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Thursday, Mar 28, 2024

Small Firm Sets Offering as It Competes in VoIP Market

A scrappy, three-year-old Simi Valley-based company is hoping to get a footprint in the national market for Internet-based telephony services. InterMetro Communications Inc. has filed its intention to issue a public stock offering that would raise up to $23 million to expand its business. Ladenburg Thalmann & Co. Inc. and Wunderlich Securities Inc. are underwriting the offering, which has not yet been priced. Executives at the company, which is presumably in a required “silent period,” did not respond to a request for comment for the story. But in its SEC documents, InterMetro said that it intends to compete with the likes of Sprint, AT & T.;, Qwest, Global Crossing and others by using a private network to provide its services. “Our goal is to displace the incumbent long distance carriers as the presumed choice for voice transport services,” InterMetro said in its offering proxy. “We intend to become the leading provider of VoIP infrastructure services for traditional phone companies and wireless carriers as well as new high growth entrants in the consumer voice services market such as broadband phone companies and cable operators.” Such lofty goals will not come cheaply. Although the market for Voice over Internet Protocol (VoIP), a technology that uses the Internet to transmit voice calls, has only attracted a small number of users to date, the playing field has grown crowded. “Generally speaking, if you want to sell something to a mass market, meaning the entire United States or North America, it’s probably an endeavor that will require hundreds of millions of dollars to be successful,” said Albert Lin, a telecommunications analyst at American Technology Research in San Francisco. “You will be competing against telecom companies with access to tens and hundreds of millions of dollars of buying power.” InterMetro began offering VoIP services in the Los Angeles metropolitan market in March 2004 and, since then, has expanded its network into 28 metropolitan statistical markets. Last year, the company recorded revenues of $10.6 million, up from $1.9 million in the prior year. Its net loss for 2005 was $1.1 million or $0.33 per share. No one knows how the market will eventually shake out because this next generation technology is so new. Right now, there are VoIP providers contracting with the big telecom companies, who in turn, are also going directly to consumers to sell these services. The behemoths may be able to bundle services in a way that makes them more competitive, or they may choose not to enter certain markets, opening the door for others. During the dotcom bubble, a change in legislation that required local exchange carriers to sell their broadband space to any and all competitors fueled a virtual invasion of VoIP providers. In 2000, some $917 million was invested in companies operating in the VoIP space, according to The MoneyTree Report by PricewaterhouseCoopers and National Venture Capital Association with data from Thomson Financial. But by the following year, investments dropped to $375 million and the decline continued in the wake of the dotcom bust, the MoneyTree data suggests. Investor interest More recently, investors seem to be moving cautiously back into the market. Last year, seven companies received $236 million in venture funding, compared to six companies that received $200 million in 2004, according to the MoneyTree Report. On average, each company received about $40 million in each of those years, considerably more than the average deal several years back, indicating that these companies are likely in later funding stages. “Those that survived got follow-on funding in 2004 and 2005,” said Randy Churchill, director of business development for Pricewaterhouse. Vonage, among the leading startups, raised nearly $400 million in four funding rounds since 2001. A public offering last month netted the company more than $530 million, although the company’s stock price has dropped considerably since then. But there are many, far larger companies also moving into the space. In addition to traditional carriers such as Verizon and AT & T;, cable companies like Time Warner and Cox are beginning to sell VoIP service, and Internet powerhouses are also entering the business. Yahoo has inked a deal with AT & T;, eBay acquired Skype, a Luxembourg-based VoIP provider, and there are reports that Google is getting ready to make a move into the market as well. Estimates are that this year, the number of VoIP subscribers will grow to 10 million to 15 million, up from 5 million to 10 million in 2005. Various reports project that the number will increase to 25 million to 35 million subscribers by 2009. Rather than sell to consumers, InterMetro’s proxy documents indicate that it plans to sell its services to other VoIP providers, who would use its network to transmit their calls. The company said it would use the proceeds of its offering to expand its business internally and through acquisitions, to beef up its sales force and for working capital. InterMetro was founded by Charles Rice, who served as chairman and CEO of CNM Network Inc., a national VoIP carrier, from 1999 to 2003. After Rice’s departure, CNM changed its name to Callipso Corp. The company, in 2004 was named to Deloitte & Touche LLP’s Technology Fast 50 list, but later that year, filed Chap. 11. Soon after, Austin-based PointOne Inc. acquired Callipso. Last month, InterMetro inked a strategic alliance with Cantata Technology Inc., which the company said will provide it with state of the art VoIP equipment. In March, InterMetro acquired Advanced Tel Inc., a reseller of long distance services. “We believe that VoIP technology will eventually replace the existing circuit-based U.S. phone infrastructure,” InterMetro said in its SEC documents, because it is more efficient, cheaper to maintain and offers more features.

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