The Not Unusual Alteva Dilemma

Peter : On Rad's Radar?
Peter
| Peter Radizeski of RAD-INFO, Inc. talking telecom, Cloud, VoIP, CLEC, and The Channel.

The Not Unusual Alteva Dilemma

A private equity group that owns 6% of Alteva made a play to buy it all and take it private. That move failed. The most interesting comment Rob Powell made was this: "[Alteva] has been seeking a future in hosted UC, where it has found solid growth but no profits yet."

When you look at the INC5000 for revenue numbers for many hosted players, none are clocking the ball out of the park, despite years of trying.

RingCentral may be demonstrating growth but that growth is being purchased at a loss. What happens when the cost of the money for customer acquisition (growth) gets too expensive?

Wall Street rewards growth. 8x8 is experiencing a hangover from the Street because it isn't growing fast enough. Does that even make sense?

Wall Street is a cancer. It's why the PE group wanted to take Alteva private. It's why Dell went private.

Quote from a client of mine: "It causes greedy people to make bad decisions based on current valuation inflation and not long term smart business decisions, that are good for the customer, company, and staff. If the decisions are not based on a win-win-win strategy, they will end up not being good for the anyone long term."

It is painful to morph a company from a telco to a cloud services business. The revenues (and ARPU) are lower; there are enormous CAPEX; sales cycles are longer. There are not many spots in the business that the public markets would like. Plus the Street doesn't understand a whit of what any of these companies do. (Get on a BSFT earnings call and try to figure out if any analysts or reporters know what BSFT does or sells. HA!).

Cloud players can go buy growth for a limited amount of time or they can grow slowly but profitably. It is very tricky to do both. Scaling a cloud business isn't the same as scaling a telco. The talent is hard to find and expensive to hire. The processes are rarely automated. There are a number of human touch points that only allow for a finite number of orders to be processed per day -- and a very finite number of customers that can be turned up each day.

Better to do this in a private financial blanket where no one sees how the sausage is really made.

AfterThought

It's funny: all the research firms talk about the growth of UC and where the market will be in 5 years revenue-wise, but they don't talk about the margins or that most of this revenue is just arbitrage from landlines and PBX's. It's just a shift in buying from one group to the next. The total spend on voice-data-Internet has probably increased 2-3% per year (mainly due to cellular I would bet), but it is a shift in who gets the money. Cablecos get more than they did 10 years ago, when they didn't even have voice or a business division. Telcos are getting money that VARs and MSPs used to get for collocation and VPS. Hosted UC players are getting money that Inter-connects and telcos used to get. (Telcos are still the biggest sales partners for companies like Avaya.) All and all though, the wallet just shifted and grew a little bit. There are winners and losers. And there will be more winners and losers and consolidation because customer acquisition is just too damn expensive.



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