BCE Deal - How Do You Value a Telco?

The BCE privatization saga continues, and now the ball is back in BCE's court as they try to defend their valuation and trump KPMG's solvency opinion. There's a lot at stake here, and both sides are pulling out all the stops to get things to go their way. It's a bit like watching Detroit's auto execs going hat in hand to Washington for a bailout. If the deal falls apart, there are big time winners and losers, and a whole new environment for Canadian service providers.

I'm not following the minutiae of the story, but you can get a good taste of it here. It's high stakes accounting, banking and legalese, with lots of complexities around things like the criteria for determining solvency, the benchmark dates for making valuations, potential conflicts of interest for KPMG between BCE and the bankers, avoidance of paying break fees if the solvency test is the deal-killer, the impact of Canada's suddenly weak dollar, etc.

There are many angles and sub-stories here, and some will only be of local interest. In some ways BCE is better off remaining a public company, and long-standing shareholders will be happy because the huge drop in valuation this week only remains a paper loss. By staying public, BCE avoids taking on the $30+ billion in debt, which would severely restrict its ability to invest in network upgrades to remain competitive. If the deal dies, all bets are off, and BCE's competitors will have to expect a more aggressive posture from them. That in turn should keep the playing field a bit more level since BCE will be jumping back into the pool with both feet.

Not everyone out there will find the BCE story of interest, and that's fine. My main reason for posting about this is to draw attention to the challenges of valuing a telco, especially in tough economic times. I'm not an expert in business valuations, but it sure must be difficult to assess the value of the two primary assets of any telco - its subscribers and the network. BCE is a great case study since it's so public, and if I was a telco, I'd be watching this one closely. I wouldn't be at all surprised to see one or two major telcos/cablecos to falter in 2009, and they'll have the same issues to deal with. In today's world of IP communications it's much harder to place a value on the subscriber, and at some point, revenues from advertisers will be part of the mix, just like they are with the portal players like Google and Yahoo. I'm sure BCE will be a real test to determine just how well auditors can do their job in valuing service providers, and I guess we'll know once the final rulings are decided. Stay tuned.


Technorati tags: KPMG, Jon Arnold, BCE

Signs of Life - SightSpeed, iSkoot, Intelepeer, BCE

Busy, busy - no time for a thoughtful post, but a quick one will do. With so much bad news out there - and more coming no doubt - it's good to remember that good things are happening too.

I've got my hands full with work right now, but wanted to make sure you knew that it's not all gloom and doom. In no particular order, these should give you cause for hope. It's Remembrance Day/Veterans Day, after all, so a pause to appreciate the positives is not such a bad idea.

Intelepeer - today announced a raise of $18 million.

iSkoot - a few days back, they raised $19 million.

SightSpeed - long a favorite of mine - was acquired about 2 weeks ago by Logitech for $30 million.

BCE - up here in Canada, despite difficult capital markets, it looks like the financing needed for their privatization deal is falling into place.



Technorati tags: Intelepeer, Jon Arnold, iSkoot, BCE, SightSpeed

Videoconferencing News - GIPS and SightSpeed

Two companies I have some history with in the videoconferencing space had some news yesterday - GIPS and SightSpeed. I was set to post this yesterday, but we had a power outage at an inopportune time. After that, one thing led to another, and it just didn't happen as intended. Defeated by technology, again...

I'll start with GIPS - Global IP Solutions - since I have more history there. They've just published a white paper along with a video to demonstrate how far desktop videoconferencing solutions have come. I won't say any more than that since I'm the author of the white paper, and I'm not in the PR business. However, I am pleased to see how much attention this has been getting, so if you haven't come across this yet, you can find it in a few places - Fierce VoIP, Conferencing News, and an in-depth review/analysis from Jim Courtney on Skype Journal.

For more detail, you can read the press release here, and download the paper as well as view the demo video here.

SightSpeed had some very exciting news of their own on the same day, so there must be a trend happening. In short, they were acquired by Logitech for $30 million.

Aside from being a great exit for Peter Csathy's company (his third), I see this as nice validation for the good work GIPS is doing. I've got some nice history with SightSpeed as well - and have been a happy user - so it's personally satisfying to see a company I've been following for a while get a buyout like this, especially in such a difficult economy.

Finally, to tie things up nicely, colleague Alec Saunders featured both companies on yesterday's Squawk Box podcast. Guess I'm not the only one seeing a trend here!

Technorati tags: GIPS, Jon Arnold, SightSpeed, videoconferencing

Loose Ends - Skype and the Great Firewall of China, VON/Virgo Deal, Oz/Nokia Deal

I don't get paid to blog, so when I'm busy with consulting work, I fall behind on the news. There is always interesting stuff going on, and before the week is out, I wanted to quickly draw attention to three stories of note. These are all of interest to me, but it's way too late to post about them. So, for the laggards out there, here are three items you might want to explore further.

1. Skype - China/censorship/privacy - you get the idea. Wow, this is an interesting - but not altogether unsurprising story. Barely a month after the Beijing Olympics, here we go again, with the dark side of state-run media rearing its ugly head.

You don't have to look far for coverage of this story, or think too hard about how insidious all this is, but it's another reminder of how the Internet is impacting our lives. Ultimately, it may be a borderless technology, but as they say, the "great firewall of China" isn't quite onside yet.

I'd start first with Phil Wolff's posting on Skype Journal, then Om Malik, and I'm sure you'll find many others from there. I should also add this is not a new problem, and Skype is not alone in this morass - other IM platforms have had similar issues. RIM too, by the way.

Aside from the coverage you've already seen on this, I wanted to add some local coverage that I thought was really great. It ran in today's Globe & Mail, and talks about how a lab researcher here at the University of Toronto - Nart Villeneuve - uncovered some online trails that led him to all kinds of censorship and monitoring in China with Skype traffic. It's a great read, and am pretty sure will add valuable first-hand insight for anyone following this story. I should add that local colleague Jim Courtney - a regular Skype Journal contributor - picked up on this today, as have others like Om Malik.

I'll end on that triumphant note, as it's great to see some homegrown investigative work getting to the bottom of a truly international issue.

2. Virgo acquires VON. This is a much smaller scale story, but still of interest to many of us in the space. Several of us got wind of this news at the IT Expo a few weeks back, but it's just becoming official now. Andy Abramson had a good wrap on this the other day, and there's not a whole lot more to say about it right now.

Well, there is, but it's end of the week, and I'm kind of done now. That said, I wanted to at least acknowledge the story because it's evident from my recent conversations that most people don't know this has happened. Now you do.

3. Nokia acquires Oz Communications. Yet an even smaller story, but also of interest to me. Everyone knows Nokia and how they're doing lots of cool things with Ovi and just launched their iPhone killer. But most of you don't know Oz - a bit like saying you don't know Jack.

I've followed them for a while, and it's another great Canadian success story. So, add a notch for our win column, which is a nice way to end the week as the weather gets colder and my Red Sox look to keep winning.




Technorati tags: Skype, Jon Arnold, Nart Villeneuve, VON, Oz Communications

BroadSoft Acquires VocalData

Interesting story from yesterday about BroadSoft acquiring what used to be known as VocalData. It's not huge news and hasn't received much attention, but for people like me who have followed these companies pretty much from the beginning, we notice.

You can tell I'm old school because I talk about VocalData. The more current explanation - which you can see in the press release - is that BroadSoft acquired "GENBAND's M6 Communication Applications Server" - formerly known as VocalData.

Genband - formerly General Bandwidth - is a story unto itself with a history of acquiring and divesting, and VocalData came along with their last big deal. I've never been able to figure out how all their moves really add up - and I'm not alone - but it's pretty clear they're steering now more towards the media gateway space and away from the applications space. Fair enough - it's very hard to be really good at both.

I haven't heard anything yet about how much the deal was worth, but I honestly can't imagine it was a lot, and very likely under $10 million. The important thing is that BroadSoft is consolidating what little is left among pureplay application server vendors. There was a time when the U.S. market had 3 major players - BroadSoft, Sylantro and VocalData, and I tracked them all when I covered this space at Frost & Sullivan. I always liked VocalData, but they couldn't keep pace, and in time, this became a two horse race.

