NTOP/Greenberg -- Forbes Magazine online interview
CEO Network Chat
Q&A: Stephen Greenberg
09.10.03, 3:22 PM ET
What follows is the transcript of a Sept. 9 online chat on the Forbes.com CEO Network hosted by Stephen Greenberg, chief executive of Net2Phone.
FDCEDITORS: Welcome, everyone. Steve is here and we're ready to begin. Steve, cable telephony and especially Voice Over Internet Protocol (VOIP) have been ballyhooed for years as the next big thing. Has VOIP finally arrived?
S_GREENBERG: We believe that VOIP is now at the starting point. We pioneered this industry back in 1995 and have been perfecting it to the point where it is now a viable technology.
FDCEDITORS: What about the quality issue? Has the industry brought itself up to carrier grade, or at least close enough to be competitive?
S_GREENBERG: The two greatest barriers to cable telephony and VOIP taking off in the US have been quality and accessibility. We have overcome both of those barriers due to a number of reasons. Firstly, we have improved our technology considerably over the past eight years. We have adopted standards in both the cable and VOIP space. Additionally, through our cable telephony initiative, we can now manage the calls from the first mile (the customer's home) to the last mile by managing a cable operator's network for them.
FDCEDITORS: You practiced law for three decades before you joined Net2Phone. How did you come to run a telecom firm?
S_GREENBERG: I was special counsel to Net2Phone's board of directors back in 2000 when AT&T put $1.4 billion into Net2Phone. At that point, Howard Jonas convinced me to join the company. While I have given up the posh lifestyle of a corporate attorney, I've never worked harder or been happier since I have arrived here.
Arbola: You recently divided your business into two units, retail and cable. Any plans to spin one of these units off eventually?
S_GREENBERG: One of the reasons that we created these wholly owned subsidiaries was to give transparency to Wall Street. Another reason was to realize value from each of the subsidiaries and allow for investment opportunities, when prudent.
Arbola: How much of your business is retail customers, whether consumers or business, and how much comes from your partnerships with cable firms?
S_GREENBERG: Today, the majority of our revenue comes from Net2Phone Global Services (NGS), which sells retails services to consumers and businesses, mostly outside the U.S. Our cable business is now in the early stages. We have our first agreement with Liberty Cablevision of Puerto Rico, and our pipeline is full of cable operators that are eager to deploy telephony solutions over their HFC networks.
Ebert93: Which cable firms are your biggest customers?
S_GREENBERG: As I mentioned, our first customer is Liberty Cablevision of Puerto Rico. We are in intense discussions with a number of operators, but of course, these are all subject to confidentiality until they are finalized.
Ebert93: What's your new deal with Hughes about? Do you see satellite gaining on cable?
S_GREENBERG: Our Hughes deal is mostly focused on the international opportunities in VOIP. There are areas of the world where the only way you can communicate via voice is with satellite telephony. We have partnered with Hughes to offer a satellite bandwidth reservation system allowing for better quality calls using Net2Phone than traditional satellite telephony. This is for deployment in areas when landline connectivity is unavailable or cost-prohibitive.
Ebert93: Who are your main competitors?
S_GREENBERG: On the NGS side, we compete in a number of arenas. On the calling card side, we compete with pretty much anyone who sells calling cards. In our channel sales business, we compete with a number of VOIP providers, but believe we have a special offering of hardware, service and software allowing us to offer a better quality solution than other VOIP options. On the cable side, we believe the real competition exists in a build vs. buy scenario. Cable operators who want to deploy a residential replacement phone service have no other choice between building it themselves or outsourcing to Net2Phone. There are other service provider companies such as Vonage and 8x8 who resell a second-line phone service, but we do not expect them to be able to offer a reliable "primary-esque" service. Lastly, there are hardware providers such as Cisco.
Darwar: What share of Net2Phone is held by IDT, and what role does Howard Jonas play at Net2Phone?
S_GREENBERG: Net2Phone, for the most part, is controlled by an LLC that is comprised of both IDT and Liberty Media. Howard Jonas is our chairman. We speak daily about the opportunities before us and how we plan to capitalize on those opportunities.
Darwar: Is AT&T still an investor, or did that stake go to Comcast along with the cable systems?
S_GREENBERG: Liberty Media took out AT&T.
Darwar: How does Liberty Media figure in your future plans?
S_GREENBERG: Liberty Media has been exceptionally helpful in terms of opening doors for us. While we are VOIP experts, we work closely with Liberty to fine-tune the message and business model so that it is palatable to cable operators' needs.
Veejay: Where will most of your future growth come from?
S_GREENBERG: We believe the NGS business will click along and capitalize on deregulating or liberalizing markets internationally. The "hockey stick" growth will come from our cable telephony initiative.
Veejay: Will countries like India and China pretty much skip the public-switched network phase and go straight to VOIP?
S_GREENBERG: India and China represent heavily populated countries with low teledensity. Meaning, there are only a few phones for every hundred residents. The main reason for this is that telecommunications has traditionally been extremely cost-prohibitive. Now that these markets are opening up for competition, Net2Phone and others can get into the market and offer consumers and businesses a cost-effective alternative. This can both spark the international economies of these countries as well as improve quality of life.
Veejay: Who makes the equipment that Net2Phone customers use?
S_GREENBERG: Depends on which customers.
Ganymede: Are the cable firms already offering these bundled services we keep hearing so much about? If so, how are they being accepted by the marketplace?
S_GREENBERG: Some of the larger cable operators in the US have deployed different forms of telephone service. The best example is Cox. They deployed telephony more than five years ago and the results are very encouraging. They have shown 30% penetration in markets where they offer the service, and have reduced their churn by 50% for customers that take the triple play of voice, video and data.
Ganymede: What about Verizon, SBC and the other Bells? What's their strategic response to VOIP?
S_GREENBERG: Excellent question. We knew it would only be a matter of time before the RBOCs [regional Bell operating companies] unleashed their lawyers, and while they're doing it in a small scale, it is WAY TOO PREMATURE to speculate as to the future. Cable telephony represents a real opportunity for true facilities-based competition to the RBOCs. Additionally, the RBOCs are now attempting to align themselves with the satellite providers to offer their own form of the triple play. Should be interesting to see how this plays out.
Ganymede: I see your revenue fell substantially during the April quarter, even as your net loss narrowed considerably. At what point do you anticipate Net2Phone becoming consistently profitable?
S_GREENBERG: Since I have become CEO, I have decided not to provide guidance.
Smitty02: Whatever happened with your dispute with Cisco?
S_GREENBERG: We settled that almost a year ago.
Smitty02: From an investor's point of view, have we finally worked through the long telecom bust?
S_GREENBERG: Yes!
FDCEDITORS: That's all we have time for today. Thanks to all for participating. |
