Yeah, there are downsides. Hopefully, they can cut out a share of the market before they are directly challenged. At any rate, check this out from Fri. Nov 21 FP.....(I apologize about the format)
AlphaNet telegraphs its intent
By PHILIP DEMONT
Telecom Reporter The Financial Post
For the past 16 months, Andr, LeBel, president and chief
executive of AlphaNet Telecom Inc., has been trying to
reinvent his fledgling telecom company.
LeBel wants to transform his company from an odd little
provider of hotel room facsimile service -- and one that was
also promising a way to make Internet phone calls -- into a
firm carrying voice and data traffic for the world's emerging
phone carriers.
So far LeBel, former chairman of Teleglobe International Inc., has garnered some converts. In
September, PT Indosat, Indonesia's primary telecommunications company, invested $50
million for a 10.8% stake in AlphaNet.
Some influential analysts have also climbed aboard AlphaNet's bandwagon.
"This company is not what it
was a year ago. It really has put
together a winning team," says
Imtiaz Khan, a
telecommunications analyst with
Research Capital Corp.
Khan has a "buy"
recommendation on the stock
(FAX/TSE), which closed
yesterday down $1 at $18.50.
He believes the shares will rise
to $32 within the next year.
That confidence is a welcome
boost for AlphaNet, which saw its stock price languish to around $8.70 as recently as July.
On Nov. 4, the company received another shot in the arm when it announced the launch of its
international phone business.
AlphaNet has established a network that can handle communications traffic in 11 countries,
including the U.S.
"We are the first to market with a global offering," LeBel says.
AlphaNet has the ability to offer a similar service in Canada. However, federal rules, which
are due to be eased next October, prevent it from competing with Canada's monopoly
international carrier, Teleglobe Inc.
Establishing a voice and data network is crucial for AlphaNet. The carrier now has a second
stream of revenue to balance its in-hotel fax sales.
LeBel believes AlphaNet will carry one billion minutes of telephone calls by the end of 1999,
netting the company about US$150 million in sales.
The communications network also gives AlphaNet a more credible story to tell analysts and
the investment community. It is this, rather than revenue, that AlphaNet probably needs
more.
In previous years, AlphaNet did the Bay Street rounds promoting a technology that could
send voice traffic over the Internet.
Most analysts wondered about the small company's ability to design and develop the
technology After all, AlphaNet was a provider of hotel fax service, hardly a leading edge
business.
Also, in the past the company had promised revenue increases in its fax business which failed
to materialize, says Khan.
AlphaNet's revenue, mainly from its fax business, jumped to US$10.3 million for the year
ended May 31, 1995, from sales of US$1.7 million two years earlier. In 1996, the company
hit a wall as revenue tumbled to US$6.3 million because of a 15% decrease in fax service
sales and a whopping 94% drop in the royalties from renting fax machines to hotels. In 1997,
AlphaNet's fax revenue inched back up to US$7.6 million.
Overall, AlphaNet lost US$8.4 million (US83« a share) last year, mainly because the
company boosted its marketing effort to sell its international calling service. In 1996,
AlphaNet lost US$2.5 million (US28«).
Similarly, AlphaNet's stock price has lacked direction over the past three years.
In 1995, the shares hit a low of $8.75 in June, and peaked at $11.50 in July. The stock's
current 52-week trading range is $22.35-$8.50.
When LeBel arrived at the firm in August 1995, he decided to drop the
voice-over-the-Internet service -- brainchild of AlphaNet's founders, former chairman
Alastair Gordon and former executive vice-president Michael Reichmann, who both left the
company a month ago.
Instead, LeBel chose to reorient the Internet phone technology for data transmission. He
wanted to exploit AlphaNet's ability to send voice signals over a frame relay network, using
the private data communications system that links airlines in many countries.
Frame relay networks break data signals into small packages and send them to their
destination, where the messages are reassembled. AlphaNet wants to send voice signals in a
similar manner, which would represent an economical way to transmit phone calls.
Also, LeBel wants to use a loophole in the international telecommunications payments system
to gain a competitive advantage over traditional voice and data carriers.
International voice traffic is governed by a payments set-up in which a developed country, like
Canada, pays a developing nation a disproportionate amount of cash for each phone call
between the two. Data networks are exempted from this payment regime.
AlphaNet hopes that sending voice traffic over a data network will save the company cash
and allow it to offer customers lower rates.
The global market for international calls, which AlphaNet wants to tap, could be worth as
much as US$86 billion by the year 2000.
In some countries, like the U.S., overseas phone rates are dropping, squeezing potential profit
margins. For most countries, however, international phone rates still far exceed the cost of
sending the calls.
AlphaNet hopes to exploit these higher rates for significant profit.
Khan, who likes AlphaNet's story, predicts the company will lose US$1.73 a share in 1997
but by 1999, it will make US$2.60 a share. |
