CEOCFO-Members Login
Become A Member!
|
This is a printer friendly page!
In 12 years, Phonetime has evolved into a major player in the
telecommunication space both in Canada and Internationally as both a wholesaler and a
retailer
Telecommunidcations
Reseller
(PHD-TSXV)
Phonetime Inc.
3035 Wharton Way
Mississauga ON Canada L4X 2B4
Phone: 905-629-2606
Wayne Silver, P. Elec. Eng.
President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published – April 12, 2007
BIO:
WAYNE SILVER, P. Elec. Eng., President & CEO - Phonetime Inc.
Wayne began his career in 1979 with Northern Telecom. In 1984, he joined Cantel and, as a
consultant wrote the company's initial strategic plan. In 1987, he co-founded Cellstar
Corporation, a cellular phone distributor, with Rodney Franklin. In 1990 they purchase
Provincial Photo (which changed its corporate name to Provincial Products), growing it
from $1.2 million sales to over $5.0 million sales, in less than 3 years. In 1994 they
started Phonetime International.
Company Profile:
Established in 1994, Phonetime is a leading Canadian supplier of International Long
Distance telecommunication services. Phonetime Inc is publicly traded, listed on the
Toronto Venture Exchange (TSX-V: PHD). Licensed in Canada as a Class A International
Carrier by the CRTC, Phonetime operates one of Canada’s largest and most advanced
private telecommunications networks in Canada. Phonetime has facilities in North America
and Europe and Canada where it has 40 points-of-presence covering most major metropolitan
areas, effectively offering on-net service to approximately 85% of Canada’s
population.
Phonetime’s balanced portfolio of services
includes retail products for individual consumers and businesses as well as wholesale long
distance call delivery to large and small domestic and international carriers, offering
both pre-paid and post-paid services. This balance enables Phonetime to maximize revenue
from the utilization of available capacity and to minimize costs through volume. In
October 2006 Phonetime completed a US$4 million dollar private placement in order to
stimulate growth of international wholesale and domestic 1+ services.
CEOCFO: Mr. Silver, what was your vision
when Phonetime started and where are you today?
Mr. Silver: “Phonetime started 13 years
ago literally on a kitchen table and the vision was to be a phone card company. This was
our legacy business and for the first 7 or 8 years; 98% of our company’s revenue came
from selling phone cards. We took the company public in 1998 as we needed the capital to
expand and in 2002, we began to transform the company into a diversified full
telecommunications company, first by selling wholesale services and then offering retail
home 1+ Long Distance services. Today we are a diversified telecommunications company with
three divisions; our phone card business still thrives, but it is the smallest part of our
business today. Our retail division is currently our largest division, but our fastest
growing and soon to be our significantly largest division will be our wholesale
division.”
CEOCFO:
What geographic territory do you cover?
Mr. Silver: “We have been a Canadian
company and up until the past year sold mostly in Canada or selling our Canadian network
to International Carriers. Last November we opened an office in Florida to concentrate on
International sales and purchasing from carriers all over the world. We currently have
customers in Europe, the Middle East, and Asia and are now playing on the world
field.”
CEOCFO:
Please tell us more about the products that you offer and why people choose Phonetime.
Mr. Silver: “We sell a variety of
different products. Our phone cards are have been on the market at retailers across Canada
for the last twelve years and we have a built some good brand name such as Bravo and Nuvo.
Consumers are comfortable with our brands and know what they are going to get and they go
back into the retail store to buy them. Our retail home customers buy under a brand called
Call Select. That division was that started 2½ years ago and is based in Vancouver. We
have grown it dramatically, and it now does over $1 million a month of revenue and 50,000
customers. That particular division concentrates exclusively on ethic long-distance to the
home markets. For example, if you are of Romanian descent, you will be called by a
Romanian operator and if you are of Iranian descent, you will be called by an Iranian
operator, our model to add new subscribers works very well and generates a high margin.