I've long been friendly with both Sylantro and BroadSoft - and have attended their customer events - but most people would tell you that BroadSoft is the stronger player these days, and continues to innovate on many fronts. Adding VocalData pushes up their revenues and customer base - which the press release says now stands at 435. That's a pretty nice book of business, and I have a pretty good feeling that you'll be hearing about bigger and better deals from them before the year is out.

Before moving on, I should clarify that BroadSoft may be the #1 app server vendor for North America, but globally, Comverse/NetCentrex is bigger, mainly by virtue of some very large residential VoIP deployments in Europe.

Technorati tags: BroadSoft, Genband, Jon Arnold, VocalData, application servers

Nortel Acquires DiamondWare

Got another acquisition story to tell you about, and one that I'm really glad to share on a few fronts. This morning, Nortel announced its acquisition of DiamondWare, one of those really cool, stealth-type companies most people have never heard about. Most - but not all. They were nice enough to cite me in the press release, and it probably helped that I'm one of those few people who have heard about DiamondWare.

This story has been a long time in the making, and I'm pretty certain that I'm the only industry analyst who has had direct exposure to both DiamondWare and Nortel's web.alive collaboration initiative. I'm not going to rehash the details, but you can read more about DiamondWare in my post from early last year, and Web.Alive in my post from May summarizing the highlights of an analyst/media day that Nortel hosted in Ottawa.

If you read these posts, you'll see that based on my experiences with both companies why this deal makes so much sense. It's great validation for DiamondWare, who cut its teeth on leading edge work for the US military, some of which has found commercial use in Second Life as well as most of the major gaming platforms. In my mind, if you can master these environments, enterprise applications should be relatively easy.

For Nortel, this is very nice evidence of the "new Nortel", and is the kind of acquisition that can return them to the forefront of innovation. In financial terms, it's a small deal - $7 million cash and up to $3 million for performance - but in technology value, it's much bigger. The traditional voice business is tough going for anyone battling Cisco, Avaya, etc. head-on, where margins are getting smaller and the number of competitors keeps growing. With web.alive and Project Chainsaw, Nortel is pushing the boundaries and by locking up great technology like DiamondWare, I think they've got a prime opportunity to define Communications 3.0 for the business market.

I'd say chalk one up in the win column for Nortel, and congrats to Keith Weiner and the DiamondWare team who have labored obscurely out in the desert - literally - Arizona - and now have a place to really shine.

As a footnote, to learn more about Project Chainsaw, you should check out their blog, which officially launched today.

On a personal note, I'd like to close by saying it's been a good week for acquisitions I've had some connection to. In addition to this story, on Tuesday I posted about another company I was involved with looking for an exit - Micromethod, who was just acquired by Voxeo. Not sure who's next, but when things happen, I'll be sure to let you know.


Technorati tags: Nortel, DiamondWare, Jon Arnold, Project Chainsaw, collaboration, web.alive

Micromethod Acquired by Voxeo

Got some nice news to share about a former client that hit the wires this morning. Micromethod Technologies is a tiny company most of you have never heard about, and they've been quietly doing some leading edge work in the SIP server space.

Today, at their big industry event - SpeechTEK - Voxeo announced the acquisition of Micromethod. The news was a key highlight from their event today, and colleague Dan York provided a more detailed take on the Voxeo blog.

Last year, Micromethod engaged me to help find a buyer, and Voxeo was one of several companies we entered into discussions with. During this time I got to know Voxeo, and have since become a fan. Without getting into the details, it's a great fit for both companies. Micromethod gets exposure to a large customer base to put their applications/platform to work, and Voxeo gets some entry points into Asia as well as a tightly-knit developer team in China.

This deal came to fruition after my time with Micromethod, but I'm still very glad to see them get an exit and a home to keep their technology evolving. It's a good news story all around, and some nice validation that small startups can do well for themselves if they stick to their vision and hone in on the right targets.

Since we all have to make a living, I'll just leave you with this thought - if you're in a similar situation as Micromethod and need the benefit of a third party in this space, drop me a line. Similarly, if you're in Voxeo's shoes, and are looking for emerging companies with promising technology, I can probably be of help.


Technorati tags: Micromethod, Voxeo, Jon Arnold, SIP server, Dan York

Espial Acquires Kasenna

Here's a noteworthy item that came out on Canada Day. In short, one IPTV middleware company has acquired another IPTV middleware company. It's not a huge story or a huge deal, but still of interest to anyone following this space.

The players involved are Ottawa-based Espial Group and California-based Kassena. It's a very small deal dollar-wise - not even $10 million - but there are a few aspects worth commenting on.

First, it's a Canadian story. I've followed Espial for quite some time, and they went public up here on the TSX a little over a year ago.

Second, you don't often see Canadian companies acquiring U.S. companies in the IP world. Mitel's acquisition of Inter-Tel last year was another example, but on a much larger scale. Aside from not often seeing these kinds of deals, you may well not have heard about it either. In addition to this being a really small deal, the timing is a bit odd. Falling on Canada Day, it didn't really get picked up until today. And coming into the July 4 break, it may not register much in the U.S. this week either. Is it possible the timing was intentional so as not to attract much attention? I'm not close enough to either company to speculate, but I welcome your thoughts.

More importantly, the story is worth noting as a sign of low-level consolidation in the IPTV market, which is taking longer to hit its stride than most of us have expected. This is a natural stage for any emerging sector, and together these companies should be stronger. It's always tough to gauge synergies among like companies, especially when they are of comparable size.

The real problem here is that the IPTV space - especially middleware - remains fragmented, with no dominant player. Well, they're all competing against Microsoft - that's a given - but otherwise, they're all pretty small. As a result, the longer the market takes to mature, the harder it is for the indies to hang in for the payoff. At this stage of the game, revenues are hard to come by, and options for toughing it out another quarter or two are limited. That would explain why the size of this deal is so small. Better to take a small buy-out now than risk getting nothing later on.

I've always liked Espial, and hope this deal takes them to another level. If it does, I'm sure we'll see other roll-ups as the other middleware vendors look for ways to keep pace. I doubt this will be a game-changer for Microsoft, but it sure gives Espial more runway now to ramp up and try to emerge as a leader among the indies.

All I can do here is draw some home-grown attention to the news and hope they can make this work. Go Canada!


Technorati tags: Espial, Jon Arnold, Kasenna, IPTV

Geosign - what a story!/Welcome Kevin Restivo

This is a two-for-one post. First item is Geosign, a very mysterious company based in Guelph, Ontario. I posted about them last March after they quietly received a humongous funding of $160 million. This kind of money is unheard of in Canada, especially for an obscure company in an obscure town. In the IP communications space, most ventures are lucky to scare up a few million, and this raise is probably more than the whole space has received combined. I've never seen anything so out of whack at this level of magnitude. It just didn't add up.

After hearing about the funding, I approached them for me to come out and do an interview with their CEO. Initially, they were receptive, but suddenly the trail went cold - they were no longer giving interviews. Over the course of last summer, I had a dialog going with a journalist who was trying to get the story, and she had all kinds of interesting tidbits that were difficult to substantiate, but you just could tell something wasn't right. We fell out of touch, and Geosign has been off my radar for a while - but I've always wondered what the real story was.

Well, the other day I got my answer. Last weekend, the Financial Post Business Magazine ran a cover story on Geosign, penned by Robert Thompson. It's one of those you-have-to-read-this-to-believe-it stories, and I'm not going rehash it all for you here. I'll just say this was the classic Google pay-per-ad-click model on steriods, with hundreds of bogus websites set up as landing pages with nothing more than online ads on them. The scheme worked well enough for Geosign to attract $160 million - incredible! - but once Google caught on to their M.O., they changed the rules of the game, and the whole thing collapsed practically overnight.

Someone should make a movie of this. Canada is such a nice, modest, polite place, and you'd hardly ever suspect something like this would come out such a wholesome place like Guelph. Incredibly, as you read through the story, no crimes were committed, and the founders have simply moved on to other things - as if nothing ever happened.

I just want to say enough here to tempt you into reading the article. It's a great read, and I don't want to take away from Robert Thompson's good work.

