Following the Money Trail: Vesbridge Plots Investment Course
October 18, 1999
SOK: Venture investing in telecom the past few years cannot have been easy.
Any areas you’ve shied away from?
RR: There’s real wisdom in the thought that when everybody thinks you should stay
away from an area, oftentimes if you have deep sector expertise and industry engagement you can go
in and find those pieces that still present dramatic value going forward.
ZH: An example of that is we’ve continued to be active investors in optical.
We led a significant recap in Mahi and we think that’s a very strong play. t
We also have led the Atrica deal for some time now and we’re big believers
in metro Ethernet. As a general theme, we’re looking for things that dramatically reduce the
cost of operating networks. We’re very pragmatic investors.
SOK: What are some of the areas to watch in wireless?
RR: Some of the hot spots of opportunity in wireless are tied to some of
the catalysts that exist in the ether.
One of those is broadband ubiquity — wired and wireless. What are the things
that are going to utilize this broadband infrastructure? What previously unavailable things will
be do-able that will satisfy real needs and real desires? That ties into the second key catalyst:
convergence. Convergence is happening, but in a different set of dimensions than was originally
discussed in the traditional telecom era: Entertainment is converging with what was traditionally
a work-based or communications-based infrastructure, whether it is video entertainment or person-to-person
entertainment.
Another catalyst: There’s more megahertz, megapixels and megabytes as well as Mbps in each
devices than were available in the original IBM PC. We now need the ability to upgrade and fix these
devices which historically have never needed this by operators and end users. The concept of web services
has linked into the thought of we need over-the-air reactivation, reflashing, renewal of these devices and
once you have that, you’d like it to be done automatically, so the network may be able to detect and fix a
problem before the user ever knows there’s a problem. Another catalyst is security risk. We need security
mechanisms within the network that not only protect the subscriber but also protect the network.
It is both needed and do-able, but barely do-able, which makes it an interesting venture opportunity.
SOK: What are you seeing on the wireline side?
ZH: Hosted voice is an area where we see lots of potential and this has been on our radar
for some time. What we predicted and is happening in spades is that the broadband pipes put
in by RBOCs and cable operators are being used by other vendors to sell voice services, and
voice becomes another application like email. ILECs are going to use VoIP to go into other
territories.
SBC is going to go after the voice business of Verizon, Verizon
will go after SBC and AT&T will go after both of them.
SOK: So who wins in this new world?
ZH: It’s going to be very competitive. Ultimately, I think the big guys
will win — they have the infrastructure to scale and the worldwide networks to leverage.
I can tell you who some of the early customers will be: AOL, Google, Yahoo! — because
VoIP will be just another service.
RR: Exactly.
ZH: All of these groups who are competing for services — e-mail, for example — they
will do the same thing in voice.
RR: We call these providers VVNOs — VoIP virtual network operators — and the model
is following the same path wireless has followed with the MVNO concept. It’s argued that many of these
MVNOs can be more effective at building ARPU and stickiness than a generic, horizontal infrastructure
provider like a typical carrier could do. [Vesbridge is] an investor in Visage Mobile, which is an enabler
for MVNOs. The category is called MVNEs — mobile virtual network enablers. There is definitely an opportunity
in the VVNO business that will be enabled by an enabler — a VoIP virtual network enabler, or VVNE.
ZH: We think that’s going to be a very important category — how do you do the billing,
the customer care.
SOK: So who’s going to fill that VVNE role?
RR: There is no natural company to do it, hence the opportunity.
There is a natural diversion of interests a t that interface point. You really need to
separate the billing, service pricing plan, the operations, the customer care, and
the content that may be appropriate to the devices and even the applications and the devices.
This is not a casual operation.
SOK: Looks like there are some dramatic changes in the works.
ZH: With hosted voice, the product we’ve traditionally called dial tone will
dramatically change, because it will be integrated into the overall Internet experience and
coupled with new services. The geography that has defined competition in the past will change
dramatically. The thing that will really determine how quickly this transformation will occur
will be government regulation.
SOK: So is VoIP as a technology and service doing something that the
FCC couldn’t do, which is create real competition vs. artificial competition?
ZH: That’s an excellent statement. A key issue will be — and I expect
to see some tests of this in the next 18 months — how much control will the network provider
have over where customers can buy services? If I couldn’t use whatever e-mail host I wanted or
ownload the music I wanted to from wherever I wanted, there would be some uproar. But I expect
that there will be a strong effort to control where you can buy your voice services. For
example, they’ll say ‘you can use the broadband pipe for anything you want in these domains,
but in this domain, it’s somehow different, and you can’t buy hosted voice services and run them
over the network.’ You can’t buy CallVantage, for example.
RR: I think it’s going to be more granular than that,
in the sense that there will be the concept of ‘I will offer you this broadband pipe with
more capabilities than you can imagine in those service areas that I offer. I will give you
generic capabilities, i.e., you’ll be pinched off if there’s any congestion, you’ll be
given no more than 56 kbps and with that 56K in this gigabit optical link, you can get to
anywhere you want. However, if you want a beautiful video experience, you get it through
the arm that I am bringing the video through.’ They can’t take it to zero, that
would be unconstitutionally disallowing this particular access or this particular
services, but they can limit the things that aren’t of strategic advantage to them.
— Sue O’Keefe
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