Net2Phone / JP Morgan Conference.
JP Morgan, Think Big, Buy Small. Small Cap Conference; Denver,
Colorado. March 11, 2004
Paul Kostow, JP Mogan analyst interested in this presentation very much.
Net2Phone,
Steve Greenberg, CEO
Web broadcast:
mapdigital.com
go to Net2Phone.
Presentation about the nature of Net2Phone as a retail voIP provider and now as a cable telephony and SIP-based voIP ENABLER.
Net2Phone Cable Telephony subsidiary: Steve said, when he showed the slide list of U.S. cable msos: “Most of whom, we are talking to in deep negotiations right now.”
Charter Communications
Adelphia
Brighthouse Networks
Insight Communications
RCN Corporation
Wide Open West
CableOne
Cequel
Bresnan Communications
Mediacom Communications
[These do not include the South American installation Ntop is carrying out; nor the Western Europe installation. Ntop sent people there 3/9/04]
Overview:
Net2Phone is a company comprised of voiP pioneers and people who are expert in voIP. Done it since 1995, and have done as long or longer than any other company in the world. Net2Phone has been doing voIP for more than 8 years. And most importantly today it is a voIP enabler. If you are a provider. If you have a high speed connection to a customer, the Net2Phone will put you in the telephony business.
Basic core business: Net2Phone Global Services; started as pc to phone; pc to pc; and have come up food chain. 60% is from outside of the U.S., and that was done purposely. Wanted to make it cash flow positive as soon as they could. This subsidiary is now cash flow positive. Slightly cash
Net2Phone Cable Telephony: Started because of discussions between IDT, Liberty Media, and Net2Phone. Had engineers, many from Tell Labs, come up with a solution so ntop could enable msos globally to offer a primary line, PSTN quality solution, and recently complemented that with a SIP voIP solution.
Where they are:
Announce cable telephony with Cequel, based in St. Louis: 738,000 homes passed; going to start outside of Houston, in Kings Wood Texas, with 150,000 homes passed.
Announced cable telephony with Liberty Media Puerto Rico.
Announced cable telephony with three incumbent telcos in Carribean; going to see more of that.
Now, Net2Phone is the ability to ride over broadband:
Customer most likely to buy from Net2Phone –
The RBOCS have to go to voIP, and obviously there have been announcements, but they don’t want to cannibalize their business. They’re not going to give it a great shot. But for cable operators, this is an add-on. And the same is true of the IXC. Cable operators have no existing business to cannibalize. Net2Phone believes it is the cable operators who are going to succeed in delivering voIP.
Direct to consumer: Operators like 8Xs and Vonage of this world get a lot of play in the media because it is direct to consumer, and Net2Phone has looked at them. But Net2Phone doesn’t believe it is a viable model because of customer acquisition costs and customer retention costs are just too high. Net2Phone believes it is a bundled world. The triple play is what everybody needs in this world. And offering unbundled, unmanaged solutions where you customer acquisition costs are so high, makes no sense at all.
Ntop is the only company in the world today that offers both a primary line solution and a SIP-based solution, but Net2Phone offers it directly to the service companies. In some parts of the world, a SIP-based solution, especially in Western and Eastern Europe, makes the most sense.
As far as Net2Phone is concerned, the cable company -- best of delivery.
Net2Phone Cable Telephony Subsidiary:
In the franchise model, the mso gets about 6% of the income, subject to negotiation that both ntop and the cable mso agree to.
A change: Greenberg sees more international interest (possibly because of expectations for VoiceLine).
Ntop is NOT going to go direct to the consumer; deliberately. They are after cable companies – best of delivery.
Five year penetration target market: 8.2 million. The target market projection is absent any of the so called tier 1 cable companies, including Charter and Adelphia. And absent the 30 million homes passed that Liberty Media controls, either in eastern or western Europe.
In terms of deployment, ntop is now seeing more of a penetration balance between United States and international.
Why a must have for cable companies: Cox experience that in so-called triple play, voice, video and data, with two, without phone they get churn reduction of 25%; when they introduce the third leg (phone), they get a churn reduction of 53%; a 28% uptick. That in and of itself is enough for the cable companies to say they want cable telephony now.
Satellites are great competition for cable companies, some markets more than others: If cable companies are having trouble with satellites, Net2Phone can selectively go into those markets one at a time. You don’t spend your cap-ex until subscribers actually come on. If a cable company x is having a major problem with satellites in 20 of their hundred markets, Net2Phone can selectively go into those markets.
