Interview with Steven Paquette, President & CEO ivyNET Inc.
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ivyNET [O.IVYN] is a telecommunications solutions provider offering international long distance termination services to both existing PTT carriers and next generation telephone companies. The
company enables these carriers to leverage the Internet Protocol (IP) to capture significant cost savings in the short term and value-added applications and services in the long term.
ivyNET owns 51% of the shares of SL Electronics Co. Inc. of Korea (SL). SL is a leading supplier of IP Telephony technology in the Asian market.
StockHouse spoke with Stephen Paquette, CEO of ivyNET, about their alliance with SL Electronics, expansion plans for Korea, partnerships, and the inevitable convergence of the IP Telephony sector.
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StockHouse: Tell us about your equity interest in SL Electronics.
Steven Paquette: We acquired a 51% interest in SL and we were looking for some core technology that would drive us into the Asian market. At that point when we started discussions, the IMF (International
Monetary Fund) had moved into Korea and we believed it was a very promising time for an investment in the region. From a long term growth potential, I think that has been validated. If we look at some of the things
that are coming out of Korea right now, the Korean government under President Kim is really receiving a tremendous amount of accolades for its restructuring efforts in the financial and corporate sectors. If we look at
the economic growth numbers coming out of Korea, in '97 GDP was up 5%. In '98, of course, they lost about 5.8%, and then in the first quarter of this year they were up 4.6%, which gave Korea the first kind of
'V'-shaped recovery in the Asian region.
StockHouse: This is an area that you are obviously looking at for further expansion?
Steven Paquette: Without a doubt. We are very, very focused on creating a brand and attaining market penetration in the Korean market.
StockHouse: What is it about the SL Technology that interests you?
Steven Paquette: SL is focused in that convergence space of voice and data. We see a $700 billion revolution under way in terms of the telecom industry and we want to participate. This transformation is happening
with or without ivyNET, but we want to play a roll, and the roll we are going to play is enabling systems integration, partners in Asia and enabling OEM (original equipment manufacturer) partners domestically to
capitalize on that transformation.
StockHouse: Can you detail a little bit about the ivyNET technology?
Steven Paquette: The core technology is focussed on taking an analogue voice signal, digitizing it, compressing it, and allowing you to use a traditional IP data line as your telecommunications infrastructure. If we
look at the Enterprise environment, there has really been a duality of infrastructure. You go to your desk and you plug your desktop phone into your PBX (private branch exchange), you plug your PC into your data
line, or your LAN, and what we are seeing now with this technology is that it's superfluous. We are moving to a single jack solution, if you will. This technology enables us to capitalize on that convergence.
StockHouse: Where does your Global Carrier Services fit in?
Steven Paquette: That portion of the business we see as a natural extension of what the successes we are achieving in the Enterprise in Asia. [For] example, we are working with the Ministry of Information and
Communications in Korea under the umbrella of the MIC who own the postal bureau. There are about 3,600 post offices in South Korea, all of which are connected by a digital wide area network (WAN). You can
imagine the number of LANs (local area network) connected by digital IP lines, to create this digital WAN. What we are doing is employing our technology to allow them to pass their telecommunications traffic over
that existing infrastructure. If we extend that infrastructure and we take the MIC as an example, we could very easily extend that local area network, or that domestic wide area network in Korea, extend it back here to
North America, and all of a sudden now we are passing international traffic as data, carrying it from Asia into North America.
StockHouse: What would you say would be your biggest challenges in the Asian market?
Steven Paquette: I think creating awareness. Asia isn't a lot different from North America when we look at creating a brand and getting market penetration. I don't think a lot of North American people right now are
appreciating just how far along Asia is in its recovery. When we look at IP telephony specifically, Asia, because of their high telecommunications cost, is really leading the way in many cases. They are providing a
very rich market for our technology. When we try and replicate our successes in Asia here in North America, we have to be aware of the fact that our telecommunications rates aren't that high. The technology is
compelling, but we don't get the economic pull into the Enterprise that we see in Asia.
I think we are going to see a market that develops a little slower here in North America, and I think we have seen that over the past several years, and I see that continuing. Now we are seeing people starting to
jockey for position in this IP Telephony market but it is going to be the value-added services and applications that sit on top of this core technology that are really going to make it happen in North America. Whereas
in Asia, it is purely more of an economic play.
The challenge is in terms of developing our business. We bought a 51% interest in a very technology driven shop. We have to impose certain North American standards, without insulting anybody, in the way they pay
for contracts, and the way they pay for their relationships. They may have been a little delinquent in their documentation of their intellectual property. We want to support them on that front too. We are in sort of
clean-up mode and we want to globalize that technology.
StockHouse: Do you reserve the option on the remaining 49% of SL?
Steven Paquette: We are in discussions on the balance of the 49%. We didn't want to move too quickly. The 51% acquisition was sort of the marriage contract. Now we have to prove to them as much as they have
to prove to us that this is a long term partnership. We certainly believe it is and I see only great things for SL and IvyNET.
StockHouse: What are you looking at for long term growth and further acquisitions?
Steven Paquette: We are on the never ending finance path and we finished a relatively small private placement over the last couple of weeks. That puts us in a position to start to productize the technology for North
America and impose some of the controls that we want to see in Korea. The next additional financing is going to be spent on establishing the Global Carrier Services aspect. Finance is not enough, we have to not
only have the funds, but really have the relationship.
