A Gem still in the Rough-- NOVL
pbs.org
Note, cable and ISP subscribers value their people (seats) at anywhere from $2000-4000 each. NOVL has anywhere from 50-80 million seats using their NetWare and now NDS. At a price of only $100-160 bucks per head. Do the math, and over time if NOVL moves into the telephony area with ATT (LU) et al. you'll see this stock explode in price. Not hyping this, just pointing out a gem in the rough. Still cheap at $25/share. Don't get frustrated if it doesn't initially pop up 10 points a day like the gorilla. Its still just a little chimp being discovered by Wall Street again.
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Noorda's Revenge
IP Telephony is About to Shakeup
What it Means to be a Network
Software Company
By Robert X. Cringely
Back in 1983, AT&T went to Judge Green and
suggested that the nation's phone company be
dismembered. It was all AT&T's idea. And the
motivation behind that idea came from AT&T's weariness
with a lingering antitrust suit and a desire to make even more money. AT&T's
dismemberment plan said that its many local phone companies would be freed --
not as a single local phone company, but as a number of Regional Bell Operating
Companies. One local phone company might be too powerful a competitor
against AT&T. In return for giving up its local presence, AT&T would be freed
from both federal litigation and some federal regulation. Specifically, they'd be
allowed to keep their most profitable division -- long distance -- and that
division would be far less regulated than in the past. And they'd finally be
allowed to enter a whole new industry -- computers -- where AT&T expected
to be incredibly successful. After all, Ma Bell was the mother of Unix. In the
short run, AT&T got exactly what they wanted. Long distance, even in a new,
more competitive environment, was a big success. The AT&T computer
business wasn't a success at all. Their line of minicomputers bombed. Their PCs,
primarily from Olivetti, were dogs. And their purchase of NCR to tie it all
together ended in a spin-off and a big loss. AT&T could reenter the computer
business at anytime, but don't bring it up with them - it's a sore subject.
What AT&T didn't envision back in 1983 was the communication and
entertainment environment of today. In 1983, the Internet existed, but was used
by only a few thousand people and e-commerce was actually illegal. There was
always Compuserve, Genie, The Source, and the nation was riddled with local
bulletin board systems, but the online world was occupied by only a few tens of
thousands of people, and those were communicating at 1200 bits-per-second,
tops.
In 1983, the cable TV industry was still entering new communities and laying
cable. It was enough for a cable company to carry HBO, much less think about
offering Internet or phone service. And the fractured local phone companies
were trying to get on their feet, just as AT&T had planned. They posed little or
no threat to Ma Bell.
Well, a lot can change in 16 years. Competition has sucked much of the profit
out of the long distance business. AT&T, while still the biggest player in that
business, knows it can't look to long distance for earnings growth. What AT&T
needs are value-added (read here "high profit margin") services to offer. But
most of the really good value-added services require a local connection to the
customer. Suddenly, that old local phone service is looking pretty good.
AT&T could enter the local phone business again, and lord knows they have
tried, but it is expensive and they are not trusted. They have bought companies
and entered into deals, you name it. They have bought a big chunk of the cellular
phone business. And now they have purchased TCI, the nation's largest cable
TV company. It's all in an attempt to regain that last mile of wire to the home or
business they threw away in 1983. The market is so much richer and so much
more confused than it was back in 1983. Back then, there was local phone
service, long distance phone service, rudimentary local cellular phone service,
rudimentary online service, and cable TV. Today, all those formats overlap with
the ability to offer phone service on cable, video service (of sorts) on the phone
system, a national cellphone network that bypasses long distance, and then there
is the whole new factors of the Internet and direct satellite broadcasting of both
video and data.
There is a lot more than there used to be to sell over that last mile of wire.
But because AT&T can't just buy back those RBOCs it thought were valueless
16 years ago (even if AT&T could afford the price, it couldn't get regulatory
approval), it has to sneak back into the local business through the guise of
wireless, or cable, or a player to be named later. And at the heart of all these
attempts to squirrel back into the local business is TCP/IP technology.
Crazy TCP/IP is in the news because it turns out to be the best way to handle all
those different types of data at the same time. Want to mix voice, video, music,
and AOL? Use TCP/IP. And with the Internet as an international backbone that
goes places AT&T doesn't and costs AT&T next to nothing, IP telephony is
suddenly an especially hot technology. Of course, there are tradeoffs. The early
Internet phone products sucked. There was no gateway out of the Internet to
reach phones that weren't connected to computers that were in turn connected
to the Net. Even on computer-to-computer communication, the other guy had to
be expecting your call. And the quality sucked, with lots of line noise, echoes
and dropped words. They were free calls, sure, but free came at a stiff price.
That was before IP telephony became big business. Now there are IP telephony
product programs at Cisco, Lucent and 3Com aimed at both offering better
back-end support for IP telephones and better front-end systems, too. Aplio
ships an Internet telephone that doesn't need a PC, for example. And lots of
phone companies are building gateways from the Internet to the local phones
systems of their countries. The Internet phone calls aren't free, but they can call
regular phones.
Some of the technical improvements are impressive. 3Com just got a patent on a
technique to help recover from dropped packets. Their algorithm includes some
information in each packet about the packet before and the one after. That way,
if a packet is dropped, it can be essentially recreated from the packets before
and after it while sitting in a memory buffer waiting to be played to the listener.
Such packet recovery makes no sense at all in the world of traditional TCP/IP,
where a lost packet is just re-sent. But traditional TCP/IP doesn't put any
premium on creating a continuous stream of what's essentially real-time data. In
TCP/IP, the value was always on recreating the file exactly as it was no matter
how long it took. That certainly doesn't describe a phone conversation with
grandma.
So Internet telephony is improving at a dramatic pace. New products are
appearing all the time. Now you can have your voicemail messages automatically
sent to you as e-mail. There are literally Internet PBX's, which are a combination
of an IP phone and a virtual public network. Big bucks are being invested on the
idea that the IP network will carry every kind of business and home data in the
near future. And that brings us back to AT&T and its lust for offering local
service. Buying TCI brings tens of millions of cable TV homes within range of
AT&T local phone and Internet service, thanks in part to @home. But cable TV
has almost no penetration into business, where the really big phone bucks are
spent. How does AT&T gain entry to millions of businesses, too?
Enter Novell, stage right.
Novell is busy adding IP telephony capabilities to Netware. Almost every
business has an Internet connection today, and one important thing about
Internet connections is the bigger they are, the cheaper they get on a per-bit
basis. So why not trade that T-1 for a fractional T-3 and throw phone calls onto
your LAN? And that's exactly what will happen. But wait, there's more!
Depending on who you ask, Novell has from 50-80 million seats, each of which
also has a telephone. Novell is working with AT&T, which will provide
back-end network services. Now here's an interesting question: If you look at
Novell not as a network software company, but as a way of buying access to
50-80 million seats, how much is the company worth? Cable and cellular phone
companies are valued at thousands of dollars per user while software companies
- even Microsoft, much less Novell - are valued at far less per user. What's
wrong with this picture?
After languishing for five years and missing the biggest bull market in history,
Novell shares have suddenly tripled in price. I think it is because of AT&T and
IP telephony, as those in the know buy shares in advance of what they expect to
be either an AT&T acquisition, or at least a revolution in how network software
companies are valued.
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