Telecosm - Ike Elliott

Vonage Skid Continues Amid Debt Uncertainty

Vonage missed a commitment to refinance their $253M in convertible debt in the 2nd quarter, and as a result, the company's stock price is losing ground, hitting a year-to-date low closing price of $1.55 per share on Monday.

The convertible debt must be paid back in December, so the company has only five months of runway left to resolve the issue.  Most of the $253M must be refinanced because the company does not have enough cash on hand to pay it off, and because the company does not generate much free cash flow from operations. 

Vonage signed a non-binding letter of intent with a financier in April to refinance the debt, saying that two-thirds of the financing should come from a senior secured credit facility, and one-third from new convertible debt.  In May, CEO Jeffrey Citron said that he expected the transaction to close in the 2nd quarter.  The company missed a June 13th deadline to finish the deal, and then missed the extended deadline set for June 23rd.

Now the company hasn't set any public deadlines. 

Without a refinancing, the options are slim:

• Sell the company to a public or private buyer, or
• Declare bankruptcy

I don't think there is public company that wants to buy the company and assume the debt, so if the debt can't be refinanced in this tough market, maybe the company would declare bankrupty to erase the debt, and then be sold. 

Of course, if Vonage can complete the debt refinancing, then they get to live another day.  However, every day that goes by without debt refinancing increases the chance of bankruptcy.  And the stock price shows it:

   

Dial-up Refuses to Die

The new Pew Internet report paints a not-so-rosy picture of broadband adoption in the U.S., including a stubborn dial-up Internet access market that just refuses to die, and contrary to what you might think, that's good news for broadband leader Level 3 Communications. 

According to the Pew survey,

"62% of dial-up users say they are not interested in giving up their current connection for broadband."

When asked what it would take for them to switch, here's what the reluctant dial-up users said:

Criteria for Switching to Broadband	% responding
Price of broadband needs to fall	35%
Nothing can convince me to move	19%
Broadband needs to become available	14%

19% refuse to move, for any reason!  So, like the plague victim in Monty Python's Holy Grail, dial-up is "not dead yet."  However, dial-up internet access is certainly ill:

Dial-up is down to about 10% of the population, but the curve is flattening out somewhat.  One thing you have to watch out for in this chart, which is directly from the Pew report, is that the time scale on the X-axis is not constant, with the last three data points separated by 5 months and 9 months, and the prior data points separated by about 12 months each on average.  That means that the curve is not actually flattening as much as the chart seems to imply. But, the curve IS flattening.   

Why is this good to Level 3 Communications?  Because Level 3 owns most of the wholesale dial-up Internet access market, and it is a high-margin product for them.  In the company's first quarter earnings report, they reported $51M in "Other Communications Revenue", which is mostly from their managed modem wholesale dial-up Internet access product.  This $51M was a 39% decline from 1st quarter 2007.  The flattening dial-up defection curve as shown in the Pew report would indicate a smaller decline in the coming year than what was seen in 2007.

If Level 3 were to see a 39% decline in "Other Communications Revenue" in 2008, then the $51M per quarter would drop to about $35M in 1st quarter of 2009.  I think the Pew report is showing that Level 3 will lose less than 39% in the coming year in "Other Communications Revenue."  This might turn into a small up-side surprise for Level 3 over the next few quarters.

Business VoIP Survey Complete Results

For the past few days I've been offering pieces of the Business VoIP survey for you, and now it is time to just hand over all of the raw data that the service providers offered.  The link below contains the complete spreadsheet.

Download business_voip_providers_7108.xls

The spreadsheet contains several interesting bits that I haven't previously released, including the self-reported distribution strategy of each company, the average number of employees at each customer site, and which business VoIP products are offered by each company.  Enjoy!

Big Bandwidth Needs an Ad Campaign

Om Malik posted a few days ago about a "speed bump" in bandwidth growth, based on a new Pew Research report that shows that growth in broadband subscriptions has slowed down.  There's lots to pick apart in the Pew report, but it occurred to me that maybe it would help juice demand if the Big Bandwidth industry launched a massive ad campaign, kind of like the Beef Council. 

Imagine a radiospot with the strains of an orchestra playing some all-American composition from Aaron Copland, and then Matthew McConaughey's smooth voice sneaks in, saying:

"Gone surfin’. 

You’ll see that sign a lot in the land of big bandwidth.

Gone surfin’ YouTube.

Gone surfin’ iTunes.

Gone surfin’ MySpace.

And nobody’s sure when they’ll be back from those pastures of data, but when they are, you can bet they’ll be satisfied.

Discover the power of data when you go surfin’ in the land of big bandwidth.

Bandwidth.  It’s better than dinner."

If Mr. McConaughey can sell steaks, then I'm betting he can sell bits.  Worth a shot?

QoS Strategies of Business VoIP Providers

For the past few days I've had a series of posts showing the results from an informal survey of Business VoIP service providers.  Wednesday, we looked at size rankings by number of seats served, and yesterday we looked at which providers sell retail, wholesale, or both, and the geographies served by each.  Today, we'll look at quality of service strategies of the various providers.