Our marketing model is to sell to a consumer in their native tongue. It is a compelling
sales tool for us. We have an 80-seat call center in Vancouver, where our operators speak
10 or 12 language. We have recently opened a second call-centre in Montreal to concentrate
on the Middle East and French market places. We are now looking at diversifying our
call-centers by out-sourcing to India and Romania; because specifically two of our largest
ethnic consumer groups are Punjabi Indians and Romanians. The third part of our business
in our wholesale business for which we have two sets of products; one is selling our
Canadian network, we operate one of the largest independent Canadian networks in Canada.
It covers 85% of Canada’s population base and over 40 metropolitan areas. Our second
product, which is our fast growing, is an international wholesale business based in Florida.
From here, we buy and sell Domestic and International routes to long-distance carriers
world-wide. We specialize on direct International connections and are specifically strong
in Africa and the Middle East.”
CEOCFO:
In the wholesale area, why are companies choosing you over your competition?
Mr. Silver: “I will break it into Canada
and international. When the telecom market collapsed in 2000, we were very fortunate to
have just completed a financing at the top of the bubble, so we were able to weather the
storm. When the market started to collapse in 2001 and 2002, we had enough money that we
never needed to borrow money again. We have been debt-free as a company for 6 years, and
have operated profitably with our own cash flow. The market collapse also gave us
opportunities to pick up assets at a fraction of what they would have cost a few years
earlier. We began to build and lease private facilities right across the Canada to the
point where we have put together one of the lowest-cost Canadian network infrastructures
of any phone company big or small in Canada. When VOIP became mainstream a couple of years
ago, we invested in the technology very early and put in a very large VoIP gateway so that
carriers around the world could send their Canadian traffic to us. Because we have such a
low-cost network that has a fixed cost, we were able to uniquely position our service. It
is an important to mention most phone networks sell by the minute and costs will vary by
usage. On our network, our cost is always the same whether we put one minute through it or
a billion minutes through it, this give us a huge competitive advantage. We found that we
built so much network that even after all of our retail customers paid to us it, we still
had excess capacity to offer to our wholesale customers. What we came up with was a very
unique model on the wholesale side, and to this day we still do not know of any
competitors that do what we do. We offer our wholesale customers a flat-rate model where
they can buy ten lines, a hundred lines, a thousand lines of Canada and they pay a flat
rate per month for those lines. There are no variable costs. It is similar to the flat
rate Vonage (NYSE: VG) model that everyone is familiar with on the retail side, but at a
wholesale level. We found this a very compelling model especially for very large phone
companies in the US and in Europe who know that they have millions of minutes of traffic
in Canada and they can quantify those minutes. Instead of paying variable costs of a
half-a-cent a minute, they can pay a fixed cost of a few tens of thousands of dollars and
they know if they continue to put more traffic there that it will drive their cost per
minute way down. That really got us on the wholesale map, but again the Canadian market is
limited one country, Canada.
We realized from our relationships that we built, that there was a tremendous opportunity
to expand onto the international long distance front. When we raised money in October, we
raised it with a group in Gibralter, Creslin Limited, who understands the telecom and has
a very good track record previously in the stock market. With the money that we raised, we
invested in putting an administration office in Florida. The reason we chose that place is
that we were able to hire senior staff with many years of telecom experience and well
established relationships. We hired telecom buyers, salespeople, and technical staff and
software developers and gave them the network infrastructure and financing to begin
selling immediately. This included their relationships with countries around the world as
well as our Canadian Network. Our company’s excellent industry reputation couples
with our new staff’s good reputations allowed us fast jump-start on the wholesale
side of the business quickly and I am proud to say that in just their first 60 days of
operation this new division has already generated $7+ million of new revenue for the
company. We also did one more thing, which we believe will be a key to our continued
growth. As a Canadian company, our government encourages the export of goods and services
by supporting the financing to foreign buyers, e.g. when Bombardier Inc., for example
sells airplanes or subway cars, the Canadian government helps their buyer with financing
and credit insurance. For a smaller companies like Phonetime it can be a huge risk to sell
to third-world countries or extend new foreign customers high credit. It can be difficult
to get paid and that is always a barrier to growth. Therefore, from the start we
approached E.D.C. (Export Development Corporation); it is funded by the Canadian
government and what they do is provide export insurance for goods and services; in our
case it is telecom services. We tell them who we want to sell and which country they are
located in; EDC in turn tell us how much credit they will insure. So, if we want to sell
for example in Ghana, Africa, which we might be very cautious on, they might do a credit
check on the company and give us up to $100,000 of A/R Credit insurance for this customer.
