Investors turn up heat on Rocom

By PETER GRIFFIN

It has been a tough year for New Capital Market company Rocom Wireless and yesterday came the shareholder backlash that so many fledging IT firms have faced.

Shareholders at Rocom's annual meeting grilled executive director Richard Guy on everything from the wisdom of an $800,000 rights issue, to the size of fees paid to auditors Ernst & Young and why Rocom was so late in filing its annual report with the Stock Exchange.

This delay led to its shares being suspended for a time last month.

A defensive Guy delivered a "we're in this together" message to unconvinced shareholders dismayed at Rocom's share price, which has hovered around 20c - well down from its August 2000 peak of $1.21.

"I am the largest shareholder and I have the most to lose," he said, reminding them of his 48 per cent stake.

He blamed network operator Telecom, Rocom's major business partner, for most of the woes. Telecom had overestimated the revenue that would flow from its CDMA network started last year, hitting Rocom's business plan, Guy said.

"Telecom's forecasts were grossly inaccurate in margins and volume."

Telecom reduced resale margins on mobile phones from 10 per cent to 6 per cent, he said.

Rocom received $40 for every Telecom corporate customer it upgraded to the CDMA network. Out of that, Rocom had to cover training, marketing and customer service, cutting margins to the bone.

One investor questioned why Rocom had not gone to its shareholders over the decision to sell its mobile phone business to Telecom franchisee Total Network 2000 this month for $1.2 million. The goodwill sale will boost Rocom's bottom line for the current quarter, with $700,000 already received and the balance to be paid over the next 10 months.

With the move, Rocom ends its core business of selling mobile phones to the corporate market, a business many shareholders eyed with confidence when they bought into the company.

Rocom's business now comprises three divisions - wireless computing, which in the next financial period is likely to deliver 40 per cent of revenue, the satellite phone business contributing around 30 per cent and a subsidiary World Billing Services generating the balance.

Guy said Rocom would have lost the opportunity to make the sale if it had taken the time to gain shareholder approval.

As a condition of the sale, Rocom had an exclusive arrangement with Telecom.

Guy said the "hastily drawn up" contract lasted for a year, but Rocom was determined to negotiate less restrictive terms.

Rocom made a loss of $4.2 million last year on revenue of $8.2 million. Much of the loss was made up of goodwill writedowns.

Rocom investor Jonathon Olsen, with about 50,000 shares, said he would like to see some independent directors on the Rocom board.

"In hindsight they've made some bad decisions, but we'll have to give them a chance and wait and see what they deliver next month."

Guy promised to deliver a good half-year result.