Now for Part 2 of my post. I never would have seen this if it weren't for fellow analyst Kevin Restivo. He actually used to cover tech for the same paper as Robert, the Financial Post here in Toronto. He left a few years back for the analyst world, and is currently at IDC. We see each other at local events, and more recently, he's made me aware of his blog, which was started back in the summer.

While scrolling through his recent posts yesterday, I came across his post about Geosign. That was the first news I'd heard about Geosign in ages, and I'm so glad he referenced the magazine article, as I never see the Post. So, now I have the full story, and am happy to share it here.

More importantly is a shout-out here to Kevin and his blog. It's really good, not just for local and Canadian coverage, but Kevin is a strong analyst, and has keen insights on technology trends in general. We have very few analysts blogging about the Canadian market, and I'm glad he is. We have reciprocated links on our blog rolls, and I'm happy to introduce Kevin to my readers.

Technorati tags: Geosign, Jon Arnold, Kevin Restivo

Posted by jonarnold at March 19, 2008 11:53 AM

Jon: Thanks for the kind remarks. The story was very well received -- and what a tale it is!

Posted by: Robert Thompson at March 23, 2008 07:31 PM

Phonetime Graduates to Toronto Stock Exchange

Well, here's a good news item I'm pleased to share, especially as North America teeters on the brink of recession.

One of our local companies - Phonetime - has graduated from our venture exchange to our big board, the TSX. The news was announced today, and I say that they've graduated for a good reason - their trading symbol is PHD. Hah - can't get any smarter than that!

This is a really positive sign for a company that doesn't get much attention and operates a pretty simple, Voice 1.0 business. They've been on the venture exchange since 2000, and I've been friendly with them for a few years, so I can say first hand this is a good story.

Phonetime is basically a one-stop-shop for long distance telecom services across Canada. They operate their own national network, and have a healthy mix of both wholesale termination/origination business as well as retail offerings, primarily through calling cards. Sure, it's a low margin/high volume business, but if you establish your network and maintain a reasonably loyal mix of customers and distributors, it can be a decent business.

Not very sexy, but with Toronto's unparalleled mix of cultures and immigrants, this is a great market for these types of products, especially the calling cards. VoIP may not mean much to this audience yet, but calling cards make a lot of sense, especially for people who do not even have the luxury of their own landline.

For sake of transparency, I'm not a shareholder, but it's been on my to-do list for a while. I think I'll follow their progress on the TSX for little bit first and then see about becoming one.


Technorati tags:
Phonetime, Jon Arnold, TSX

New Coverage on Acme Packet and Veraz Networks

Just a quick post to draw your attention to some great coverage on two companies I've been a fan of for a long time - Acme Packet and Veraz Networks.

Colleague Catharine Trebnick has followed our industry for many years, primarily as a financial analyst. She knows it quite well and is currently a Principal at Boston-based investment bank America's Growth Capital.

They recently initiated coverage on these companies, and Catharine's reports have just been published. I've had a chance to review them, and aside from her strong company-based coverage, her reports provide a solid overview of the markets these two pure-play companies compete in. Basically, she's saying that Acme is still a good growth story, and Veraz is on it's way, but is definitely in a tougher environment.

Catharine has been nice enough to share her reports with those who are interested, and I'm nice enough to extend this to my readers. So, if you'd like to follow up, please contact Catharine directly by email, and she can take things from there. And if you do, I'd love to hear your thoughts on her coverage.

P.S. Look for another post in the next few days about something else I'll be doing with her firm...


Technorati tags: Catharine Trebnick, Jon Arnold, America's Growth Capital, Acme Packet, Veraz

Dialogic Acquires Cantata

I got a press release this morning announcing that Dialogic has acquired EAS Group, which in turn owns Cantata. That was news to me, and I haven't seen any commentary out there about this yet. Either people are busy with other things, or it's a non-event. Not sure.

Anyhow, you can read the release for yourself on Dialogic's website, or if you go to Cantata's site, there's a message directing you over to Dialogic's site, or a click-through to the same press release that's running on Dialogic's site. So, I guess it's official.

To be fair, I haven't followed Cantata as closely as I used to, but it's no secret they've had difficulty making their mashup of VoIP infrastructure companies work. Cantata is made up of three Massachusetts-based vendors - SnowShore, Excel Switching and Brooktrout. They've all had up and down rides, and at this point, it's clear that a better plan is needed. Consolidation has been a major trend this year in IP, and Dialogic's move is another step in that direction.

I can't really add much else right and will have to look into this a bit further. At first look, there are some parallels to what Radisys did by acquiring Convedia last year. Media servers are a common aspect to both moves, and this is an important nextgen building block, not just for everyday VoIP, but IMS as well.

Clearly Dialogic thinks there's a fit here, and maybe they're trying to become a consolidator now. That said, no financial details of the deal were provided, and it's not explained how Dialogic is funding the deal. The fact that not much is being said about this raises some questions, so it's hard to draw firm conclusions right now.

Of course, if you didn't know, Dialogic is based in Montreal, so it's worth noting that a Canadian company has come into the milieu and acquired an American company. Hate to say it, but it's probably a good time to be doing this given that the Canadian dollar is trading above the greenback. So, for a change, the economics are attractive for Canadian companies to do this.

Actually, with the US dollar being weak relative to other currencies, I wouldn't be surprised to see vendors from other parts of the world follow Dialogic to take advantage of their stronger currency. Time will tell. Meanwhile, it's Canadian Thanksgiving on Monday, so I'm sure the Dialogic execs will be enjoying their turkey. Gobble gobble.



Technorati tags: Dialogic, Jon Arnold, Cantata

BCE Privatization Story/Meeting Mr. Sabia

Without a doubt, the privatization of Bell Canada/BCE is the biggest story in Canadian telecom, and has many fascinating angles worth exploring. I've been very quiet about it, simply because it's so widely covered, and if I get started on this, I could be blogging for a long time. I gotta make a living, and have a backlog of other posts to get out from being away last week. Please be patient....

Well, I got my chance to speak my mind about BCE today on BNN - Business Network News. This is one of Canada's main financial news TV networks - it used to be called ROB TV (Report on Business TV), and was recently rebranded as BNN. Same studio, same people, same shows, and same owner - the Globe & Mail.

The studios are right downtown here in Toronto, and I was downtown anyway for a meeting, so the timing worked out well. This afternoon, I was on the After Hours show, hosted by Kim Parlee and Andy Bell. They wanted my take on the BCE deal, and what it means to Telus, as well as the rest of the Canadian communications landscape.

The segment runs about 7 minutes, and you can find the link on the BNN home page. You first need to get to the program listings for July 3, and then scroll down to the 4:40 pm time slot, and you'll see the link there.

If you can't find that, here's a direct link. However, they usually only leave these up on the site for a week, so don't wait too long if you want to view it.

So, what's the connection to Mr. Sabia? Michael Sabia is BCE's CEO, and figures prominently in most of the coverage of this story. Well, who do I run into as I'm leaving the studio? Mr. Sabia - he was on his way in to do the next BNN segment. If you want to hear his take on things, here's the link to the SqueezePlay show which follows After Hours. His interview starts at around the 13 minute mark. Strange, huh? Never met him before, and I may never meet him again - at least in his current role. You never know whose path you will cross - I wonder if he saw my segment?


Technorati tags: BCE, Jon Arnold, Business Network News, Telus, Michael Sabia

Shoretel IPO Roadblock - Mitel Launches Lawsuit

I just got back from Mitel's customer/analyst conference this morning, and have not been able to blog until now. I've got a backlog of things to post, but this one has to be first. I got wind of this late yesterday - Las Vegas time - but wasn't able to post about it until now. This may well be the first you've heard about this story.

Basically, Mitel is suing Shoretel big time for patent infringement, and the news hit the wires late yesterday.

In the enterprise telephony vendor space, this is a big one. There's not much detail in the press release - no surprise there - but there's been some difficult history between these companies, and it looks like Mitel has strategically timed this release in advance of Shoretel's planned IPO.

Seems very similar to the tacks a number of service provider threw in the road just around Vonage's ill-fated IPO last year. It's another example of how tough it is to go public these days, and it's too early to know if Shoretel was blindsided here, or just felt these patents would never be an issue. More to come, for sure....




