acquired its majority shareholding (56.8 percent) in 2008.
WorldCall holds licenses in key ICT segments like fixed local loop (FLL) telephony, wireless local loop (WLL) telephony, long distance & international (LDI) telephony, and broadband. As per PTA statistics, WorldCall had 435,851 WLL subscribers in June 2011, and its FLL subscribers had come down to 9,874 in June 2010.
The company offers its customers wireless voice telephony based on CDMA technology, often clubbed with cable TV. WorldCall is one of the largest LDI operators in the country. WorldCall's broadband subscriber-base came under threat as various new broadband service providers entered the market in the last two to three years and aggressively focused on major Pakistani cities to expand the consumption pie.
WorldCall offers different broadband technologies like DSL, wireless and EvDO. The company contributes to the two ICT-promotion funds in Pakistan - the Universal Service Fund and the R&D fund. It has participated in the USF-funded broadband projects in the telecom regions of Multan and Gujranwala.
Currently, WorldCall is struggling to maintain its position in the voice segment. Its proposed expansion into the promising broadband market hasn't quite materialised yet owing to financial constraints. WorldCall is running losses for many years; however its brand name is surviving in these adverse times.
Financial performance
Revenues In a sharp contrast to the CY09 when the company's net revenues grew by a whopping 172 percent over CY08, its top-line shrunk by 11.23 percent in CY10. Despite having a diversified portfolio, WorldCall hasn't been able to offset the declining revenues from the FLL and WLL segments. This trend is also visible in the top-line of Pakistani telecom giant, PTCL.
The company attributed the CY10 revenue dip to a host of reasons. One, the LDI segment remained under pressure due to lower APC charges, termination rate instability, and decline in volume of international incoming calls. Two, price cuts were introduced to fight competition. But the traffic volumes still didn't go up. Three, the delays in planned rollouts hurt the growth momentum witnessed in CY09. However, the management stated that its position in the data and EvDO segment strengthened in CY10.
Direct cost Following the double-digit drop in revenues, WorldCall's direct cost also decreased in CY10, albeit by a lesser rate of 6.2 percent over CY09. The direct cost includes overheads like inter-connect & settlement charges, bandwidth charges, and network maintenance fees. Out of every hundred rupees of net revenue earned, WorldCall spent Rs 88 on direct costs in CY10, up from Rs 84 in CY09 and Rs 73 in CY08.
The fall in revenue and less than proportional decline in direct costs brought the gross profit down to Rs 864 million, a decrease of nearly 37 percent over CY09. Gross margin shed 473 bps to settle at 11.58 percent in CY10.
Operating cost Operating costs (summation of selling, marketing and administrative expenses) increased by nearly 20 percent in CY10, and by a similar rate in CY09, too. These expenditures spiked owing to higher spending on the salaries, wages & benefits, advertising & marketing, utilities, travelling and receivable write-offs. The operating costs exhausted 22 percent of net revenues in CY10, compared to 16 percent in CY09.
Impact on profit margins WorldCall's dilemma is that its direct and operating costs, together, consume almost all the revenues the company earns in a given year. Case in point: the two costs were 1.1 times the net revenues in CY10 and 0.98 times the net revenues in CY09, ad threw up operating margins of negative 10 percent in CY10 and a measly 0.18 percent in CY09.
WorldCall management is worried that despite all their measures for cost rationalisation, the direct and operating costs remained high on account of heavy depreciation charges, network maintenance expenses and rising cost of doing business.
Non-operating performance WorldCall incurred an impairment loss on available for sale securities to the tune of Rs 65.8 million in CY10, an improvement over CY09 when it lost Rs 167.8 million on the same. The company's 'other operating income' declined by 44.13 percent, due to slowdown in miscellaneous income from non-financial assets. 'Other expenses' stood at nil CY10, from Rs 52 million in CY09 and Rs 23 million in CY08.
Finance cost The company's finance cost did not relent, and showed a 42.14 percent increase in CY10 as the company paid hefty mark-ups on its running finance and TFC facilities. Consequently, WorldCall spent 10 percent of its revenues in CY10 to foot its finance charges, compared to 6 percent in CY09 and 5 percent in CY08. During CY10, it retired two TFC issues, worth Rs 817 million and Rs 71 million.
Profitability The slump in revenues coupled with higher operating costs and financial charges led WorldCall to post yet another year of net losses. However, the stupefying net loss figure of Rs 1.147 billion in CY10 towers over the losses incurred in CY09 and CY08 worth Rs 491 million and Rs 299 million, respectively. Put differently, the company's shareholders lost Rs 1.33 on each share they held in CY10.
Future Outlook At the tail end of CY10, WorldCall secured a term finance facility worth $35 million, backed by Omantel's corporate guarantee. The management was hopeful of making a turnaround in CY10, as they expected the facility to create ample liquidity to fund the company's expansion plans. To turn things around in CY11, network outreach, quality standards, product & service offerings, and service delivery have been identified as key focus areas by the WorldCall management.