new Net2Phone/Greenberg interview --
The Tech Briefing, Your Key to IT Investing:
May 15, 2004
lauramedley.com
Movers and Shakers
Taking the Challenge to AT&T, MCI and Sprint
Net2Phone (NTOP) started out nine years ago as a voice over Internet protocol (VoIP) seller of retail long distance minutes. In October 2001, the $297-million-in- market-cap company began to transform itself into a total outsource provider of VoIP for cable television operators. After setup, all the cable company has to do is collect its fee for telephone service in the same bill it sends for broadband Internet and cable television. TTB spoke with Net2Phone vice chairman and CEO Stephen M. Greenberg (59) about how his company will compete against the industry giants.
George S. Mack: Tell me about some of your clientele.
Stephen M. Greenberg: We have publicly announced three clients. The first was Liberty Cablevision [a subsidiary of Liberty Media that has an ownership stake in NTOP] of Puerto Rico, with almost 400,000 homes passed. That's our model. That's where we started, and that's where we demonstrated what we do. Our second announcement was with Cequel, based in St. Louis, with 150,000 homes passed. And then there's Altice One, a conglomerate in Western Europe, with a half-million homes passed. [On May 3, NTOP announced a new agreement with Northland Cable Television, passing more than 315,000 homes].
(fyi, the total # of homes ntop now passes is 2.3 million)
GSM: Cable companies like Charter, Adelphia and Mediacom have said they are going to offer telephony to their subscribers. Why should they choose you instead of building their own VoIP system?
SMG: First, Charter has already announced that in its top eight markets they are going try to build internally. This is, by the way, our biggest competition. But they've also said publicly that for markets nine through 25 they are going to be outsourcing. They didn't say they would use Net2Phone, but they did mention Net2Phone. The reason Charter or Adelphia would come to Net2Phone is that they do not have a similar balance sheet to, say, a Cox or a Comcast or a Time Warner. So they may not have the ability to spend the capital necessary. Lastly, speed to market is critical. We can get them a dial tone at the head-end in 90 days from our agreement.
GSM: Stephen, big name companies AT&T, Sprint and MCI have announced plans to enter the managed IP service business, and they are targeting cable companies. What can you offer in the face of that?
SMG: Yes, those are big names, and I'm delighted because it shows that VoIP is here. But not one of those companies can offer what Net2Phone offers in terms of a complete soup-to-nuts solution. They haven't run a VoIP network like Net2Phone has done over the last nine years during which we've run literally billions of minutes. And they haven't done what we've done in Puerto Rico – putting together all the elements necessary to deliver. None of our competitors has the back-office system we call CVOSS [cable voice operations support system], which, from the inception of the call, tells you everything you need to know about that call. If there's a problem, you remotely fix it immediately.
GSM: You don't believe AT&T, Sprint and MCI can do that?
SMG: I don't believe any company in the world has anything equivalent to CVOSS. Now I'm not saying that AT&T, Sprint and MCI, which are much larger than Net2Phone, won't eventually catch up to us in terms of experience in offering a VoIP solution. But as we sit here and speak today, for a cable company that wants to get into this VoIP telephony business as soon as possible, no, nobody has that.
GSM: How will you deal with declines in the cost of long distance minutes?
SMG: We have built price declines into our model over the next decade. We anticipate a price decline, and we believe we know where that decline will go. It still gives us margins north of 40%.
GSM: IDT and Liberty Media together own a little more than 50% of your voting shares. That could limit some aspects of your business, such as in strategic partnerships, raising money, or even if you wanted to sell the company. Is this something that investors should be concerned about?
SMG: No. Investors should actually be happy about it. I don't know of many people smarter than Howard Jonas [Chairman of IDT and also chairman of NTOP] and Dr. John Malone [Chairman of Liberty Media]. Having them as strategic partners can only be an asset to us. If something were good for the shareholders of Net2Phone, which includes those two, no matter what the situation is -- be it a partnership or any transaction that would benefit our shareholders -- there's no doubt in my mind that both IDT and Liberty would be fully supportive.
GSM: You have an agreement with IDT that you will use some of its infrastructure assets for which you are issuing it some stock. Correct?
SMG: We have an agreement with IDT in which we get everything they have to offer for our telephony piece, for cost, plus 5%. And that's true, we paid for that with stock. But it's not exclusive. It's exclusive to them, but not to us.
GSM: Can your true operating costs be assessed with this method of payment?
SMG: Without question it can. |