Technorati tags: Mitel, Jon Arnold, Shoretel

Espial Goes Public

Espial is a company I've been following for some time, and they had some great news today. This morning was the official announcement of their IPO on the Toronto exchange - the TSX - and their trading symbol will be ESP. How cool is that for a symbol?!?!

This may well be the first you've heard of the news, as the press release has not been made available yet over the U.S. PR wires. I suspect it will hit the wires first thing Monday, but you're reading about it here today.

In short, as reported in the release, the stock will list at $7.00, and if all goes well, Espial will raise $25 - $30 million, which will go a long way to fuel their growth plans. They have a good story to tell in the IPTV middleware space, which is going through its own consolidation phase. With this IPO, Espial should be in a great spot to emerge as one of the leading independent middleware vendors.

IPOs of Canadian vendors in the IP communications space are pretty hard to come by, and I expect Espial will be well received. So, congrats to Espial, and being Ottawa-based, this is probably the best feel-good story out there, since the Senators went out quietly this week!

If you're interested in Espial, I'll be doing a podcast with them soon about the IPO, and if you can't wait for that, I also did one with them about a year ago.



Technorati tags: Espial, Jon Arnold, IPTV

Mitel Acquires Inter-Tel for $723 Million

This story broke late yesterday, and I just wanted to draw attention to it. Not much public detail or blog coverage yet, but I think it's a good story. This is a $723 million deal, so it's not a small thing, and speaks loudly to Mitel's ambitions about becoming a bigger player in a rapidly growing market.

Mitel has long been a leading IP telephony vendor, especially in the small/mid size end of the enterprise market. Inter-Tel has a strong communications platform, and both companies are leading advocates of SIP and standards-based technologies.

It's another industry consolidation play, and will build two mid-tier players into a big, single mid-tier player who can dominate their space as well as better challenge the top tier vendors. Sounds like a good move for both companies, and it will be interesting to see how they combine their portfolios and manage joint customers.

Another angle to watch is how a private company absorbs a public company, especially with Mitel being Canadian and Inter-Tel being American. Also, Mitel has been on-again/off-again about going public, so this may be one way to address the issue, although my understanding is that Mitel will be remaining private.

For reference, I recently did a podcast with Don Smith, Mitel's CEO. He didn't tip his hand then about these plans, of course, but no doubt talks were underway at that time.



Technorati tags: Mitel, Jon Arnold, Inter-Tel

XConnect Raises $12 Million - Validation for Peering

Very nice press release that went public today, so it's ok to talk about it now. XC Global Networks just got its first major capital raise, and at $12 million, this gives them some space to really move VoIP peering forward. XConnect has been a leading advocate of VoIP peering, a space that is a bit like session border controllers. It's new, not well understood, not clearly defined, and not extensively deployed yet by carriers. There are a number of players taking different approaches to peering, with different models, settlement mechanisms, and solutions.

Anyone following this space would recognize the familiar faces, such as Stealth and Arbinet, and moving further afield, Nominum and Neustar, and on the SBC front, NexTone and Acme Packet. They all have a place in the ecosystem, but I think we're going to see consolidation as the peering space matures into a real market.

With this funding, XC is certainly in a good spot to be a key driver, and stepping back a bit, it's a very good sign of confidence that peering is being seen as a business opportunity. IPOs in the IP communications market have been dicey, and VCs are being selective about their investments, not just because IPOs are no sure thing, but also because it's hard to find good business models in this market.

That said, peering has nowhere to go but up, and no doubt the VCs see parallels in the market Acme Packet is addressing in terms of being at the beginning of the uptrend. On that front, it's a big day for XConnect, and for the health of VoIP peering in general, let's hope there will be more funding announcements to come.

Disclaimer - I am an Advisor to XConnect, so I'm personally happy about this news. However, I've tried to make this post as objective as possible, and hopefully that's how it comes across.


Technorati tags: XConnect, Jon Arnold, VoIP Peering

Will Bell Canada Be Taken Private?

Quite the story in today's Globe & Mail. The Globe reports that LBO heavyweight KKR is in preliminary discussions about taking BCE - Bell Canada Enterprises - the holding company for Bell Canada - private. This is being talked up as a $30 billion deal, which would make it the largest privatization in Canada's history.

A lot would have to happen for this to work, with two of the key issues being foreign ownership restrictions of Canadian telcos, and the large ownership stakes held by pension funds. The details are fascinating, and the article explores these pretty well, so I'm not going repeat things here.

The key thing for me is that Bell has been lagging its peers for far too long, and shareholders must be getting frustrated watching Telus and Roger deliver far better returns. Michael Sabia has been at the helm for a while now, and just can't seem to move fast enough to restore Bell to its pristine image as one of Canada's best companies. Mark Evans speculates further on what this deal may mean for Mr. Sabia in his post today.

With telecom reform looming here, and the Income Trust option now dead, there are many implications in this story for Bell Canada and their options moving forward. They have certainly made some good moves recently to stay focused on their core businesses, but the downside of being so big is the difficulty of moving quickly and responding to changing market conditions. It is not hard to argue that the Canadian telecom market lacks real competition, and this news will certainly highlight the holdback created by limited foreign investment. The pool of domestic alternatives to the incumbents is small, and not getting any bigger. Foreign entries or foreign investment will likely be the only way to change the status quo.

Stranger things have happened. Who would have expected SBC to take over AT&T? My view was that if AT&T could be taken out of the market, than anything was possible. In Canada, this could well be one of those scenarios. If the sentiment from the Globe's reader comments is any indication, then I'd say that many would welcome the change, but along with is a sense of futility that this is yet another sector of our economy that is falling in American hands.



Technorati tags: Bell Canada Enterprises, Jon Arnold, Kohlberg Kravis Roberts, Canadian telecom

Cisco Raises the Stakes with WebEx

The news of Cisco's $3.2 billion purchase of WebEx comes hot on the heels of Microsoft's acquisition of TellMe the other day for $800 million. While these deals are in different spaces, this is another step along the way to what's looking like an expensive showdown between these two giants.

While Cisco and Microsoft enjoy a close working relationship on a few fronts, it's clear that they both want to control the enterprise communications space, and their visions do not seem to allow for more than one of them to do that. Regardless, $3.2 billion is a lot of money, especially for a company that only does about 1/10th of that in sales. Of course, Cisco spent a lot more to acquire Scientific Atlanta, so we may not have seen the biggest deal yet.

It's hard to tell where this is all going or when it all ends. Both companies have money to burn, and at this stage of the game, time to market is everything, and it's simply more expedient to buy rather than build. Of course, there's the ongoing challenge of integrating these companies once acquired, and figuring out the details about branding, channels, R&D, staff retention, etc. However, this is the price you pay to get what you need, and perhaps more importantly, to keep it out of the hands of your competitors.

There won't be any shortage of media coverage today about this, although I'm surprised at how little blog coverage there has been so far.

Rather than re-hash the details, I'll steer you to Business Week Online. Their feature is out already, and it provides a good overview of Cisco's deal and the overall context for what's driving this. They were also nice enough to cite me, so I'm more than happy to share this with you.



Technorati tags: Cisco, Jon Arnold, Microsoft, J Arnold & Associates, Business Week

Geosign Raises $160 Million - and Just Where is Guelph, Ontario?

So, who is Geosign, and how did they raise $160 million???

I'm asking the same questions myself. Geosign is a small, quiet company based in Guelph, Ontario - an hour or so from Toronto. Who knew???

It's a great Internet story for sure, and possibly a Web 2.0 story. They're an "Internet media" company, and it just shows how these success stories can truly come from anywhere. Guelph is in the middle of nowhere - a landlocked, agricultural town - barely big enough to be considered a city. I've been there a few times, and it's got a very interesting history. More importantly, though, it's in close proximity to Ontario's Technology Triangle, which is one of Canada's leading centers of tech innovation, most notably the home of RIM, and many others. More on that in a moment.

For the details, I'll steer you to today's Globe & Mail, which has a good writeup on Geosign and what they're going to do with all this money. As the article explains, Geosign has developed a network of 180 websites, all providing information for consumers on a wide range of goods and services. I'm not much for web surfing, so this is all news to me.