If we do end up with a bad debt from the customer, EDC will step in and pay us 90% of that
insured A/R. This will allows us to expand our business quite comfortably and much faster
than we normally could if we were self-financing those receivables.”
CEOCFO:
What is ahead for Phonetime?
Mr. Silver: “It is very interesting,
over the past five years, telecom has been a dirty word in terms of the stock market. A
lot of investor lost a lot of money in Telecom by investing on companies that are long
since gone. But today the telecom companies that have survived the past five years, are
much stronger. Fundamentally, they are good businesses, not just good telecom businesses.
Most are well run, have strong balance sheets and cash in the bank. Today we feel a
tremendous sense of optimism from within our peers in the industry. As the market has
evolved with the VoIP technology, companies who were traditionally your competitors,
become your suppliers and your customers as well. There is a lot more cooperation in this
business right now, personally, I am very optimistic going forward and I may not have said
the same thing five years ago, but everybody you deal with today is strong. Our bills and
bad debt has gone way down; almost nil now and there is a tremendous amount of growth
opportunity because as VoIP opens up the world to long-distance, it is less expensive for
people to talk. What we are finding is that people are still spending the same amount of
money on their telephone that they always did, but they are just talking longer and
getting better value. Therefore, we see a continued growth in our business. We see the
company growing to potentially to as much as $100 million dollars this year and that would
be a five-fold increase from a year ago.”
CEOCFO:
In closing, why should investors be interested and what might they miss at first glance?
Mr. Silver: “If they had looked at our
stock 4 months ago, it was .14 cents. If they looked at it a year ago, it was .06 cents.
If they look at it today, it is .70 cents. Fundamentally, we are the same company, but we
raised $4 million and that put us on a different set of radar. Our growth this year is not
evident yet to the marketplace. The reason you are calling me today is you may have seen
our news release that says we grew dramatically in December (2006), with a 60% increase
from the year before, last week we announced that January’s sales were over $6
million and 400% increase from last year. We believe investors will see even more dramatic
growth month over month and quarter over quarter. The market valuation today has gone from
$6 million to $60 million in less than 3 months. Was the company worth $6 million 4 months
ago? No, we were well undervalued. Is the company today worth $60 million? Yes, if you
look at our forward projections for revenue, we are. However, the market is not aware of
that yet, so they are buying us on the future opportunity. If we do it right, we will do a
second or third round of financing, in the next couple of years. We also plan to apply to
graduate from the TSX Venture to the TSX in the first half of this year. There are a lot
of core fundamental things that will just continue getting better with this company. We
will back-fill the valuation by making acquisitions, looking to add more retail that
supports our wholesale. In addition, by being able to deal with some of these larger
customers around the world and give them the credit facilities they need, we are able to
expand our business quicker. You will not see those things by looking at our numbers
today. You look at a company the last year did $17 million. That is not as exciting as a
company that next year could do $100 million. Therefore, investing now will be a lot
better than getting on a year from now, but I believe investors will see a lot of
appreciation over the next couple years in our stock price.”
disclaimers
Any reproduction or further distribution of this
article without the express written consent of CEOCFOinterviews.com is prohibited.
|