I think our ability to succeed in the Global Carrier Services front is directly proportional with our ability to bring on strong Asian telecom partners. They are the ones that are tapping that Asian market and selling to the
end user. What we want to do is enable them to perform their international traffic in a more cost-effective way.
StockHouse: Were you pleased with the private placement?
Steven Paquette: I was pleased. We brought in about $2 million, and now we are moving forward, looking at a special warrant here in the next 60 to 90 days.
StockHouse: Were you working with brokers at all?
Steven Paquette: We worked with individual investors for the private placement phase, and now we are looking at positioning ourselves with brokers.
StockHouse: Are there any that you are specifically looking at?
Steven Paquette: We are talking to some of the major dealers. We want to partner with someone who can provide us with the kind of research that I think this industry warrants. We haven't really made any
decisions yet, but we are getting a very positive response. When you look at the dealers, they have telecom analysts who follow the Bell Canada's [T.BI] of the world, and then they have computing and network
systems analysts who follow the Cisco's [CSCO] and the Compaq's [CPQ]. We sort of fit in the middle of that space, that convergence is not only hitting the technology and the Enterprise, but even in the financial
sectors.
StockHouse: Are you making money right now?
Steven Paquette: We are reporting revenues through the subsidiary.(SL);ivyNET is not generating revenue at this stage.
StockHouse: How much is in your treasury?
Steven Paquette: Right now we are sitting at about three quarters of a million.
StockHouse: How many shares are outstanding?
Steven Paquette: There are 18 million outstanding. I think about 19 million fully-diluted.
StockHouse: Who are your major shareholders?
Steven Paquette: Our major shareholders are myself, and my partner in Korea. We vetted our project into a public shell company which has a substantial investor base already.
StockHouse: Do you have a US shareholder base?
Steven Paquette: Right now we don't. Right now we are focused here in Canada and in Asia, but again the business development is going to happen certainly in Asia first, and then North America concurrent with
that.
Since we have been in this process, Nortel [T.NT] announced a partnership with Microsoft [MSFT]. We talked about this duality of infrastructure in the Enterprise with the PBX and the back office computing
infrastructure. Nortel's announcement of throwing in the white towel on the PBX side is that Microsoft is winning that battle and it's going to be the back office computing infrastructure that dominates. So our
ability [is] to extend that back office infrastructure to support telecom, which is exactly the technology that we have. Sitting on NT, sitting on Windows 95 and 98, I think we validate Microsoft's back office
strategy to incorporate and to extend to the telecom field.
Cisco [CSCO] buying Geotel [GEOC], a call centers solution company, gives Cisco sort of a captive customer ... Newbridge [NN], announcing that while ATM (asynchronous transfer mode) is still great,
we have to now get into IP ... Intel [INTC] last week buying Dialogic [DLGC], who is a partner of ours. There is a tremendous amount of jockeying right now in the IP telephony industry.
StockHouse: The rate at which the sector is growing - would you not expect that you are going to see a convergence of players?
Steven Paquette: The awareness is growing. The activity is growing. What we haven't really seen is the revenue. That is why I believe holding off and focussing on Asia as we have been doing for the past
few months, and then watching the North American market very closely, I don't think is a bad strategy.
Because we are working in dedicated IP environments in the Enterprise, we have the luxury of incorporating things like RSVP, sort of an extension to IP. If you own your IP network like in the Enterprise,
you can incorporate RSVP, which means my voice traffic will be given priority over email and over other data packets. So I can get a quality of service that people are accustomed to without noticing any
degradation. When I use the public Internet, there are some challenges.
When we look at what is happening from the Internet perspective, and we say we like dedicated IP environments, the cable companies become very interesting. The cable infrastructure is, for the most part, a
dedicated IP environment, which I think AT&T [T] recognized, and why throughout their acquisitions have now become the largest cable company in the US. When we see the decision from the district court
[in Oregon] earlier this week that says AT&T is going to be mandated to open up their cable infrastructure to other ISPs leads me to the conclusion that perhaps we are going to see a whole bunch of ISPs
becoming competitive local exchange carriers in the telecom world. That is something that we want to help with and that our technology is very well suited for, because again it is very similar to the
architectural environment that we see in the Enterprise.
StockHouse: What is your R&D spending at this point?
Steven Paquette: We have a plan over the next three years to put $17 million into our R&D.
StockHouse: So this is really something that you see increasing over the years?
Steven Paquette: Absolutely.
StockHouse: As a reflection of your push into Asia?
Steven Paquette: We will play a leading roll, but at the same time this market is happening with or without ivyNET. So I like the word "participation." We are going to do everything we can to be a leader,
and to really bring the return on investment of IP telephony to our carrier partners. That is our focus. We will participate but it's going to take a whole lot of ivyNETs out there, all around the world to catalyze
this transformation.
StockHouse: What can we expect next from ivyNET?
Steven Paquette: I think we have got to start establishing some strategic partnerships that are going to allow us to implement and execute on our Global Carrier Services strategy. Those partnerships [will]
not only [be] carrier partners, [but] would become customers in Asia, [and] supporting partners.
We are not laying fibre, as you know, so we need those relationships with the Level 3's [LVLT] and the Teleglobe's [T.TGO] of the world. We also need to put in place some partnerships domestically
[which] are going to actually carry that telecommunications traffic the final mile within North America.
Partnerships on the Global Carrier Services front are the most important. Execution on customers and on deals in the Enterprise … and we are attacking the Enterprise through systems integration partners.
Partnerships. It is all about partnerships for us right now. Can't go it alone.
StockHouse: Thank you for your time, Mr. Paquette. |