If you're curious, here's what one of their sites looks like - gizmocafe. Pretty plain, vanilla, mass market type of stuff. Nothing complicated, but hey, Geosign claims to attract some 35 million visitors a month to its sites. Can you imagine how many they'll be able to attract now? Gotta like their formula - dang, why didn't I think of that???

The item that really stood out for me in the article was the fact that this is the largest raise of private capital in Canada, and the largest in telecom/tech since Vonage raised $200 million in 2005. That's pretty impressive, and tells you that software and web-based businesses can still attract big money.

Mark Evans posted on this Wednesday, and his post includes a brief interview with their CEO, Ted Hastings.

I just wanted to add a brief comment about the size of this deal. Aside from its sheer scale, it says a lot about the potential that investors are starting to see in the Internet and online businesses. While it's surprising to see all of this coming from a low profile company based in a small city, it's not surprising that the funds are coming from the U.S. Followers of my blog may recall my visit to last year's Canadian Venture Forum. Canada may get its fair share of domestic VC placements, but the size of these deals is smaller than what U.S. companies get. It's hard to imagine any Canadian firm putting this amount of money into a company like this.

That said, you don't have to look far to see how hard it is to get funding up here, so in the IP communications space, there are still challenges for sure. I'm close to more than one startup here that has great technology, has done a lot of the right things, but still cannot get a deal. Makes you scratch your head and wonder how one company can get so much money, while so many others are hanging on by a thread. And to think how far these companies would get if they could just hive off 5% of Geosign's pot of gold. They're not going to spend that money Vonage-style, that's for sure. Geosign is bankrolled now to do some big things, and that's got to include acquisitions. I have no idea what their management structure or vision is like, but they're in a great position now.

On that note, I just may get to give Geosign some ideas about this myself. I'm in the process of organizing a mini-tour later this month of the Waterloo region, of which Guelph is part of, and Geosign is definitely on the list. Good timing!

This is coming as a result of my recent connection to Waterloo City Councillor, Mark Whaley, who has been encouraging me to this. It's in the works as we speak, and aside from my upcoming visit, I plan to do some podcasts about these companies afterwards.

Finally - just a small thing. You know what I like about this company? They spell their name Geosign, and not GeoSign. It's just so predictable the way companies concatenate two words with capitals. I'm old school that way, and am not a fan of forcing two words together that really don't belong together, and making it look right by using capitals. Enough. BackToWorkNow.


Technorati tags: Geosign, Jon Arnold, Tech Triangle

Natural Convergence Funding News

Very nice to hear yesterday that Natural Convergence just scored $10 million in funding, which is quite a lot for a Canadian startup.

Ottawa-based Natural Convergence is a Terry Matthews company, who just had a very successful exit in Convedia. There are many other well-known IP companies under his umbrella, including Mitel, Ubiquity, Newport Networks and NewHeights (who I recently did a podcast with).

Like these other companies, Natural Convergence has maintained a clear market focus, in this case, offering a hosted IP communications platform for service providers targeting the 40 line and under business market. One doesn't have to look far to see that SMB VoIP is hot these days, and Natural Convergence is well postioned to serve this market. There really are just a handful of players addressing this space in Canada, and their investors obviously have faith in their vision. So, congrats to David Cork and his team, and may you spend your money wisely! Maybe, just maybe this good vibe will rub off a bit on the Senators now...



Technorati tags: Natural Convergence, Jon Arnold, Terry Matthews

Is Acme Packet Worth More than Vonage?

Very intriguing question, and it?s been on my mind since yesterday. From the looks of today?s IPO, it sure looks that way for Acme Packet. It?s a big day ? and a good day ? for anyone who has been in this space, or following it for the past few years. From what I?ve been told, this is the first IPO from a nextgen equipment vendor since 2000. Any guesses as to who that might have been? Sonus? AudioCodes? I?m not sure myself.

I?ve been close to Acme for some time, and have posted about them several times. One of their most public faces, Seamus Hourihan, is here at the ITExpo, and was on my FMC panel the other day, so we?ve had some time to reflect on Acme and what it means for the IP communications market.

So, with today?s opening, Acme?s market valuation is actually pretty darned close to Vonage ? main difference being that Acme?s IPO price has held steady, whereas Vonage?s went south very quickly. Interestingly, Vonage?s IPO trading price isn?t far off from Acme?s, and you have to shake your head a bit and wonder ? can these two companies really be comparable in value?

Of course, they?re in very different ends of the business, so it?s hard to compare. To me, the bottom line is you don?t have to be really big to have a viable business in the IP world. Vonage?s revenues are 10-15 times that of Acme?s, but look who?s making money, and look who?s been profitable for a while now, and look doesn?t have any debt, and look who?s coming out of their IPO with a dominant market position, at least among the Tier 1 carriers. Acme's opening price may be unsustainable, but it's a good story, and they've earned their stripes in my books.

Enough said, other than congrats to Acme ? am sure they?re all smiles there today. And hopefully, the rest of the IP vendor space is breathing a little easier, especially the IPOs-in-waiting.

Quick coda - the Boston Globe was nice enough to cite me in their article on Acme today.



Technorati tags: Acme Packet, Jon Arnold, Session Border Controllers, J Arnold & Associates

XConnect and iPeerX Join Forces

This is my first chance to blog at Fall VON, and just have time to cover this one. I'll be posting later about the keynotes from this morning by Jeff Pulver and Ted Leonsis of AOL.

Lots of interesting news releases at VON, and I wanted to comment on one I have had some history with. Today, the XConnect Alliance announced its acquisition of iPeerX. This is good news for the VoIP peering space, as XConnect moves further along the path to creating critical mass. VoIP peering has not yet become a necessary condition for carriers to succeed with IP, but slowly, the value proposition is becoming more relevant for carriers.

Both companies have had modest success signing up carriers to peer with them, but XConnect has been able to take their vision further, and are better positioned to become a consolidator. They have already shown this with an earlier acquisition of German-based e164.info in May.

Consolidation is happening across the board in the IP space, and peering is no exception. Peering is very much a volume business, and platforms such as the XConnect Alliance need to keep building their track record to demonstrate proof of concept especially for the Tier 1s, who will be the last to join the party. That?s when VoIP peering will really become exciting, but to get there, the foundation must be built among the willing and able, which for now, are primarily Tier 2/Tier 3 carriers with a strong commitment to IP.

The details of this deal are just as interesting as the bigger picture. XConnect founder and CEO Eli Katz announced the acquisition at a press conference this morning, and joining him was Kingsley Hill, who was President of iPeerX. Kingsley will now take on strategic business development for the multi-lateral peering federation XConnect is trying to build among it members. Between these companies, there are over 300 carriers on board, with the world?s largest VoIP ENUM registry ? over 8.5 million active subscriber numbers. As such, there is definitely a strong base to build from here.

VON followers would know that iPeerX is a Jeff Pulver initiative that has been following its own course until now. This move makes sense for them, as it keeps them in the game, and it seems clear that the better route is to be part of a bigger pie than trying to keep a smaller slice to yourself ? especially since there will only be room for a couple of players once this market goes mainstream. IPeerX hasn?t yet secured a large-scale win like the one XConnect achieved with the Dutch cable VoIP providers ? so better to go with the flow, and help build this momentum. Jeff, who is never far from the center of where IP is going, will remain involved as a member of XConnect?s Advisory Board.

Disclosure ? I am an Advisor to XConnect, and have tried to present this news as objectively as possible. If you feel I have overlooked or omitted anything of note, I welcome your comments.

Convedia Acquired - Media Server Consolidation Next?

The VoIP infrastructure space continues to consolidate, with the latest news, which I found a bit surprising. Convedia has been acquired by RadiSys, a company not normally followed in this space, which is the main surprise element for me. RadiSys is leading vendor in embedded technologies, such as ATCA, but I'll stop there, as I don't follow that space very closely. Hat tip to Mark Evans with his late night post yesterday on the news. Good scoop!

In short, Convedia was acquired for $105 million, which sure looks good, considering how Netrake only went for $11 million to AudioCodes as recently as last week, and I commented about that in the context of how the session border controller market was consolidating. Netrake has raised WAY more money that Convedia, but didn't get nearly as much traction, so the math isn't hard to figure out here.

