What Happened to Alteva?

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

What Happened to Alteva?

Alteva was one of the pure play Broadsoft ITSPs. The exit strategy was to be acquired (as it was for almost all the CCA members). An RLEC, WVT, bought them in 2011 for $17m. Today, Momemtum, a wholesale Broadsoft shop, acquired Alteva (and will take them private) for $28.7m.

Alteva had a number of management change since 2011. It was more than the name changing that was needed. The company had been operating at a loss for a while. How does an RLEC do that?

"At the end of 2013, there were over 39,000 users on Alteva's hosted platform, which represents an increase of 33% of the installed base compared to the end of 2012. Revenues were $7.4 million in the fourth quarter of 2013, of which, UC revenues were $3.9 million." [ir]

"At the end of 2014, there were over 50,000 users on Alteva's hosted platform, which represents an increase of 18% of the installed base compared to the end of 2013; Revenues were flat at $7.4 million in the fourth quarter of 2014. UC revenues were $4.2 million in the fourth quarter of 2014," [ir]

"Telephone revenues were $3.2 million in the fourth quarter of 2014, as compared with $3.5 million for the same period in 2013. Telephone revenues were slightly lower year-over-year as a result of continued access line losses and lower revenue from pooling arrangements. These decreases were partially offset by an increase in access line rates earlier in the year and modest growth in broadband Internet services revenues." This is not an unusual story today.

The UC side of the house (with 55% margin) was struggling to pay down debt and right the financial ship of the RLEC and its declining access business. However, when half the house - and half the board - don't understand cloud comm and still think that the world is about small business, residential and POTS lines, it is an uphill battle.

Most of the original Alteva team is long gone as it transitions to Momentum. Alteva sold direct, wholesale and via the channel. That is a lot of sales channels to manage, while also managing residential and RLEC responsibilities.

ANPI is facing a similar struggle. We have witnessed Windstream's financial strife, despite buying data centers, fiber plants, RLECs and CLECs. It is probably a common thread at NTCA meetings behind closed doors as companies face access line revenue loss and try to transition not just from TDM to IP, but from POTS to broadband in a rural landscape.

Momentum Telecom (based in Alabama) is was primarily a wholesale VoIP provider, mainly to tier 2 and 3 cable companies. It does have at least one rather large CLEC as a partner. Momentum acquired its largest competitor - IBBS - in January of 2014. According to an email this morning, "It appears they claim 70K wholesale lines and 130K+ retail lines. Plus 55K UC from Alteva , that would be the 250k+".

Alteva CEO Kelley said in a news release, "The control of selling expenses and the achievement of operating efficiencies depend on scale." In other words, we were too small to make it work?! Scale helps but only if the machine is firing efficiently.

"The acquisition will make Momentum Telecom the second-largest provider of hosted communication channels for direct marketing behind Vonage, according to the company," writes the BizJournal.

Rob Powell writes, "The purchase of Alteva will boost their users to move than 250,000 and give them some additional scale. Scale has become increasingly important in the business VoIP and UC space lately, with the bigger fish like Vonage and Mitel actively acquiring smaller brethren." Inorganic growth only gets you so far. You still have to have an internal engine for organic growth to keep the bus moving. That is the one part everyone forgets. When you are bigger, the small problems expand. Culture - which can be the fabric that the business is built on - breaks down, especially during M&A. Holes in implementation get bigger. Bottlenecks stack up.

This statement in the BizJournal is interesting because $29m isn't a lot of money - especially if you will become the second largest UC player (which is incorrect, see my Hosted PBX Market report).

Bill Fox, CEO of Momentum Telecom, "added the deal was made possible by launching a major capital campaign and through funds raised from local private shareholders. The purchase was made with a mix of cash-on-hand and from existing equity and lending groups." So now Momentum is taking over a financially troubled company while debt and investors. This should turn out well. On top of that, Momentum stated that they are keeping all 117 employees. Where are the synergies?

UPDATE

I received a few emails about this post. Mainly about the numbers. Since most UC providers are private or so big (Comcast, C-Link), real numbers are difficult to come by. Who is #1? Who is #2 or 3? I take a stab at it in my Hosted PBX Market report.

On its wholesale page, Momentum says, "Currently, Momentum powers more than 100,000 digital lines." That doesn't say seats. Most of the wholesale is probably POTS replacement (resi voice lines). Yet then on this page, it says 70K lines migrated from 350 partners. So who knows the numbers.

The other question asked, "Do I have something against Momentum?" No. The deal adds debt, investors and 100+ employees and only 55K Hosted seats. The troubles at WVT/Alteva aren't going away with this merger. The declining revenue doesn't offset the new RLEC regulatory responsibilities that Momentum now has to contend with.

How many mergers have we had that worked well in our industry? All too often the sum of the parts is more than the merger of the parts.

Maybe the scale thing is to have greater sway with Broadsoft. Maybe to get a better deal on the fees. Just a guess. Maybe they can make hay with the $28m in revenue they are buying for $28m.



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