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.

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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.

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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!

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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.

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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.

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