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NEA Eyeing More VOIP Deals

Light Reading
News Analysis
Light Reading
11/27/2003
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Venture capital firm New Enterprise Associates (NEA) says it's going to use its education at Vonage Holdings Corp., the latest addition to its portfolio, to size up further investments in the VOIP market.

On Monday, NEA announced it had led a $35 million investment in the specialist VOIP service provider with a $12 million stake (see Vonage Raises $35M). Now Harry Weller, a partner at NEA, says the VC firm will make use of its inside knowledge of Vonage to look at other companies riding the VOIP wave.

"Our investment in Vonage gives us exposure to the sort of infrastructure elements that are needed for VOIP, and because Vonage buys and uses this stuff, we can see what works, and see which companies have the best technologies," says Weller.

An example of such VOIP "elements" are the session controllers that are needed to manage services at IP network interconnection points, although Weller did not say NEA was looking specifically at that sector. The session controller market includes such startups as Acme Packet, Jasomi Networks, Kagoor Networks, Netrake Corp., and NexTone Communications Inc., among others.

NEA is far from the only company pumping cash into the VOIP sector of late:

  • M5T Gets Extra Funds
  • Mediatrix Scores More Funding
  • Media Servers on the Move
  • Acme Closes $15M Round
  • Siemens Props Up Kagoor Weller is to sit on the Vonage board following his firm's investment, and a further director "associated with NEA" is to be appointed to the Vonage board, though Weller could not provide any further details. He also won't reveal how much of Vonage NEA now owns, following its cash injection.

    He does admit, though, that the investment in Vonage is a risk, given the extremely competitive nature of the voice services environment and the potential regulatory issues that may emerge (see FCC Sets Date for VOIP Inquiry and FCC Picks VOIP Experts). But Weller says the potential of the Vonage business model makes this a risk worth taking: "The risks are mitigated by the potential upside. We've been looking at Vonage for about nine months, and there's enough evidence, enough business data, to make this attractive. The costs scale as the business grows – there's no chunky upfront investment in traditional voice network infrastructure – so it's a very capital efficient business. And because the service is decoupled from the infrastructure, it means you can be innovative with the service, and do new things with voice service, which is still a killer app," says the NEA partner.

    — Ray Le Maistre, International Editor, Boardwatch

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    aswath
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    aswath,
    User Rank: Light Beer
    12/4/2012 | 11:13:00 PM
    re: NEA Eyeing More VOIP Deals
    The Vonages of the world depend on the subscriber having a wireline telephone.

    How is that? I thought Vonage claims that its subscribers can eliminate connection to RBOCs. Are you referring to a traditional phone connected to an adapter?
    technonerd
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    technonerd,
    User Rank: Light Beer
    12/4/2012 | 11:13:00 PM
    re: NEA Eyeing More VOIP Deals
    corrections:

    - In line 2 of the first paragraph, "cradles" instead of crades" and "must" instead of "much"

    - In line 1 of the next-to-last paragraph, "gap" instead of "gape"

    Sorry about the errors. Light Reading should get software that allows posters to go back and edit their messages.

    technonerd
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    technonerd,
    User Rank: Light Beer
    12/4/2012 | 11:13:00 PM
    re: NEA Eyeing More VOIP Deals
    Why Vonage will be a niche product:

    1. It doesn't automatically connect to all of the phones in your house like the cellphone crades say they do. Instead, you much connect each telephone to the Vonage unit. You could get around this to a degree by connecting a multi-handset cordless base station to Vonage, but the act of doing this would limit the market to nerds like us.

    2. You must have a broadband connection to use Vonage. This limits the market to no more than about 20% of the population. The mass-market still uses dialup Internet access.

    3. Vonage involves an additional monthly charge over and above the broadband connection it runs through. A typical broadband connection costs $30-$50 a month, and Vonage charges an additional $16.50 to $36.50. A typical wireless bill is $40 a month. A Vonage customer with a cellphone will be spending about $100 a month for Internet + voice service.

    The cellular adapters involve no additional charges, but rather route all traffic over the existing cellular line that likely offers most people more minutes than they'll use anyway. A typical cellphone user would spend $40 a month with an adapter. That said, I don't think the cellular adapters will really take off until they can handle dial-up Internet traffic.

    But when it happens, there is a HUGE gape between $40 a month for everything to go over wireless vs. $100 for Vonage (requiring broadband) + ceullar. Not to mention that Vonage doesn't connect all the phones in the house like the cellular adapters will.

    Conclusion: Those who get starry-eyed about Vonage because it is "VoIP" are allowing themselves to be snookered by technology just like the speculators of the 1990s did. It's not about the technology, it's about what you can do with it and how much it costs. Vonage flunks the price-performance test in a major way.

    technonerd
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    technonerd,
    User Rank: Light Beer
    12/4/2012 | 11:13:00 PM
    re: NEA Eyeing More VOIP Deals
    So New Enterprise Assocs. is throwing money at VoIP and Vonage? How quickly these people forget about the need to do some homework and to use some common sense. Consumer-level VoIP is a niche product. It will not be commonly deployed on a mass scale because wireless service is on the verge of cannibalizing wireline.

