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iBasis Snacks on Danish

Ray Le Maistre
1/16/2008
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VOIP wholesaler iBasis Inc. (Nasdaq: IBAS) grabbed a bigger slice of the international voice minutes pie this week by striking a managed services and outsourcing deal with Danish incumbent TDC A/S (Copenhagen: TDC). (See TDC, iBasis Strike Deal.)

The "new" iBasis -- it merged late last year with the international wholesale operations of KPN Telecom NV (NYSE: KPN) and is now majority owned (51 percent) by the Dutch carrier -- saw its share price leap more than 5 percent Monday to $5.06 after it announced it will be "the exclusive provider of international voice services for TDC for a five-year period." (See IBasis Merges With KPN.)

And iBasis says it's in talks with other carriers about similar outsourcing agreements.

The TDC deal involves the acquisition of some assets and so requires some regulatory approval. The deal is expected to close sometime this quarter.

Under the terms of the deal, iBasis will pay TDC $10 million in cash, and take on the Danish operator's international subsidiary TDC Carrier Services U.S., which includes 130 wholesale customers, some voice switches, and a handful of staff (fewer than 10).

In return, the deal will swell iBasis's wholesale voice volumes by 2 billion minutes of use per year and bump up its annual revenues by about $80 million.

In its third quarter, which ended Sept. 30 -- the last reporting period before it merged with KPN Wholesale -- iBasis reported voice volumes of 3.7 billion minutes (a record), revenues of $153.6 million, and a small net profit of $200,000.

In that same quarter, a combined iBasis/KPN Wholesale would have reported voice volumes of 6.2 billion minutes and revenues of $369.3 million.

Further growth
The expanded iBasis would be one of the three biggest international voice carriers in the world, behind Verizon Enterprise Solutions , and almost on a par with AT&T Global Network Services , with VSNL International Pte. Ltd. close behind, according to the wholesaler.

And there's every chance that iBasis will grow again through further outsourcing deals, according to company spokesman Chris Ward.

He says iBasis is in talks with other carriers that are looking to offload their international voice units. "It's a different angle on the consolidation trend. For a lot of carriers, international voice is very different from their retail operations -- it's commoditized and it's low margin. They want to invest in high margin services and new IP and fixed/mobile convergence systems," and not have to worry about how to manage international minutes, he says.

"Carriers are looking at ways to outsource. That way they can continue to provide value to their customers but without the management issues."

Ward (who we once suggested should change his name to Lord Ptang Ptang BiscuitBarrel) wouldn't say which carriers are involved in the current discussions, or if any other outsourcing deals are imminent. (The spoilsport.)

Today, iBasis's share price is up 22 cents, more than 4 percent, at $5.39.

— Ray Le Maistre, International News Editor, Light Reading

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