Convedia is a Terry Matthews company, so there must be some happy folks today over at Wesley Clover - his invesment management arm - including his son/EVP, Owen Matthews, who I just did a podcast with.

So, good news all around, and another validation that Canada is producing some real winners in the IP communications space. Congrats to Peter Briscoe and Grant Henderson! I've followed Convedia closely for many years, and have always admired them. Since evolving to become a media server company, they've maintained a singular focus to do nothing but this. That approach has really paid off as they've become the dominant player in this space, and now the payback has come. As it well should.

Just a quick comment on the news itself. The fit between the 2 companies isn't that evident, and it reminds me of Comverse's acquisition of NetCentrex in April. Very different businesses, but the strategy is sound. RadiSys is an embedded play, whereas Convedia is all about a hardware-based, purpose-built box. Where's the fit there? I suspect this has to do with the fact that so much of this space is becoming software based, and there is certainly a market opportunity for media servers here. To date, software-based media servers have not had much success, although SnowShore has continued to evolve this space under the Cantata umbrella. For Convedia, the embedded expertise of RadiSys may well provide a stronger base for them to develop a rich solution to complement their existing hardware-based product family.

Another key element would be the global market reach of RadiSys. Much like the Comverse deal, RadiSys can bring Convedia to a wider base of customers, especially for those looking for a strong IMS story. Also, both companies have a strong focus on Asia - RadiSys has a design center in China, and Convedia has done a great job of securing design wins with the major Asian vendors, which is critical for getting traction in that market.

So, the consolidation story continues. In the media server space, Convedia is gone now, both Excel and SnowShore are part of Cantata, and AudioCodes is itself becoming a consolidator, much like Tekelec. The only other pureplay that comes to mind, really, is IPUnity, and their Mereon product family. I'm sure the Convedia news is very much on their minds today...



Technorati tags: Convedia, Jon Arnold, Media Servers

Session Border Control Market Really Hurting

Just wanted to comment quickly on this space. I've been close to the session border controller (SBC) market from the beginning, and still feel an affinity for the vendors. It's not an established or clearly defined market segment, but we more or less know who the players are. There have been a couple of recent body blows to this space, and it's not getting a lot of attention from bloggers. So, for the record, I just want to draw attention to what's going on, as I believe it has wider implications for both vendors and the financial community.

Most recently - Monday - Juniper announced it was withdrawing its SBC offerings, which are based on their acquisiton of Kagoor last March. This was a well-received exit, as Kagoor got a decent valuation, and Juniper got a solution to give them a leg up on Cisco. Things were looking good for the other SBC vendors with similar exit aspirations.

Then we had Netrake's paltry acquisition by AudioCodes last week. Netrake had raised some $70 million, but wasn't coming up with the big wins to justify this kind of investment. Looks like the VCs had had enough, and AudioCodes probably got a good deal. They're continuing along the consolidation path, and if you ask me, are on their way to being in a league with Sonus, which not too many nextgen vendors get to. Tekelec also comes to mind - also via acquisition. In the present climate, it's becoming the norm for vendors to get big or go home. It's getting more difficult to remain small and independent, especially if you have aspirations of selling to Tier 2 carriers or higher.

Netrake may not have had much choice in taking the AudioCodes offer, and while it spares them a possibly worse fate, it's got to be cause for concern among those left standing in the SBC space. Way back, Jasomi got taken out by Ditech for a fairly small payout, and Netrake did not fare much better (but at least Jasomi was self funded, and nobody lost any money). And there's Newport Networks, who went public in the UK. They raised a lot of money - without any customers or revenues to speak of. Their valuation has gone down significantly since then (much worse than Vonage), and I really don't see things changing in a big way there.

So, on that level, the Netrake deal is a continuation of a scary trend that basically says the market doesn't value this space a whole lot. At the end of day, there's something to be said for exiting early like Kagoor. Translation - get out while the going's good.

That said - I still think the SBC segment has merit on its own, but it's looking like there may only be room for a couple of players. When I was at Frost & Sullivan, I wrote a report on this space when it was just getting hot, and concluded that the market for standalones would peak and then go down as exits and acquisitions occurred - and when vendors start integrating SBC functionality into other network elements. As it turns out - that's exactly what Juniper is doing with Kagoor. As I recall, my conclusions were not well received, at least by some vendors who felt the market had much more life in it. Well, I'd have to say those conclusions turned out to be very true - and if memory serves, a good year or two earlier than I had predicted. If I was Frost & Sullivan, I'd be thinking about re-issuing that report with an update!

So, this one-two knockout punch of Netrake and Kagoor basiclly leaves us with two strong SBC pureplays - Acme and NexTone. Yes, there are several other vendors who now offer SBC solutions and/or functionality, like MetaSwitch, Tekelec and Quintum - but these are not pureplays - SBC is not central to their business.

Acme and NextTone look to be the long-term winners in this space, which validates that there's room for both an integrated big box platform - Acme, and a dis-integrated solution like NexTone's. Both are doing well, and have fairly different customer sets. NexTone got a nice funding round last year, and look to be in good shape financially for some time to come. Acme, on the other hand, has not taken any rounds for almost 3 years, and have been able to sustain themselves nicely from organic growth.

Of the two, Acme should be the most worried in the wake of the Netrake and Kagoor news. The low valuation for Netrake can't be good news for Acme's recently announced IPO, especially with Vonage's dark cloud hanging over the IPO landscape for anyone in the IP communications space. That said, Acme is a healthier company, and deserves a successful IPO. I hope they get it, but geez, early in the game this market was an Acme vs. Netrake story for the Tier 1s. Clearly Acme is coming out on top, and for their sake, let's hope the market sees them in the same light.

In the name of transparency, I must state that NexTone is a current client of mine. However, they're not the only company I'm saying nice things about!


Technorati tags: Jon Arnold, session border controllers

Bell Globemedia Set to Acquire CHUM

Just a quick item that may become fact in an hour or so. Bell Globemedia looks to be acquiring CHUM, and the news should come down later today.

This media convergence business sure is interesting. Bell Globemedia is basically the content arm of BCE, parent of Bell Canada. Technically, BCE owns roughly 2/3 of them - that's good enough for me. They own a lot of properties, including the Globe & Mail, the CTV television network (21 stations), and tons of specialty/digital channels.

CHUM has quite a legacy of its own - 33 radio stations, and lots of local TV stations and specialty channels. Most importantly, they pretty much defined cool TV for the youth market, especially the MTV crowd. If anyone knows how to build audiences with the youth market and the vast array of lifestyle niche markets that cable TV seems to be invented for, it's CHUM. On that point alone, Bell will be in a much stronger position to attract and keep the youth market in the fold, especially once IPTV comes along. Smart move if you ask me.

On paper, this is a relatively small deal for BCE, but it sure bulks up their content and distribution arms. This would make for one impressive force, and is another example how the big stay big. I don't know if this will raise any regulatory issues in terms of concentration of media ownership, much like what seems to be happening in the US.

Recently, I've been lauding Telus for its recent moves to stay ahead of Bell, and they all make sense. So, here we go, a day after Telus announces its Toronto office tower plans, Bell ups the ante by going after what is arguably the most desirable independent media/content property available. I'm not sure what Telus will have to do to keep pace in this department, so the ball falls back in their court - once again. The consolidation of our communications sector continues...


Technorati tags: Telus, Jon Arnold, Bell Canada, CHUM

Consolidation - Not Unique to Telecom - Filene's Sold

This is a short, semi-sentimental posting, but it connects to telecom in a small way. I just read today that the Filene's department store - currently owned by giant Federated Department Stores - is being sold to a real estate trust. Any New Englander knows all about Filene's, and their Filene's Basement has been an institution forever, setting the tone for all the factory outlet/off-price stores that have become so commonplace now. I also understand that Marshall Fields is going the same route, and that store has the same significance for anyone living in the Chicago area.

Canada has gone through a similar purging of old-line department store names upon which our retail sector has been built for many generations - Eatons, Simpsons and now the Bay. Not much left up here any more in terms of home-grown retailers, which is really too bad.

