BroadSoft Joins VOIP IPO Rush

IP Centrex firm BroadSoft is working towards an IPO and plans on beating rival Sylantro to the market

March 3, 2005

4 Min Read
Light Reading logo in a gray background | Light Reading

Could this be the start of a VOIP-induced goldrush?

No sooner had IP Centrex system supplier Sylantro Systems Corp. unveiled its initial public offering (IPO) plans, than its chief rival, BroadSoft Inc., says "Me too!" (See Sylantro Ready to Garnish Public Markets.)

Both companies have developed systems that allow carriers to provide hosted VOIP services for their business and residential customers, and have experienced significant growth in the past year as VOIP services have taken off around the world (see LR Insider: Residential VOIP Exploding and Carrier VOIP Gear Sales Hit $450M).

Now they're looking to fund further growth, and provide some payback for their investors, by planning public listings of their shares.

BroadSoft has raised $60 million in three rounds of funding from the likes of Bessemer Venture Partners, Grotech Capital Group, and Charles River Ventures, with the latest round in September 2002.

And BroadSoft is keen to tap the markets before its competitor. "We're looking to IPO early in 2006," around the same time as Sylantro, says BroadSoft's head of marketing Scott Wharton. "We'll see who gets there first. We believe we're ahead of Sylantro in revenues and customers."

That's a tough claim to qualify, though, as neither company reveals its sales figures. In terms of customers, BroadSoft claims 95 service provider customers, while Sylantro says it has 55.

It's not just customer numbers that count, though: The size of those customers is as important as the number when it comes to attracting investors, says Heavy Reading chief analyst Scott Clavenna, who believes there is pent-up demand for these sorts of IPOs.

"The investment banking community is hungry, and VOIP is the hottest area in the telecom market, so if these guys can prove they have access to major carrier contracts, then they'll go out, no problem. This kind of thing does tend to lead to a herd mentality, but I'd say there's a real appetite for IPOs right now," says Clavenna.

Certainly, both companies can claim their customer lists include some big hitters. BroadSoft counts BellSouth Corp. (NYSE: BLS), MCI Inc. (Nasdaq: MCIP), Covad Communications Inc. (OTC: COVD), XO Communications Inc. (OTC: XOXO), Singapore Telecommunications Ltd. (SingTel) (OTC: SGTJY), and Australian incumbent Telstra Corp. among its customers. (See XO Picks BroadSoft's VOIP Apps, BellSouth Launches IP Centrex Service, MCI Bolsters VOIP Offering, and TelstraClear Picks BroadSoft, Cisco.)

Sylantro, currently ninth in our Top Ten Private Companies, claims to have 11 Tier 1 carrier customers, including two of the RBOCs, Qwest Communications International Inc. (NYSE: Q) and SBC Communications Inc. (NYSE: SBC). (See Qwest Uses Sylantro for VOIP Service.)

And there are other issues the IPO hopefuls will need to consider. One senior Wall Street analyst, who requested anonymity, says there is a "definite appetite for IPOs that meet three criteria." Those criteria are:

  • That the company is in the right market segment -- "VOIP definitely qualifies," says the analyst.

  • The company has "critical mass -- it needs to have visibility into its next four quarters of sales."

  • The company is profitable or just about to become profitable.

"Assuming that BroadSoft and Sylantro meet these criteria, it becomes a question of timing," with the firms looking to hit the market just when they can maximize their valuations.

So does the IP Centrex pair match up? Sylantro is very confident it meets all the requirements. It says it will hit profitability in mid-2005 and definitely has the level of visibility that investment bankers will look for.

BroadSoft, which was the subject of takeover talk last year involving one of its major partners, Lucent Technologies Inc. (NYSE: LU), says it's currently at breakeven and reinvesting cashflow in the firm as it grows (see Lucent to Buy Broadsoft? and Lucent Teams With BroadSoft).

It's less clear about the issue of visibility, however. In an email response to a question on the issue, Wharton says BroadSoft has a number of large partners and service provider customers that are delivering increasing volumes of business, and "we expect these customers to increase their own sales, which will… give us more visibility into future revenues." (See Nortel Gets More VOIP Partners and Sonus Announces Partner, Contract.)

Of course, BroadSoft and Sylantro aren't the only firms competing in this area. VocalData Inc., which was acquired by Tekelec Inc. (Nasdaq: TKLC) last year, also has a strong track record in North America (see Tekelec Connects With VocalData). NetCentrex SA has had some success in Europe, notably with France Telecom SA (NYSE: FTE) and FastWeb SpA, while Ubiquity Software Corp. is an up-and-coming startup (see Endavo Uses Ubiquity for VOIP and NetCentrex Claims VOIP Milestone ).

The IP Centrex platform providers aren't without their critics, however. Some service providers have developed their own technology solutions and claim that the commercial systems are unwieldy and unreliable (see IP Centrex: Build or Buy?).

— Ray Le Maistre, International News Editor, Light Reading

Read more about:

Omdia
Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like