Yak might be on its way out of the VoIP market

In a period of nine days Yak Communications Inc., a legacy and VoIP telephone services provider, made two announcements that could signify the beginning of the end of the company. First, Yak established an independent committee to "review, study, explore and analyze various strategic alternatives to maximize its shareholder value," according to the press release. Just over a week later this committee engaged the investment banking firm Orion Securities Inc. to advise it regarding these strategic alternatives, including the potential sale of the company. "We just feel the company is not getting recognized in the market for its value," says Gary Clifford, chair of Yak’s independent committee. "Either people don’t believe in our strategy – or they don’t understand our strategy – or maybe we’re just too small and no one cares." Yak’s net earnings for the year ended June 30, 2005 at $4.18 million, down from $5.06 million the previous year. While not exactly flagging, the figures did slip. Adds Clifford: "We believe there’s a lot more value in the company than the company is trading at…hence the to figure out what to do about it." However, Jon Arnold, principal of independent IP communications analyst and marketing consultancy J Arnold & Associates, feels the announcements indicate a harsh fact of life about competing in the VoIP market. "To be a pure-play VoIP provider, I think that’s way over now, no one should even bother going there," he says. "They haven’t been able to take it to the next level and I think it’s just way too late in the game for anybody to try and do what Vonage has done." On top of competing with Vonage and Primus Canada, those looking to make a go of it in the VoIP market also have to go head-to-head with the telcos and cablecos. Arnold says the market has matured such that undercutting your competitors isn’t enough to gain a subscriber base: you need quality service and a strong brand. As an example, Arnold points to Vonage. The company’s ARPU is about $20 a month higher than the cost of providing their service, yet the company has to spend a high percentage of its profits on advertising. "Yak doesn’t have that kind of capital….They don’t have the customer base, the revenues, the ability to raise money and they don’t have the brand," says Arnold. He adds that cultivating a niche market, be it ethnic, geographical or specific to a particular age group, is one way for a small pure-play provider to build a subscriber base. Which strategic alternatives the independent committee will recommend to Yak remains to be seen. In the latest news release, Yak chairman and CEO Charles Zwebner lists a loyal customer base and a net cash position of over $10 million among the company’s assets. Clifford adds that Yak also owns 75% of Canada’s 10-10 market. "You either have value in your assets or you don’t," he says. "The question is whether the value is being recognized by people." But if the value of these assets isn’t being recognized under the Yak name, how much interest will there be if the company is up for sale? Arnold doesn’t expect to see a rush to buy the company. He says: "This really brings you to the conclusion that the cost of entry is low, but so is the cost of exit. You can come quietly and you’ll go quietly."

Yak might be on its way out of the VoIP market

News | July 6, 2006

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