For the past few months, I've been a little sympathetic about ex-Nortel CEO Frank Dunn and his senior management team – believing they did yeoman's work bringing the company back to health before they were fired in April for reasons that have not been disclosed yet. In the background, however, was this troubling belief Dunn and his senior management team were also envious of the big financial rewards enjoyed by the previous management team led by ex-CEO John Roth. As most people know, Roth walked away with US$139-million in salary and stock options in 2001. Roth then retired to his huge mansion in Caledon, Ont. to – among other things – take care of his large car collection. As it turns out, Dunn apparently did have a bad case of Roth-envy. As Tyler Hamilton in the Toronto Star reported earlier this week, Dunn is builiding a mansion in Oakville, Ont. that could have a market value of up to $15-million. The first thought is: what was Dunn thinking? This is a man under the spotlight who couldn't resist the temptation to enjoy some rewards he apparently believed he deserved. The optics of building a large house look terrible. Think about it: as Dunn was handing pink slips to 10s of thousands of Nortel employees, he was pushing ahead with his dream home on Lake Ontario. Not good, Frank, not good. If Frank was smart, he should have kept his construction plans on hold or perhaps renovated his existing home. Clearly, Dunn saw what Roth enjoyed as Nortel CEO, and didn't think it was inappropriate to go for it. Ironically, Nortel ex-CFO Doug Beatty, who was also fired in April, still lives in a modest house in North Toronto. If anything, Dunn's real estate dreams suggest maybe the books were cooked at Nortel so senior executives could enjoy large financial rewards.
Can someone explain to me how Vonage manages to raise an addition US$105 million in venture capital? Each time this company convinces investors to pony up more cash, you have to be impressed by the selling powers of Vonage CEO Jeff Citron. With apologies, however, to VOIP advocate Jeff Pulver, Internet telephony is still an early-stage business where prices are already declining – before the major carriers and cablecos get really serious about jumping into the fray. I guess investors must look at Citron's track record – Datek Online and Island ECN – and figure he's a good bet for yet another financial windfall. To Vonage's credit, it got out of the gate first and has more than 200K lines. This means it is generating about US$6 million a month of revenue, and, given its modest expenses, probably making an operating profit or a bottom line profit. The big question is whether Vonage's business is sustainable? Will it be able to maintain its momentum or, at the very least, its current size when the major carriers decide to make the big push into VOIP? Personally, I think Vonage's investors have made a big bet – US$208 million to be exact so far – the company will be acquired by a carrier hoping to make a big splash into VOIP. If this scenario is likely, how much would Vonage be worth? If you use US$100 million in annual revenue as starting point, what's the price to sales multiple? 8X8 Inc., which has 17,000 customers, has a market capitalization of US$74 million. This works out to US$4,352 per subscriber. If Vonage is given the same multiple, it's currently worth US$1.5-billion. The next step is estimating how much equity Vonage has sold to raise US$208-million. If it's 20%, investors will break even at the current valuation. Of course, Vonage will sell at a healthy premium to 8×8 because it has a dominant market position and a more established and credible brand. Vonage also more growth potential if VOIP meets the gung ho expectations of the major consulting firms such as Frost & Sullivan. With US$105-million of new capital, Vonage will continue its aggressive expansion strategy in the U.S. and overseas. If the company can execute and grow to let's say 500K customers, it's value could easily double. Then, it will only be a matter of time before Citron cashes in big time again.
When Bill Owens took the helm of Nortel in late-April, you knew he had a number of huge challenges ahead. A little more than 100 days later, you have to give him credit for taking dramatic moves to re-invent the telecom equipment maker. Rather than moving slowly, the decision to eliminate 3,500 employees and fire seven more executives indicates that Owens is serious about put the company back on solid footing. The big problem ahead in the health of the telco market. If carriers and cablecos don't start spending more money on equipment, all of Nortel's moves will fail to bear fruit. This should continue to make Nortel an fascinating story for the next year to 18 months.
If the folks at the University of Toronto and Carleton University are onto something, DSL at 400 to 500 megabytes/second could be on the horizon. According to an article in the latest issue of Nano Letters, a scientific journal, DSL routers could be souped up using a new polymer material that could be integrated into optical switches. Just imagine how much more music all those pirates could download!
In what can only be regarded as a much-needed and logical move, the Federal Communications Commission approved rules earlier this week banning companies from sending spam to wireless devices without consent from the person receiving it. The decision should hopefully keep the wireless world from being inflicted the curse of spam and, more important, save wireless users a whack dough if you are charged on a “per byte” basis.
There has been plenty written about the proposed of Google's impending IPO but what about the company's ability to continue its stature as the Web's ultimate search engine? There have been many proponents – including myself – that there are a growing number of search rivals already on the scene or poised to enter the market. The contenders include Microsoft, which is upgrading its search tools, and smallers players such as Teoma and Vivisimo. That said, Google has become the default search choice, and it will take something significantly superior to knock it off. Frankly, I haven't seen anything even remotely intriguing. The question, however, is whether Google's strength as a favorite search engine will be enough to maintain its financial growth. If the answer is “no”, Google investors could find themselves searching for “Internet hype” and discover the company's IPO tops the list.