A lot of this speaks to the passing of an era where the local general department store was the dominant form of retail - and so much more. This type of consolidation is happening of course in the telecom sector - and other industries - and it makes you wonder what the fate of our old-line RBOCs will be. Clearly, they have to re-invent themselves - in ways that Filene's and Marshall Fields could not.

The markets are very different of course, but in both cases, where choices exist, consumers vote with their feet and their wallets. Much of what works in retail works in telecom - convenience, quality, ease of doing business, choice, customer service, etc. I'd like to think that the RBOC strategy guys are smart enough to look outside their industry to see how the big players adapt in other sectors. I sure would be.

Canadian IP Thought Leaders Podcast - Sean Wise, Wise Mentor Capital

This week's podcast was with Sean Wise, of Wise Mentor Capital. Sean is one of the most connected people helping startups become successful in Canada, and he knows the landscape as well as anyone. He wears a lot of hats, and wears them very well.

We talked about what he's seeing in the telecom startup space from both sides of the table, and for anyone interested in knowing why this is a good time to be a startup, you'll find this most useful. Also, Sean's website and blog are great resources for startups, and once you drop in for visit, you'll see that he's not hard to find.


Technorati tags: podcasts, Jon Arnold, Sean Wise

Yak Communications - Another VoIP Casualty?

Been meaning to post about this one for a few days, and the fact that nobody seems to be paying any attention to this says a lot on its own. I only came across this because I spoke to a journalist about it last week - will let you know when the story runs.

Yak Communications has been in the long distance and calling card business for some time, and WorldCity is their more recent suite of offerings targeted at the residential VoIP market. I've never quite been able to figure out what business Yak is really in, and now I guess I'm not alone.

On June 20, Yak announced they were "exploring strategic alternatives to maximize shareholder value", which is a polite way of saying it's tough to make a go of things in this game. I second the motion there, and despite some nice marketing and brand building, Yak has obviously not caught on enough to justify the investment needed to continue. They even tried to spice things up with free video calling - which I blogged about last November - but that's not the ticket either.

To make things official, last Thursday, Yak announced the selection of their investment bank - Orion Securities - to get on with the business of finding a market exit.

You know things can't be going too well when this announcement is made just ahead of the long weekend, when people have other things on their minds. Furthermore, there's no evidence of this news on their website, which says they want to ease out of the market as quietly as possible.

In my view, none of this is surprising, especially given how badly things have gone with Vonage and their IPO. I've long felt pureplay retail VoIP offerings have a low probability of success, and unless you've built a brand the way Vonage has, I just don't see how you can create much residual value. Sure, the cost of entry is low in this business, but the exit price isn't usually very high either.

At this point, it doesn't look like Yak has much more than a modest base of VoIP subscribers and a fairly strong calling card business. The brand is pretty reputable, but is far from being a household name. There is some asset base there, but not much, and it's hard to see how Orion will get much in return beyond the $10 million they have in the bank. Am sorry to say, but for a change, this isn't a good news story about the Canadian market.

Anybody want to buy a VoIP company?


Technorati tags: VoIP, Jon Arnold, Yak Communications

Canada's Top Tech 100 - IP Companies to Watch

The current issue of Canadian Business magazine was a good one. Aside from the IPTV article I just posted about, they also had their annual Tech 100 feature, which focuses on Canada's top 100 publicly traded tech companies.

Of course, the usual suspects from IP and telecom are there - Bell, Telus, Rogers, Shaw, Nortel, RIM, etc. - and it's good to see that these sectors make up a good chunk of the overall list of the top 100.

More interesting for me are some lesser-known companies in the list that I've been following, namely Aastra (ranked #16) and Ascalade (#35). I've blogged about each before - here and here - and it's great to see them getting this kind of recognition.

In addition, this issue had another cool section titled How Things Work. I love stuff like this, and one of the topics was mobile TV. There's a nice explanation there of how carriers transmit TV to cell phones, and the focus is on how a small company, QuickPlay, provides the enabling technology. QuickPlay is Toronto-based, and I've been following them for a while - with both postings and a recent podcast.

Finally, there was also a short piece about Dragon's Den, the new business reality TV show in production now for the Fall season on CBC television. I posted about this show last week, and hope you tune in - especially if you want to see startups who are seeking money grovel really well before a panel of hard-nosed investors with money to spend. Capitalism at it most entertaining --- short of The Apprentice!



Technorati tags: Canadian Business Magazine, Jon Arnold

Vonage IPO - One Month Later

Ugly is a pretty good way to describe Vonage's world just one month after going public. Was going public a mistake? Should they have waited? Did they really have any choice? More questions than answers for sure, but the overall sentiment is pretty bleak, if not nasty. Just take a quick tour around the blogosphere for starters - Russell Shaw, Andy Abramson's post about Bloomberg's article, and Mark Evans.

On Friday, I was interviewed by Bloomberg Radio about Vonage, and got to say my piece on the story. I basically reprised my thoughts that I had posted earlier in the week, with my basic take being that Vonage is oversold, and that it's not all bad.

So, maybe I'm being a contrarian here, with a touch of wishful thinking, but I also think the Vonage-bashing has gone on long enough. It's very easy to jump on the bandwagon and throw more logs on the fire, but even with all of Vonage's woes, there reaches a point where it's just unproductive. There's a healthy, happening IP market going on out there, and hopefully this gloom won't spread like a dark cloud over the whole space.


Technorati tags: Vonage, VoIP, Jon Arnold

Attention Canadian Startups - Casting Call to Raise $$$

If you're a fan of reality TV, you'll love this. Sean Wise provides all kinds of help for Canadian tech startups, and has built up a thriving practice around this. For reference, I've posted about Sean before.

We're in regular contact these days, and he just told me about a new business reality show called Dragon's Den. Lucky Sean - he's just landed a spot on the panel of experts who get to play Donald Trump and evaluate the pitches of these startups. Not only that, but the panelists can put their money on the table if they see something they like, announcing how much they're in for.

So, think of this as a cross between American/Canadian Idol, Deal/No Deal, and a touch of Texas Hold'em poker. I don't know who comes up with these reality show concepts, but you have to love it, since real money is in play here for aspiring entrepreneurs who can tell a good story (and of course have the chops to deliver).

The show debuts on CBC TV across Canada in October (and is based on a BBC show), but casting calls are NOW. For any startups in Toronto, auditions are this Saturday. Dates are set for other cities as well - it's all on the website.

Check out Sean's new blog, where he chronicles his involvement with the show, and how he's just landed a spot on the expert panel. Is that fun, or what? If you ever call in sick, Sean, I'm there!

On that note, I'd like to officially welcome Sean to the blogosphere. I've added his blog to my blog roll for future reference.


Technorati tags: reality TV, Sean Wise, Jon Arnold

Is Vonage Oversold?

I think so!

Earlier today, I was speaking with colleague Neal Shact of Communitech Services about this, and his take led me to think along these lines as well. Of course, most evidence points to the contrary, with the following being some bona fide examples.....





What a mess, right? This dollars and sense scenario of their IPO share price falling off a cliff is echoed by a market sentiment scenario, courtesy of TrendIQ.

This is a fascinating take on the market, and I've blogged about them before. If you're interested in tracking the VoIP market (and others like wireless and social networks), you should look into their services.

Check this out below. Look how much of a dip market sentiment towards Vonage has taken. The chart may be hard to read - Vonage is the green line that's all wavy. The black trend line with the boxes is the overall industry average. To me, this is just as telling as Vonage's share price erosion, and may be a better indicator of customer loyalty, which is absolutely critical to Vonage right now.

This chart only shows Vonage and a couple of other VoIP players with "V" names. Don't worry about their trend lines. There are several other charts showing the sentiment for the other providers, but I'm just focusing on Vonage right now. Vonage's trend line has clearly taken a big dip, and it's quickly dropping down to the overall industry average, which isn't good.









And then there's popular opinion. Om Malik put a poll up on his blog asking what's the right price for Vonage's stock. Again, based on how a handful of readers voted, as well as their candid comments, the picture is pretty bleak.


