ALL READ IF YOU HAVE NOT: The Wall Street Journal Interactive Edition, May 18, 1998
Promise of Internet Telecom
Attracts Investors to Shares
By SHAWN YOUNG
Dow Jones Newswires
Internet telecommunications promises to send traditional voice phone calls and a variety of data whizzing around the planet at dizzying speed for a piddling price. That promise is luring investors to some of the small companies that are working to make it come true.
Bargain-basement price is the primary appeal of Internet calling, especially for international callers. Internet calls can cost a fraction of what they would if placed by traditional means. But some experts expect the versatility of Internet technology to be equally appealing in the long run.
While the field offers relatively few pure plays for investors, it could grow fast enough that bit players today become juicy takeover targets for the likes of a Lucent Technologies or Cisco Systems.
Analysts estimate that fewer than 1% of calls go over the Internet now, but they expect that to change fast. U.S. consumers spent about $50 million on Internet calls in 1998, but that should rise to about $1.3 billion over the next five years, predicts Christopher Mines, an analyst at Forrester Research, a Cambridge, Mass., technology research company.
Using the Internet instead of traditional phone networks and new networks based on Internet technology, consumers can place calls from computer to computer, computer to telephone, and even phone to phone. Sound quality is fast leaving behind its Frankenstein-through-a-tin-can beginnings, at least for calls that don't travel over the public Internet.
High-profile moves into phone service based on Internet technology by whopper companies like AT&T and Qwest Communications International have spurred demand and lent legitimacy to smaller companies that offer Internet phone service and equipment, says Amanda McCarthy of Yankee Group.
Communications networks based on Internet technology can carry more calls more efficiently, thus more cheaply, than conventional networks. What's more, domestic and international regulators impose charges on conventional calls that aren't levied on Internet calls. Offsetting those advantages is the possibility that U.S. regulators will impose fees on some Internet calls and the fact that artificially high rates on overseas calls are coming down.
But in the long run, Ms. McCarthy says, Internet technology will keep its appeal as it overcomes limitations built into conventional communications systems and allows for the development of advanced consumer communications that could include combined video, data, fax and voice services.
Meanwhile, upstarts like IDT Corp., whose shares have risen to 33 1/8 Friday from around 8 last summer; the Delta Three unit of Bermuda-based RSL Communications; Rocky Mountain Internet; I-Link and Australia's OzEmail have the potential to build their followings. IDT shares, in fact, rose to as high as 40 1/4 on March 25 when the company announced an agreement to provide click-and-call phone service to customers of Yahoo! Inc. who have the necessary equipment.
On Wall Street, some stocks already have good followings. American depositary receipts of OzEmail were trading at around 6 last May. They closed Friday at 19 1/8.
In addition to winning over consumers, Internet phone services are becoming increasingly popular with calling-card companies that buy blocks of time to resell to customers who buy prepaid cards, Mr. Mines says.
Aside from the gradual loss of their price advantage, Internet-based companies face competition from experienced telecommunications behemoths that don't take threats to their earnings lying down. They could use their marketing muscle, packaging skills and financial resources to deal serious blows to whatever upstarts they don't acquire, Mr. Mines says.
"The quicker-moving service providers have an advantage while the big players are still scratching their heads and making strategic plans," says Jennifer St. Germain, an analyst with BT Alex Brown.
The same could be said of Internet phone equipment makers such as NetSpeak, Brooktrout Technology, Natural MicroSystems, Dialogic, E-Net Inc. and Israel's VocalTec Communications.
"These are the guys that are solving the problems," says Mr. Mines.
Their stocks have been volatile, with VocalTec shares rising from about 7 in the summer to a 52-week high of 33 1/4 on Oct. 16. Shares closed at 18 Friday. NetSpeak shares have followed a similar course from single digits last summer to a 52-week high of 33 1/8 on April 2 to a closing price of 20 3/4 Friday.
NOW, CAN ANYONE ARGUE THAT WE HAVE A LONG LONG LONG WAY TO GO in terms of our STOCK PRICE?????!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!NO. |