    The Vonages of the world depend on the subscriber having a wireline telephone. To the extent that any business plans depend on people using the computers to make phone calls, they are confined to a tiny market of hobbyists. But I guess the tendency of VC's to believe every bit of b.s. as long as it's in Silicon Valley continues unabated.
    aswath
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    aswath,
    User Rank: Light Beer
    12/4/2012 | 11:12:59 PM
    re: NEA Eyeing More VOIP Deals
    technonerd:

    I think i understand now your reamrk that Vonage requires wireline connection - they require broadband Internet access based on DSL/Cable.

    I have another question. Do the cellphone cradles really connect all the phones at home? How do they do that if inside wiring uses a breakout box, for example? WSJ article says what you are saying; but Phonelabs' website does not give any additional information. I don't see how they can do it without requiring some wiring modifications and installation.

    Thnaks
    Aswath
    technonerd
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    technonerd,
    User Rank: Light Beer
    12/4/2012 | 11:12:58 PM
    re: NEA Eyeing More VOIP Deals
    Ther cradles SAY they do. The product from Pulver says you have to either disconnect your home wiring from your outside wiring at the NID, or get a second wireline, to run all the inside phones through the cradle. Why? Frankly, I don't know. If there are any engineers around here, maybe they could tell us.
    aswath
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    aswath,
    User Rank: Light Beer
    12/4/2012 | 11:12:57 PM
    re: NEA Eyeing More VOIP Deals
    What is claimed for Dock-to-talk can not be done without changing wiring arrangement is that the cradle needs to "behave like" Class 5 switch to the phones, but only one phone can be connected to the cradle; all the other phones are not connected to anything else. The kind of Class 5 functions required are providing current, dial tone generation and digit collection.

    My main point in this series of posting is that this one product can not diminish a large portiuon of the industry (both wireline PSTN and VoIP). Such products have been around with limited take. It is interesting to note is that existing vendors haven't introduced new models with improved functionalities.

    For sure, wireless access will play a significant role, but it is a streatch to say that wire access will be totally eclipsed.

    Aswath
    technonerd
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    technonerd,
    User Rank: Light Beer
    12/4/2012 | 11:12:57 PM
    re: NEA Eyeing More VOIP Deals
    ... slightly off-topic but I found something on broadband cellular that I thought was pretty interesting. Seems as if it's so bad that not even the dumb kids will use it.

    http://www.theregister.co.uk/c...

    Not that any of the "investors" will ever actually check to see whether a technology a) works or b) has a market. What they're really looking for is a stock market that will let them make a quick hit.
    technonerd
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    technonerd,
    User Rank: Light Beer
    12/4/2012 | 11:12:56 PM
    re: NEA Eyeing More VOIP Deals
    I didn't write that a single vendor's product would diminish a large portion of the industry. I wrote about a product class that would do so, and specifically stated that improvements and cost reductions would be needed in later generations before the change will take hold.

    Cell Socket says that if you disconnect the network wires from the NID, their device will route all of your phones over your cellular service. Dock-n-Talk hasn't been released yet, so full specifications aren't available to my knowledge.

    It's not the product that's the key, it's the functionality. Cell Socket is a type of wireless NID, and so is Dock-n-Talk. There will be others. They will be cheaper, better and have more features than the first generation. They will handle faxes and dial-up, and like Cell Socket they will have antenna boosting, which I think is necessary as well.

    Someone asked why people would want to use wireline ay home rather than cellular. Here are the reasons:

    1. Extension phones just by picking it up rather than establishing a conference call not to mention paying the extra-phone charge.

    2. Form factor. Cellphone are tiny so they'll fit in your pocket. Ever try cradling one on your shoulder? And don't tell me that people are going to have headsets handy at home; the nerds might, but we're talking mass market here.

    3. Reception. Lots of cell service is 1800 MHz these days and doesn't do well inside homes. Boost the antenna like Cell Socket does, and you solve that problem.
    sigesux
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    sigesux,
    User Rank: Light Beer
    12/4/2012 | 11:12:50 PM
    re: NEA Eyeing More VOIP Deals
    Technonerd,
    Your a fool if you think VoIP will not take off, trouble is you understand so little about the VoIP business that I would need to educate you before the exchange began.

    Think cable providers and overlayed networks as the connection medium to the house. Think ethernet infrastructure as the business connection. Now add VoIP on WiFi and you have the beginings of a consumer value proposition.

    As for network providers, VoIP based networks cost a small fraction of the capex cost of convential Metro networks. The "free long distance" is just the icing on the cake.

    optoslob
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