It's very easy to kick someone when they're down, but I say let's look on the bright side, folks - and there IS a bright side (isn't there??). I'm not as bullish as Dan Berninger, but surely, all those subscribers have got to be attractive to someone, especially with the shares being basically half price. I see four things that you'd think would be of value to someone large enough to ride things out:

1. Upwards of 2 million subscribers - no other VoIP pureplay comes close. Sure, they'll lose a small piece of this in the fallout from the IPO, but I don't think it will be a tidal wave - provided they handle it properly, and start doing things right.

2. A healthy revenue base from these subscribers - over $400 million, annualized. Even if prices drop to keep pace with the market, this is a huge revenue stream for a VoIP company.

3. A ton of cash in the bank. It's not clear how much cash they actually raised, or how much they'll keep, pending all this litigation and other headaches, but they certainly haven't had much time to spend it all on advertising.

4. Huge accumulated losses. Wouldn't that be worth something to somebody who pays a lot of corporate tax?


It's hard to see the good when there's so much bad, but c'mon, where would VoIP be without Vonage? In my view, they've single-handedly built mass awareness of VoIP, and the product is good. It's not perfect, but certainly good enough for the mass market.

No doubt Verizon is in payback mode with their recent patent infringement allegations, and all the Tier 1s are doing their part to throw tacks in the road. Except AT&T. They've been quiet on this front, and I'm of two minds here. On one hand, maybe they're going to follow suit with Verizon, and find some way to add to the mix - maybe it's a price cut, or maybe it's another lawsuit. Or...maybe they'll take the high road, and just play by market rules. Perhaps they don't want to be seen as the big, bad AT&T who finally pushes Vonage over the cliff and forever kills any chance for real competition. Besides, don't they need to play nice with the FCC so as not to jeopardize their megadeals with SBC and BellSouth? Maybe they're just going to wait until that passes regulatory muster, at which point nobody can really stop them. So many scenarios, and all are possible.

All I know is that for better or worse, the market owes Vonage some gratitude, at least if you're a fan of VoIP. Does this make Vonage a buy now? I predicted a strong IPO, and look what happened. I'm not going to answer that one, but I suspect that if you even give Vonage half a chance for survival, there's more upside than downside at this point in time. Any takers?


Technorati tags: Vonage, VoIP, Jon Arnold

Mortel or Notorola - or Something Else?

Is it just me, or are you finding interesting parallels with the World Cup and the urge to merge going on with the big telecom vendors? So much history with some of these national matchups - when you get Poland playing Germany - in Germany - it's hard to just think about this just being a soccer match.

So, we get the news yesterday about Nokia and Siemens. In telecom terms, it's probably a good deal, but I'm just having a hard time in my head with the idea of a Finnish company hooking up with a German company. Then there's Lucent and Alcatel. Aside from their corporate colors clashing horribly - orange and red - it's not hard to find Americans these days who would be uncomfortable with the idea of joining forces with the French. I'm being very simplistic here, of course, but the World Cup is such a wonderful event, and reminds us that when there's a common passion or interest - whether it be soccer or business - you have to live in the present and work around current realities.

That brings us to Nortel. Predictably, the market is focusing on them now, worried that when the music stops, there won't be any dance partners left. It's starting to get expensive for Nortel decide whether it can make it alone, as their valuation dropped a billion dollars yesterday on the sell-off. I'm not a financial analyst, but if the market is that worried about Nortel's prospects, they can't sit idle - or quiet - too long. All fingers point to Motorola as the best suitor, hence the title of this posting. That's a topic unto itself, but I'm not close enough to Moto to add much to the conversation.

Geographically, the move would fit the storyline I'm weaving here - an American company taking on a Canadian company. We've sure seen that one a few times before, and is achingly familiar to Canadians who have this patten ingrained into their psyche. Wasn't that long ago, of course, when the reverse was true. When Nortel was flying high, they were the ones doing the buying, taking on Americans, or anyone else they felt would help their growth.

Am not seeing anyone talking much about Cisco, with their open door for Nortel, but I suspect Cisco likes their growth prospects they way they are now - unless the price is right. I have long felt that Huawei was the one for Nortel, and it was looking that way earlier in the year when they announced a partnership for broadband equipment. That barely lasted 4 months, with the breakup news coming earlier this month. So, I don't know what to think any more.

Geez, we can't even keep the Stanley Cup in Canada, so wherever Nortel ends up, it really won't be much of a surprise. On that note, I just can't help mention the irony connecting my Nortel story to the Cup. The Carolina Hurricanes are based in Raleigh, which is home to a major Nortel facility in RTP, and their arena is named the RBC Center - Royal Bank of Canada - our largest bank, eh!

So, an American team may have won the Cup, but we still have some tenous connections to bask in the Canes's glory. Of course, most of the players are Canadian, but that's a given - more or less. Hockey is becoming a global sport, just like soccer, and we all know how much players from outside North America are contributing to the game. Like how I tied all those threads together? Is there a takeaway in here for Nortel? Probably this - think like the NHL or FIFA - the world's a big stage, and it pays to be big, but it doesn't really matter where you're from.

Telio - Day 1 - So Far, So Good

I feel like I'm carving out a niche here for being a Telio watcher, but I just had to close the loop a bit here. While no new shares were issued on opening day, the sky did not fall, which can only be seen as good news. The news doesn't exactly come to me thick and fast from Norway - nor in a language I can understand - but from what I can tell, there are no red flags, or any ultimatums demanding shares be paid for in full regardless of market price.

As per my earlier post, a tale of two cities, for sure....


Ring those bells...Alan Duric, co-founder/CTO, Telio, and Jeff Citron of Vonage (apologies for the poor quality, esp of the Vonage photo)





Day 1 trading, at 30 NOK, as per the Oslo Bourse site....






Vonage sidebar - on Friday, they announced the hiring of Bryan DiGiorgio as their SVP of Customer Care. I suspect he's going to be one busy guy.


Technorati tags: Vonage, VoIP, Telio, Jon Arnold, telecom IPO

Acme Packet - IPO On The Way

I've been expressing concern about how the Vonage IPO will impact the appetite for others who have been waiting for the right time to make their move. One could argue that Vonage's poor showing would spell doom and gloom, and scare all the bankers away from VoIP. Or one could say the bankers are smarter than you think, and are not letting one IPO based on a broken business model - albeit a BIG IPO for this space - cloud their judgment about smaller gems that are right at their feet.

Acme Packetis one such gem, and on Friday, they filed the news about their S-1 and plans to go public. The press release doesn't say much, but indicates that Goldman Sachs is the lead banker, with Credit Suisse and J.P. Morgan co-managing the offering.

I've followed Acme for quite a while, and when you talk about leaders within a vertical, you have to look at them for their space. The session border controller market is not as well defined as other nextgen network elements such as media gateways or media servers, but there's no doubt that Acme has had the most success in this space with Tier 1 carriers. Other session border controller vendors have strengths as well, but when it comes to landing the big ones, Acme has done the best job.

They're also in a great position because among all the main vendors in this space, I believe they've taken the least amount of venture funding - $31 million, only 2 rounds - and haven't taken any since September 2003. Wow! Compare that to Vonage and you tell me where you'd rather put your money. Slow and steady wins the race. So, their early backers - Menlo Ventures and Canaan Partners- will do quite well, and if the IPO flies, they'll be in great shape.

Personally, I think Acme will do just fine, and will show the market that the vendor space may be a better bet for IPO than the operator side. No need to comment further on Vonage, but Packet8 (another virtual operator) has been public for a long time, and hasn't done that well (down from about $2.50 to about $1.40 in the past 6 months).

Back to the session border space, it's worth noting that Newport Networks, who is gunning for the same class of carriers that Acme is serving, went public over a year ago on the LSE, and raised quite a bit of money - without revenues or any name customers to speak of. Their value has long since declined - and almost 10-fold (!!) in the past 12 months - for good reason, and you'd have to think that Acme has nowhere to go but up.

Looking ahead, this space has seen a few exits already, most notably Kagoor going to Juniper and Jasomi going to Ditech. Who's left? Well, NexTone and Netrake are the biggest and strongest pureplays in this space. Both are doing well for different reasons, but if I had to hedge my bets, I'd say NexTone is next up in this space to go public.

Technorati tags: Acme Packet, telecom IPO, Jon Arnold