Re Companies on MSO list above: Kind of company that would turn to Net2Phone. Completing a sale to a cable company is not easy. Any of these companies if they could do it themselves, they would do it. If they could do it internally they would do it internally. The last thing they want to do is outsource if they don’t have to. All of the companies on the list don’t have the ability to spend to spend the cap-ex; and in most of the cases they don’t have the ability to deploy the necessary op-ex to get it done. And they know they have to be in the business, for the reasons above.
Net2Phone can put them in business; it takes 90 days to get dial tone. At the same time Net2Phone is doing the contracts.
Net2Phone is the only fully outsourced solution; other companies can do pieces. Net2Phone has the only end-to-end solution, worldwide.
Net2Phone comes in and looks at engineering; tells them what they have to do for conversion. It trains their people. It does all the telephony stuff. Net2Phone has IDT as a partner. IDT bought WinStar. WinStar has switches in all 22 of the NFL cities. It provides everything Net2Phone needs. There was a brief discussion of WinStar, and wi-fi voip in internet cafes.
Then there is CVOS – which lets Net2Phone manage everything.
The key takeaway here is that there is no operational demarcation. Net2Phone does it all. The cable company doesn’t have to do any of it.
Models: Friends at JP Morgan helped Net2Phone get cash for cable telephony deployment.
Hosted model – 80% of expense borne by mso; they get ARPU; ntop gets a revenue share.
Franchise – Ntop goes to cable company and purchases telephony rights, put it on balance sheet. Ntop gets the ARPU and pays cable company a royalty (6%) – that royalty amount can go back to the cable company, for certain considerations. Some of the cap-ex goes back to the cable company, if they want a higher ARPU; and that’s fine with Net2Phone if they work it out in exchange for something else which makes business sense.
Measure: Net2phone cable telephony on number of deals signed, and then how they are doing on a regional and market-by-market basis. (Going to be judged on deals signed and announced, and then judge on same store sales basis.)
Measure net2phone global services by being profitable, and they are.
Going see a lot of deals close to the hosted model, but are going to have some flexibility in it. And you’re not going to see a pure hosted model either. Net2Phone knows that because they are in the midst of those discussions with a number of cable companies, domestically and internationally.
Liberty Media Puerto Rico – 1,000 subscribers; 1200 minutes of use a month by each – which is a little better than Verizon, the incumbent competitor, does.
Net2Phone can do end to end management.
All of the contracts are 6-7 year contracts.
Net2Phone Global Services division:
Financial Performance Slide: Ntop got out of the wholesale voiP business and managed top line revenue down, and it was purposeful. There was a $70 million turnaround in terms of EBIDTA for global services business, whereas on a cash flow basis it is now cash flow positive.
Minimal cap-ex and SG&M.
Margins north of 40%, and believe margins will remain in the 40% area as they begin to add top line revenue.
Nice solid business. Offer the platform, with very little additional cost.
Net2Phone has 600,000 voIP customers. 100,000 in U.S. and internationally have another 500,000 voIP customers, year in and year out.
Why Net2Phone does’t go direct to retail customer! Could have a multiple of 600,00 voIP customers by now. But they no longer want to be in low margin, no margin, or negative margin business. No barriers to entry into this basis. Net2Phone has been doing this longer than anyone.
This is a bundled business. The reason it is a good business is because of churn reduction.
Anyone could get into the business at any time they want.
Who are targets for VoiceLine: Net2Phone can do this for any high speed data provider. If you are a high speed data provider, Net2Phone can put you in the phone business.
Ntop can put you into the business. Ntop is an enabler. It enables you to be in the cable telephony business.
For the cable company, it not just getting the cable company, it is keeping the cable company. It’s one thing if you TV goes out; it’s another thing if your phone goes out.
Net2Phone picks up any for any call, at any time. CVOs. A lot of companies would like CVOS to be broken out and sold; Net2Phone has no intention of doing that right now.
VoiceLine is SIP for cable companies, anywhere.
Ntop is also now looking at business solutions. Target is a little below Fortune 1000 companies. It’s a good business; more so internationally. It’s a ripe business for Net2Phone, and you will see a lot of moment, actually including partnering with incumbent telcos.
Closing the sale:
Quality of Service = Primary line = 4.0; Ntop provides 4.3, per survey.
Also, incumbent telcos throughout the world will sign up for Net2Phone, SIP-based services. (for example, C&W, which just did that for the first time in Caribbean – rather than remain competive.)
More announcements coming. In the earnings call, Net2Phone said there were 5 unannounced deals.
Need to discover what Charter is going to do re Net2Phone, if anything. Charter told institutional investors it was talking to Net2Phone. Need to hear what Mediacom decides re a voIP vendor, which it said it will discuss in the next 3 weeks or so.
It was a good presentation. Greenberg can talk the talk when he has to. He kept right on point, understood his issues in depth, and dealt well with everything. |
