-- OT --
Steve, here's a follow-up on the next market that is going to explode over the next 5 years. You want Internet companies? Check out this article:
ragingbull.com
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Morning Call: Internet Telephony Coming of Age?
By William C. Martin - 3/09/98 2:00 AM
On Saturday, News.com reported that Deutsche Telekom's (DT) management board has "recommended investment of more than $18 billion in available technology that allows telephone connections to be routed over the Internet." This plan is in response to AT&T's plans to offer an "Internet telephony service in the next few months." While many regulatory issues concerning Internet phones have yet to be settled, it is becoming very clear that Internet telephony will play a huge role in the near future.
Internet telephony allows anyone with a personal computer, Internet connection, and some special software to make a long distance phone call for the cost of a local call. The problem is that the Internet was designed to send data packets, not continuous voice transmissions. Recent improvements in routing technology combined with increased network bandwidth, however, are making Internet telephony much more feasible.
The implications of Internet telephony are huge. Already, with the right software, you can make a call to Japan for just a fraction of what a conventional long distance call would cost. Forrester Research, Inc. estimates Internet phone service could be a $2 billion market by 2004, or 4% of today's total long distance market. With the right improvements in technology, that number could be much larger. In addition, reliable voice technology will spur growth in other multimedia applications.
Deutsche Telekom's plans to commit billions of dollars to Internet telephony demonstrates that there are many opportunities in this rapidly emerging market. Currently, there appears to be several ways to play this trend. Below is an attempt to outline a few ideas for further perusal:
The most likely direct beneficiary will be VocalTec Communications (VOCLF). On December 30, 1997 Deutsche Telekom and VocalTec reached a final agreement which requires Deutsche Telekom "to acquire a 21.1% stake in VocalTec and will purchase more than $30 million of VocalTec's products and services, including at least $21.7 million by December 31, 1999." VocalTec's software enables "audio, video, data, text and collaborative communications between personal computers and other devices on the Internet." In addition, VocalTec also makes gateways that "bridge the Internet and the traditional public switched telephone network." In December according to Internetworld, "ITXC Corp., a joint venture of VocalTec and AT&T, announced WWeXchange, a global IP telephony service that links Internet telephony service providers, using public switched telephone networks and IP standards."VocalTec, with its software technology, seems to be in position to profit directly from DT's expansion plans. The company should also benefit from the hardware side of the growth equation with its gateway server technology. VocalTec, however, has a nearly $186 million dollar market capitalization, and like all of these companies has few revenues and no profits.
NetSpeak (NSPK) is another interesting play on Internet telephony. NSPK also offers software and gateway solutions. The stock market seems to be more optimistic on NSPK's outlook because it values the company at over $280 million dollars. In February, the company announced an agreement with Bay Networks. Bay purchased 9% of the company and agreed to "integrate NetSpeak's voice and fax technologies into its BaystackTM remote access and router platforms to deliver next-generation gateway devices which convert voice and fax signals into IP traffic. Additionally, Bay Networks will resell NetSpeak's scaleable suite of IP telephony server software, which supports an array of value-added services." NSPK also recently announced a turnkey call center solution that allows Internet users to "speak directly with a company's live representatives" via a company's Web site. MCI agreed to utilize this service, becoming the first Internet telephony technology to be used in "the US marketplace by a major commercial carrier." In addition, NSPK is backed by Motorola (MOT), Creative Technology (CRTV), and ACT Networks (ANET).
Another public company to look at is Voxware (VOXW). Voxware has software designed to improve speech transmission over the Internet. Despite investments from Intel and Netscape, the company seems to falling behind in this race. The market capitalization is only $33 million dollars on this company. Franklin Telecom (FTEL), a designer and manufacturer of communications technologies, has Internet subsidiaries that are producing a highly regarded Data/Voice Gateway and offering telephone services. According to a press release, FTEL has "signed a Letter of Intent with WorldCom (WCOM) to collocate Tempestr Data Voice Gateways in WorldCom sites. WorldCom has POP sites that cover the entire world. Initial deployment will be to major cities in the United States."
White Pine Software (WPNE), is a small company that provides software that "facilitates worldwide video and audio communication and data collaboration across the Internet, intranets, and other networks."
Linkon (LKON) is another interesting company to investigate. According to Marc Robins, Director of Marketing at Linkon, the company holds the "leadership position as a maker of communications solutions for Sun Microsystems' computing platforms.'' The company "designs, produces and markets worldwide integrated hardware and software products that process voice, data and image signals for the computer, telecommunications and Internet industries."
There are many other players are attempting to enter this emerging market. One private company to keep an eye out for is VDOnet. Microsoft (MSFT), Bell Atlantic (BEL), and US West (USW) all have investments in this Internet video-conferencing and broadcasting company. Major players like Lucent (LU), Cisco (CSCO), and many of the other hardware and networking companies are or will soon be trying to crack this market. While this is a competitive threat, it is also an opportunity. Cisco has said that it is looking to make many strategic acquisitions in the Internet telephony area. Many of the companies mentioned as possible ideas have solutions that major players would prefer to simply buy rather than going through the painstaking process of developing themselves.
That attitude also prevails in the market for Internet software solutions as well. VOCLF's management conceded that Deutsche Telekom could have developed the VocalTec's software on it's own, but it was easier and less time consuming for DT to invest in something already developed.
While Internet telephony is still facing many technological and regulatory impediments, it is clear that this market is getting set to explode. An $18 billion dollar investment is a TON of money. It is just a matter of time before Internet savvy telephone companies like Worldcom and MCI invest in this market in a major way as well.
As with any new technology, the risks to investing in this sector are enormous. However, the reward may prove to be well worth those risks. Take a look at these companies and please send us your thoughts.
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