From the Coffe House Thread - posted by mnispel
Science Officer Reporting: USA Global Link
The following is an 18mos in review science dept. report on USA Global Link. It can be used in order to size up one of the competition, their plans, their progress, and their failings, in order to get a perspective of our market in general and to contrast USAGL with the strengths and needs of our own DGIVfuture.
USA Global link was founded six years ago with an initial investment of less than $500,000. Chris Hartnett, had man at USAGL, who in former lives had worked negotiating gemstone deals in Asia and trading international currencies on the Chicago Mercantile Exchange, led the company. It made its early money largely by offering international callback services. By 1996, USAGL had grown to $240 million in revenues. But this was small potatoes in their eyes. They knew that competition in this arena plus the overall developments in the telecom industry would bring down int. LD rates and undercut the callback business. So in order to grow the company they had to move on to other services. Their plan was very ambitious. The following is a sequential review of how things have turned out so far.
In January 1996, PT Indosat of Indonesia bought a 20% stake in the company for $20 million, apparently primarily in the interest of the call back business although a look to the future must have played a part also. In March 1997, USAGL claimed that would make a $40M investment in order to start offering internet telephony services. They intended to team up with a German multinational consumer company (at the time unnamed, later revealed to be Bertelsmann AG) for further capital, up to $500 million. They saw themselves being a $20-30 billion company by 1999 and $108 billion by 2002! They claimed they would eventually install 1008 POP locations around the world and that 1997 would see services offered in Australia, Brazil, Britain, France, Germany, Hon Kong, Japan, South Korea, Singapore and Taiwan. They also intended to team up with local service providers. For example, they expected to undercut Germany's Deutsche Telekom in price by 60% on local calls and 80%. In Australia they expected to capture up to 5% of the entire domestic and LD markets rising up to 15%-20% later. In Japan, they announced they would spend $150 million installing switching equipment. At this time they were beta testing equipment from Lucent that they intended to use for their implementation.
As part of their marketing of their plans, USAGL made use of the term "virtual telco" in that they had no real hardware network of their own but simply bought routing rights and delivered services. In April it was claimed they had developed their own hardware and software solutions to certain internet delay difficulties. The plan was to introduce gateways in 11 countries by July, 1997. USAGL claimed it would become the worlds biggest telephone company by offering the lowest cost. It claimed that a public IPO would be offered in the fall of 1997, taking the company public.
Everything was not roses however. Already in late April, Merrill Lynch noted that they had not yet signed up any local partners and would potentially face regulatory delays, especially in Asia. USAGL admitted such things could slow them down. Also in April, Communcations Week International noted that Internet telephony had encountered open hostility from national carriers and reulators. Japan denounced USAGL as a "serious menace." The article then states:
"Hartnett responds with the same bluntness that infuriated the Asian carriers that have fought his callback business for years. 'We are putting the switches in anyway and we'll turn them on when the FCC allows us... They [the Asian authorities] can't stop us,' he said."
June and July came but with no announcements of startup of services. In July they stated that even Japan was unlikely to be up and running by August. But they still claimed that they would continue plans to set up joint ventures in places like the USA, Germany, Japan, and Brazil. Harnett claimed they would do $1 billion in business in 1997. In July and August, they also announced their plans to offer international refile services. In this business, USAGL would reroute international calls made from country A to country B through country C in order to get the lowest possible rates. This caused quite a stir since many felt this practice violates the International Telecommunications Regulations agreed to in 1988. But the rest of the year passed with few positive announcements, no IPO, and apparently, in 1997, they only managed about $300 million in revenue. Apparently,
things were in a stall.
But in January 1998, plans were altered somewhat when the company stated they had now chosen to use 3COM hardware in the implementation of their system (obviously not implemented at all yet). They apparently agreed to pay 3COM $500 million in building out a system of 500 3COM Total Control access concentrators linked by fiber-optic lines. Installation was to begin this spring in countries, now familiar, Brazil, Germany, the Netherlands, Japan, the US, Switzerland, and Hong Kong. The first locations were to be launched were to be New York and Dublin in April. Notably absent are South America and Asian countries, but the company claimed they would
come later. The entire system was now supposed to cost $1.2 billion over three years.
No site launches have been announced yet. But on May 7, USAGL announced that Mark Baker, Executive Vice President, International at ATT, had joined the company as CEO and would "strengthen our strategy to build partnerships around the world." And the company announced an expansion of their network to $2.2 billion spent over the next 3 or 4 years. They claimed 10 3COM switches had been installed and 77 more would be installed by the end of summer, and 200 total to be installed by the end of the year.
Lessons:
USAGL is moving forward.
They are using big money to develop a global network
Their early hype has damaged the company's credibility
Their attitude has hurt them in dealing with Asian and other countries
To be continued:
Mark N.
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