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Net.com Targets Low-End VOIP

Light Reading
News Analysis
Light Reading
10/28/2002

It’s tough selling telecom equipment these days, but some vendors are using the economic downturn as an opportunity to diversify their product lines and find niche markets to expand their revenue streams.

That’s exactly what Network Equipment Technologies Inc. (net.com) (NYSE: NWK), a maker of multiservice networking and service creation platforms, has done. Today the company announced its Shout900, a low-end voice-over-IP gateway, targeted at small providers of prepaid calling cards (see Northstar Deploys Net.com VOIP).

As carriers continue to lose money on their current long-distance services, prepaid calling card services have flourished. In 2002, this market is expected to generate $2.35 billion, and in 2003 this should jump to $2.85 billion worldwide, says Scott Rex, chief analyst of Niimbus LLC, a market research company. While some of this traffic is still carried over traditional telephone circuits, more and more of it is being carried over IP data links, adds Rex.

“The prepaid market is a hot one, particularly in the United States,” he says. “It’s geared toward the credit-challenged, highly mobile, college students, and immigrants.”

Traditional long-distance players such as AT&T Corp. (NYSE: T) and Sprint Corp. (NYSE: FON) are making big bucks from prepaid calling cards, but thousands of smaller “mom-and-pop” providers have also entered the market. These smaller players have carved out a niche by offering prepaid cards to targeted populations, most notably immigrants. These small providers rent space in a carrier hotel, lease T1 data lines from a local carrier, terminate them in foreign countries, and then offer prepaid calling cards that access the network and send voice over IP.

These cards are usually sold at convenience stores and newspaper stands in densely populated immigrant communities. People can buy a card for $20 and talk for anywhere between 1 cent and 5 cents per minute to far-off such locales as India, Malaysia, and Africa. Most providers can make back the money spent on their equipment and T1 leasing costs within days of launching the service, says Stephen Gleave, vice president of marketing for net.com.

The beauty of this business model is that almost anyone can do it: All one needs are the leased lines from the phone company and some VOIP gear. Because cost and space are top concerns, and because these network operators are typically not technically savvy, vendors targeting this market need to develop a small, easy-to-operate box with integrated features.

Gleave says that’s exactly what the Shout900 is designed to be. Specifically, it combines a media gateway, media server, and signaling termination point in a single, compact chassis. Priced at $14,000, it supports one to eight T1/E1 connections.

While Cisco Systems Inc. (Nasdaq: CSCO), Clarent Corp., and VocalTec Communications Ltd. offer similar low-end VOIP gateways, net.com claims it is the only one at this price point and size to integrate SS7 signaling, interactive voice response, and billing and accounting into a single box. Cisco offers a combination of two products for all these functions: the AS5350 and the PGW2200, says a spokesperson for the company.

"I'm not sure you really need all three in the same box anyway," says Christine Hartman, research director for voice-over-packet markets at Probe Research Inc. "I think most small service providers would probably be using ISDN instead of SS7 signaling."

Rex of Niimbus says that the real selling point for the Shout900 is its ease of use.

“I think the net.com folks really need to talk more about the manageability of this product,” he says. “That’s really important, given that the people deploying this gear are not very technical. From what I know of Cisco, it takes a bit more work to do the programming to set it up.”

While net.com seems to have carved out a nice niche for itself, it’s not a market that will carry the company financially, admits Gleave. He expects it could generate between $10 million and $20 million per year -- small potatoes compared with the $101.5 million in revenue the company reported for fiscal 2002 back in April. But in such a difficult economic climate, any revenue stream, no matter how small, is to be cherished.

The actual technology used in the Shout900 and net.com's other VOIP product, the Shout2500, came from its $1.5 million acquisition of Convergence Equipment Company in 2000.

“We didn’t go out looking to build a product for the prepaid calling card market,” says Gleave. “Is this a business that will eventually get big? Probably not. But VOIP is relevant to our customers who are focusing on convergence, so it makes sense for us to have it in our portfolio."

— Marguerite Reardon, Senior Editor, Light Reading
www.lightreading.com

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flanker
flanker
12/4/2012 | 9:27:54 PM
re: Net.com Targets Low-End VOIP
The beauty of this business model is that almost anyone can do it: All one needs are the leased lines from the phone company and some VOIP gear

If it was that easy, Delta Three, ITXC, and their fellow ilk would still be trading at $2 billion market caps. Here's a foolproof, three step plan to go bankrupt selling VOiP:

1) Try figuring out billing and back office for these cards. Try integrating the software with the gateway. Try figuring out exchange rates and factoring it into calling costs. This work costs money. Hmmm.

2) Try figuring out your state tax liability. Forget about internationqal calls: what's your tax exposure on a card bought in Arizona, subsequently used in California to call Hawaii. (and lets pretend you are based in Maryland) Go figure.

3) Do you think these cards sell themselves? You need a sales staff. Your sales staff and marketing efforts can blow through your profit margins faster than you can say "Internet Telephony."






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