Background/Some Judgments, Re IDT.
Net2crap, I am not going to work through this with some preference that anyone purchase IDT shares. I am not writing this so it overstates problems, favoring but [over]stating shorting as a position where the point is to say something that happens in the best of all possible worlds for someone with, but only with, that short position.
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One Business Focus; There Are Others:
nypost.com
PHONE CARD COMPANY CALLING FOUL ON RIVALS
By CATHERINE CURAN
May 27, 2007
-- Howard S. Jonas is an unlikely policeman.
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I’ve done this in about 90 minutes. I didn’t sit down and work through, and fit information into, this for two days … it is objective, along the lines of the way I think.
I believe at some point the IRS could take a huge bite out of IDT’s cash position. Jonas mentioned that IDT had reserved $130 million –but the IRS is seeking up to $300 million. The alternatives are that the IRS gets something, gets nothing, or gets everything it is targeting. IDT would pay the IRS immediately, make payments, or not have to pay anything.
What sort of trader might prevail – someone shorting at the time when the IRS decision is rendered. Who would win, someone long at the time the IRS decides it can’t get anything. Who would have the least risk – someone trading, and not holding. All imo.
The prepaid calling card minutes are loaded onto a card, purchasable for example at Walgrens. Competitors were advertising minutes to obtain card sales, when those minutes were not actually on their cards. The ‘info” you responded to was an IDT 10Q, and not a news article. It was in the 10Q (quarterly report) for IDT about the time IDT had identified what was going on. IDT bought competitor cards, used them, and found out advertised minutes were not actually on the competitor cards. Spending money, IDT brought lawsuits in various jurisdictions, and paid/lobbied in various jurisdiction to set up a public interest agenda so as people buying cards would get the minutes advertised on the cards. This is just starting to work out, imo. At the time of that 10Q, IDT it just wanted a level playing field. My own opinion is that IDT certainly is a strong competitor, if its competitors don’t have an advantage IDT can use itself (i.e., IDT is cheap, and understands its market).
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Let me set up a case for you, shorting. It is an average expectations case, not the ‘overstated case.’
What you’ve seen over the past two years is income drop because of competitors entering the market, competitors employing unfair business practices (which isn’t saying IDT doesn’t know what an ‘unfair business practice’ is in the worst case; however, lawsuits have been already brought against IDT ). In that 10Q IDT didn’t just identify lost of revenue from calling cards. It also identified losing business to more and more consumers using cell phones.
IDT didn't, however, identify the current economic downturn (housing, cost of oil) (concomitant rise in gas costs for households) leading to less household income, which in turn leads to fewer calls being placed – impacting all telecoms, not just IDT).
IDT can only remediate certain things.
It identified that it was making SIGNIFICANTLY less on calling cards, discovered that (some) competitors were not delivering the minutes they were advertising on their cards that IDT was (so those competitors didn’t have the same overhead costs as IDT). IDT lobbied against the practice, and brought lawsuits.
Does that level the playing field? Yes. I believe IDT understands the calling card business really well. It sits at the center of IDT's business, along with routing calls globally.
Competitors were making money and IDT losing money, only where competitors were not delivering the minutes promised.
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So – next. IDT has let a significant number of employees go, including members of senior management. IDT has a system in place where employees get severance pay, and senior managers are getting high pay outs, which may be tied to, in the case of senior managers, their employment contracts. IDT can’t change the system, as that leads to employee lawsuits … and ongoing legal expenses. Providing severance is a standard practice at IDT, and employees can make a case. That’s why Jonas, in his shareholder call, didn’t want to identify:
“<Q>: And how much turnover has there been at the senior management level, both voluntary and involuntary, maybe you could...
<A - Howard Jonas>: Voluntary and involuntary? Look, we have restructured the senior management of the company. I think there are 50% old faces and 50% new faces, we – I don't really want to answer that question because if I were to say that everything was -- that everything was involuntary, that would cast a very bad light on the people who left. So, I would rather not get into the voluntary/involuntary thing.”
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---I don’t necessarily believe that Jonas’ response that if IDT were to say that letting people go was “involuntary” on their part would cast a very bad light on those people – is actually the reason why he didn’t want to respond to the question in terms of ‘voluntary/involuntary.’ I would believe he was thinking on his feet, and didn’t want to establish grounds for some sort of lawsuit by any employee. I would be sure there are enough problems in that regard already. It is what employees think about when they are told they no longer have a job ….
Why would IDT let them go? It HAS to cut costs. Why would IDT pay some members of senior management so much – I can’t tell you, outside of loyalty to particular individuals, or fear of a differet sort of lawsuit being brought or conjoined.
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So – what sorts of remediation are available to IDT in quarterly reporting before it starts to report quarters which lean to the profitable side (next February).? (Assuming the February quarter isn’t the quarter where ‘profitability’ starts to show, but it is actually reported as a gain the following quarter.)
1) Some entity(ies) buy into IDT’s oil shale side of the business. It looks like that is being considered. At some point, the oil shale business may be spun off – and if IDT has investors, to that point, it would be a beneficial spinoff. I am not buying into the idea that producing oil from shale isn’t a significant problem, including environmentally. But, to that point, IDT probably can get investor interest. Imo.
