ON THE SPOT
Huge shares have huge upside potential
Business Day asked CEO James Herbst why the telecoms company remained under the radar for so long?
Telecoms company Huge Group is one of only four listed mobile telecoms entities on the JSE, but its name belies its stature and it’s hardly a household stock. Like Telemasters, Huge seems a relic from the past but the company has spent the past few years reinventing itself after the collapse of the least-cost routing business, and attracted some heavy-hitting directors along the way — including former MTN SA CEO Zunaid Bulbulia and former Merrill Lynch analyst Duarte da Silva as chairman. Now it plans to list on new exchange A2X.
Business Day asked CEO James Herbst why they had remained under the radar for so long?
The head-down was very much having to focus on reinventing the business.
Did you ever think Huge wouldn’t make it?
The honest answer to that is no. When the least-cost routing market was in the throes of collapsing I think if … there was no hope, then I’d have walked away. I never once thought it was not going to work out.
So how did the company come right?
The commercial model (for LCR) had become defunct so I said to myself, is it possible to engineer a new commercial arrangement? Yes, it is. Another question was whether the technology solution was defunct, that is, had the relevance disappeared? And the answer was no. GSM as a substitute last mile for copper was in play. I then said to myself, is there a potential market? And the answer to that was: there are more than 3.5-million fixed lines as the last mile. So I had to go about trying to conclude the commercials that would support the technology proposition. I couldn’t knock on MTN’s doors because I was fighting with them….
The trigger to the collapse of LCR was the decision by Icasa [Independent Communications Authority of SA] to start dropping interconnect fees. And because the operators were going to lose margin, they had to find it from elsewhere. So they dropped the commission rates that businesses like Huge were earning. They were going to push Huge into bankruptcy, so what I did was to stand firmly behind the legal agreements that were signed and I said, you cannot unilaterally change it.
I went to Vodacom and while they were open to the concept they couldn’t get their minds around it. I then went to Cell C and I got very far, but the CEO heard the words "least-cost routing" and said no. And then the business that gave me the opportunity was Virgin Mobile. From Virgin it then went to Cell C in a more formal way and then Telkom Business Mobile. We went from just being able to deliver an outbound telephony solution to an inbound telephony solution; where we arrived last October, where we can now perfectly substitute Telkom’s copper.
Do you do business with Telkom or do you compete against them?
We take supply from them and we compete. Doug Reed had a term for it: co-opetition.
You’ve now achieved "full-suite telephony". Why’s this such a big deal?
Telkom is able to provide a telephony solution … and behind that is a whole lot of function-ality. One of the things you need to do when you are making outbound calls as a company is you need to be able to make, say 10, simultaneous calls to 10 third parties and at the same time present the same telephone number. That is functionality, which eight years ago was not available (to least-cost routing).
Now you have this capability, should investors expect a growth spurt from Huge?
Correct. Up until October, we had, let’s say two out of the 10 required functions to provide a telephony service; we now have all 10. So with all the functions now our addressable market is over 3-million. Telkom has 95% of the market. It makes Huge an attractive opportunity, so much so that we’ve been able to attract personalities like Zunaid Bulbullia, who was CEO of MTN SA.
Do you think that’s reflected in your share price? It’s come a long way since the lows of 63c years ago.
A lot more investors are starting to say, hang on, is there something there that we’re missing? There’s a Zunaid Bulbulia involved; Gunter Engling has taken over running Huge Telecom and he was the deputy chief financial officer of MTN. And Duarte and Zunaid secured options from our biggest shareholder — they have the right to acquire 7.5-million shares each at R8.50 a share. At R8.50, they don’t make any money and they can’t be in it to make no money.