As you can see from the table, all seven of the pure retail providers actively manage the quality of service provided for their retail customers.  In order to do that right, you generally also have to sell Internet access to the customer and you have to provision a circuit to the customer site, connected to a managed router on the customer end, and connected to your own network-side router on the other end. Then, you configure the routers on either end of the dedicated circuit to prioritize VoIP packets over other plain data packets, so that voice quality isn't disrupted by a burst of data traffic.

The hybrid wholesale/retail providers are more of a mixed bag.  8x8 and Junction Networks do not actively manage the quality of their VoIP services, preferring to rely on the public Internet for their customer connectivity.  This gives 8x8 and Junction Networks easy access to a national footprint, but it also means that customers may sometimes suffer from poor quality if their Internet connections are either overutilized or low capacity. 

The other hybrid wholesale/retail providers, Bandwidth.com, Simple Signal, CommX, and PBX-change, offer some degree of quality of service management, at least in some circumstances.

The wholesale players, such as New Global Telecom, often rely on their service provider customers to provide the Internet access link to the retail customer, so quality of service management is sometimes incomplete.  Unless the wholesaler controls the routers on both the customer premise and on the network side of the customer connection, or asks the retail service provider to do the same, quality of service cannot be guaranteed.  With that in mind, I'd be interested to learn how Vox Communications, a wholesaler, carefully manages quality for "TDM-like voice quality".  It might be that Vox is relying only on an adaptive codec, like Skype. 

      

Wholesale and Retail Business VoIP Providers

This week, I'm publishing the results of an informal survey of fourteen business VoIP service providers.  Yesterday, I published the list of survey respondents ranked by number of seats served.  Today, I'll look at the breakout of which companies are wholesale, retail, or both, along with whether the companies are focused in specific geographic areas, or are focused nationally.

The chart below shows the results.  You can click on it to see a bigger and better resolution version of the chart.

The size of the bubble indicates the relative size for the company, based on number of business VoIP seats served.  If a bubble straddles the wholesale/retail line, then the company serves both wholesale and retail customers.

The main take-away from the chart is that all of the pure retail companies, led by CBeyond, are focused on selected cities or are focused regionally.  That makes sense because it often takes a local sales presence for retail sales.

The pure retail players are led by CBeyond, followed by M5 Networks, Zayo Managed Services, and Unity Business Networks, Versature and Vivid IP - LogiSIP.  Fusion did not report their size, so the "proper size" of their bubble isn't known.  PBX-Change, a Tampa-based wholesale/retail player operating in the southeast, also did not report their size.

There are two pure wholesale companies that responded to the survey, led by New Global Telecom, at 82,000 seats served. Vox Communications did not report their size so the proper size of their bubble is not known.  Of course, their are other pure wholesale companies in the market, but they just haven't responded to the survey, yet.

The hybrid wholesale/retail players are lead by Bandwidth.com, followed by 8x8, Junction Networks, Simple Signal, and CommX. 

More data to come tomorrow! 

Business VoIP Survey, July, 2008

It's time to publish the first Telecosm Business VoIP Survey, in which Business VoIP companies self-report about the rapidly growing Business VoIP segment of the market.  This is a little experiment I started about a month ago, when I published a blog post asking Business VoIP companies to give us a little more insight into their business. 

This market segment is served by many regional players and many of them are privately held, so it's sometimes hard to get a handle on how the segment is growing.  I hope this little survey will help to shine a little light on the industry.  This should be the first of many periodic editions of this survey, and I hope that other business VoIP providers will join in.  I am very thankful for the fourteen companies that did respond.

There were fourteen responses to the survey, but since CBeyond is public and an ackowledged leader in the space, I added them to the list as if they had responded to the survey.  Fifteen companies does not make a very comprehensive industry survey, but it's a good start and begins to paint the picture of this emerging market segment, and I expect that the publication of the first survey will attract the attention of other companies in the space and the survey will grow as I publish it again each quarter. 

Here are the size rankings of the thirteen companies in the report:

After CBeyond, it looks like Bandwidth.com and 8x8 are the next-largest challengers, at a about a quarter the size of CBeyond.  Junction Networks and M5 Networks are next, followed by a batch of mid-sized providers: Simple Signal, Zayo Managed Services, CommX, and Unity Business Networks. 

I'll publish excerpts from the survey over the next couple of days and will publish the entire survey on Friday. 

Here is the contact information for each of the survey respondents:

Note: you can see larger versions of either of the images in this post by clicking on the image.

Final Call for Business VoIP Provider Survey Responses

Back in early June, I put out a call for Business VoIP service providers to respond to a survey, and promised to publish the results in early July.  Well, the time has come, and tomorrow is the day to publish the results.  It's not too late to get your response in...I just need to receive it by the end of the day today.  Just follow the instructions on the June 6th blog post.

So far, I've got responses from:

• 8x8
• Fusion
• M5 Networks
• Simple Signal
• Unity Business Networks
• Versature
• Vivid IP - LogiSIP
• Zayo Managed Services

I'll also throw in data about CBeyond, gleaned from their public reports.    Nine entries in the table is a good start, but I'd love to see a few more service providers participating in the survey, so spread the word and ask your service provider to lob in their survey response!