2) Partnering in some sort of major telecom business, where a LARGE telecom buys into IDT. Jonas was talking about that seriously. What is the advantage = a sudden and dramatic increase in scale. (If you go back far enough, to the point when NTOP was attempting to get even one tier 1 cable partner, the problem IDT faced – it’s first significant problem – was that the FCC allowed Verizon and SBC and the then AT&T to charge carriers like IDT more to terminate calls locally. That was the event that changed the playing field for IDT. Costs increased, and call termination is a business where prices are already set, and cable telephony and skype (quasi-free) bring new competitors to legacy telecom carriers.
3) IDT wins some major lawsuit – the one for fiber; or against skype/e-bay.
Re Tyco –
… we have a suit against Tyco, who gave us what we consider $500 million in fiber, we booked it $500 million, never delivered it, the judges rendered some re-judgment against them. They've appealed it. We are waiting for the appeal to come down, but if their appeal is denied, we go into a penalty phase of the trial.”
Re Skype-E-bay:
… a complete unknown; in the (oral?) argument phase. IDT will go on to sue others if it prevails, and will have poured a lot of money down the drain and have taken out NTOP as it pursued NTOP’s patents for itself.
4) Zedge: Possibly IDT gets some investors interested, and ends up spinning it off; or IDT finds a way of partnering, where Zedge is its contribution. A lot of what goes on at Zedge is free. Yes, it appears to have a high number of users – (free). So there is a little bit of sleight of hand here, imo, but also – to the right party, Zedge is an addition. (For example, IDT Entertainment was right for Liberty Media; wrong for IDT Telecom. There was nothing else Liberty Media could take for its own IDT shares).
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If IDT manages to change the scale at which it operates as a telecom, it will have done something significant that goes right to the core of IDT as a operates IDT as a business.
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Re the following, I felt this was a interesting question, and Jonas’ response to it enlightening. I believe Jonas’ response reflects negatively on the idea Jonas wants to take IDT private. I don’t believe he wants the work. He doesn’t have a use for ‘two beds’; he doesn’t want to have to totally be responsible for running IDT. If IDT operates successfully, his life goes the way he has set it up. That doesn’t mean he wouldn’t take IDT out at a bargain price, or wouldn’t find a buyer. But he does not and has consistently refused to, give up his control. He likes where he sits. Imo. He needs the company running more successfully to continue to sit there.
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i.e.,
<Q>: Okay, well anyway thank you for doing [audio gap] -- do you have plans to do more frequent calls in the future?
<A - Howard Jonas>: No, I thought that this was really a moving like into the black for the first time in 14 years was a seminal moment that deserved a phone call.
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Jonas and his charitable contributions, and the need Jonas has personally for there to be a successfully operating IDT:
I could be completely wrong about Jonas going after IDT. He goes after what he figures he wants. (Even so, there is a significant impact in Jonas' ability to make contributions to his various charities (including but not limited to Jewish charities, when the share price of IDT is dropping, or if he bought out IDT Telecom.
i.e., sourced on a blog:
"There comes a point when you must take a look at what will happen to certain Jonas-supported modern Orthodox Jewish institutions as Howard Jonas' Good Ship IDT continues to sink."))
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CALLING CARD BACKGROUND, ETC.:
Remediate means to reduce the impact. Getting a major partner for IDT Telecom reduces the impact. Setting major lawsuits in favor of IDT reduces the impact. Paying money to the IRS increases the impact. Severance costs increases the impact until the layoff process ends (all of that goes into quarterly reports – and JohnQPublic responds to the line: “quarter over quarter, or year over year IDT losses increased by, or quarter over quarter, or year over IDT costs and losses remained about steady, or even – this quarter IDT showed a profit for the first time in 14 years.
Again, the IRS decision about what if anything IDT owes the IRS re NTOP affects IDT completely.; at one end it takes out IDT’s cash position, at another it cuts it in one-half or one third; at another pays an amount it can ‘get over’; and in the best case for IDT, the IRS gets nothing. The outcome is based on the decision the IRS gets to; it is not about business practice IDT can change or seek some advantage directly or indirectly, in changing something in how it operates to some perceived economic advantage, which might impact share price. Profitability, assuming IDT doesn’t then spend millions on some new idea that doesn’t immediately work, has subjectively as large an impact as taking a hit from the IRS.
Anti-Fraud Lawsuit (actually off wikepedia):
"IDT commenced a civil anti-fraud lawsuit March 8th, 2007 against certain of its competitors in the US pre-paid calling card market. The lawsuit, which was filed in federal district court in Newark, New Jersey, alleges, among other things, that CVT Prepaid Solutions, Inc., Dollar Phone Corporation., Epana Networks, Inc., Locus Telecommunications, Inc., Total Call International, Inc., STi Phonecard, Inc., Find & Focus Abilities, Inc, VOIP Enterprises, Inc., and Telco Group, Inc. are systematically falsely promising minutes that consumers cannot obtain from the cards they have bought. The complaint alleges that the defendants' deceptive practice causes consumers to lose more than one million dollars a day.
The lawsuit further alleges that the defendants' fraudulent conduct in the pre-paid calling card marketplace has negatively impacted IDT's market share, resulting in a reduction in IDT's revenues, and also has caused reductions to net income. The suit seeks a preliminary and permanent injunction barring defendants from continuing in this massive and systemic fraud as well as money damages.
As of June 5, 2007, Epana Networks, Inc, Locus Telecommunications, Inc, and Dollar Phone Corp. have all agreed to settle the lawsuit brought by IDT. All three have agreed to work together to improve practices in the prepaid phone card industry and have agreed to deliver 100% of the minutes promised to consumers." |
