Regular readers of this blog will know that I am not so enthusiastic about certain VoIP business models, especially those that try to skirt regulations. There are also a lot of low-margin or "high cost of customer acquisition" VoIP businesses out there that are struggling to survive right now, including Vonage. However, that doesn't mean that all business models that leverage VoIP technology are necessarily bad.
Take Neutral Tandem for example. The company flew under the radar for several years before making a splash with its public offering last fall. The company uses Sonus VoIP equipment to create a nationwide, distributed tandem switch with deep interconnection into the local exchange carrier network, and now provides an alternative "neutral tandem" switch network that allows wireless carriers and cable companies to exchange voice traffic without sending it through the incumbent local exchange carriers.
In the not-so-old days, the primary way for a CLEC to exhange traffic with another competitive carrier was to hand it to an ILEC, and the ILEC then would hand the traffic to the terminating CLEC. Of course, the ILEC charges an arm and a leg to do that for you.
Neutral Tandem used VoIP technology to find a cheaper way to provide that service, and has introduced a competing "voice traffic exchange" service that bypasses the ILEC. They do have a little competition, as Level 3 Communications does much the same thing. It's a good business, at about 64% gross margins for Neutral Tandem, and sustainable for at least a little while, until all that circuit switched traffic migrates to pure IP.
It's a smart use of technology to solve a real problem.
Good post Ike. Have you looked at Neutral Tandem's enterprise value? It is amazing. I posted the math on my blog and linked readers to your site.
Posted by: Dan Caruso | April 08, 2008 at 08:39 AM