Globalive has big plans for the Yak brand in Canada

Three months after Yak Communications Inc. announced it was exploring strategic alternatives to maximize shareholder value (NL, July 6/06), Globalive Communications Inc. has agreed to purchase all of the outstanding shares of Yak’s common stock at a premium of approximately 39%. The transaction is subject to a minimum 80% take-up and customary approvals, which will allow Globalive to make two major changes to the company. Globalive plans to take Yak private immediately, and then exit the US market to focus exclusively on Canada. "It’s another example of a Canadian company taking its business model, not really changing it, and trying to deploy it in the US," says Tony Lacavera, Globalive’s chairman and CEO. "There’s a lot of history of that really not working well for Canadian companies and I think Yak is just another casualty of that." Key to the future of Yak will be a return to the past. "I see the core business as still being very successful and we will certainly be reorganizing the company to restore it to its form from the 2002-2003 timeframe, which was really at that time a very prevalent, successful brand," Lacavera says. Although Yak recorded a net loss of $365,000 for the year ended June 30 2006, Lacavera says much of this was due to the company’s VoIP and dial-around initiatives in the United States and the fact that it spent close to $5 million per year maintaining its listing on the NASDAQ stock exchange. Indeed, Yak’s fiscal 2006 financial results show that general and administrative operating costs alone have more than doubled over the past two years, from $11,081,000 in June 2004 to $22,433,000 this year. "I think clearly the company has eroded since it went public over two years ago," says Lacavera. He adds that Globalive plans to immediately eliminate these costs by taking Yak private again and finding a buyer for Yak’s US assets. "We see an opportunity to really bring the company back to Canada, refocus it on Canada, on the Canadian consumers that are using the dial-around product," Lacavera says. As well, the company plans "to take this Yak brand and restore its previous prevalence and consumer awareness that it had two or three years ago, and really start to introduce new services to those consumers." That being said, Globalive’s long term plans also include keeping the Yak brand intact. Globalive delivers IP-based telecommunications services to the small business and hospitality markets. The purchase of Yak, particularly its stake in the Canadian dial-around sector, will represent Globalive’s first foray into the consumer marketplace. Lacavera adds that Yak’s lack of success in this sector in the US should not be an indication of its future in Canada. " competition in the US dial-around is much more serious, much more severe than here in Canada," says Lacavera. He would know; Globalive’s Lucky Call dial-around service holds about 4-5% of the Canadian market, while Yak owns approximately 75%. Once the acquisition is complete, Lacavera plans to continue to own the niche. While VoIP and plummeting long-distance rates could give the impression that dial-around long distance is a dying market, Lacavera actually thinks it has become broader in the past two years. He says during this period long-distance pricing has actually increased, unbeknownst to many Canadian consumers, through the introduction of network access fees. So, while long-distance minutes have remained the same, these fees, which usually range between $2 and $5 per phone bill, have effectively raised long-distance prices. Lacavera says that smart consumers will still be able to shop around and find a carrier with an attractive per-minute rate, but they could accomplish the same thing with the 10-10-Yak dial-around service. But Lacavera has bolder ambitions for the Yak name than just continuing to dominate the Canadian dial-around market. He says he plans to look at the switched long-distance market as well, but it might turn more heads to know that Yak is also eyeing the wireless sector. "Wireless is obviously high on our radar screen with the current environment of wireless in Canada," says Lacavera. Since Fido was acquired by Rogers, pricing has gone up significantly, opening up an opportunity for a Yak wireless offering. Lacavera hopes to put something on the ground in the wireless market within the next six to nine months, saying that at the very least they’ll be offering Yak long-distance services to wireless users, and hopefully entering into a mobile virtual network operator relationship with one of the national carriers. However, Lacavera is cautious about how much Yak can grow. "Can Yak ever be a three, four, five hundred million dollar player in Canada in long distance?" he asks. "No. I would say that is definitively not the case." Yak’s founder Charles Zwebner realized this and tried to grow the company by entering the US market, albeit unsuccessfully. "I think that his strategy was sound," continues Lacavera. "I think that the realities of that market and the execution, and then of course all of the regulatory issues with the NASDAQ and the Securities Commission, all that compounded to make it a failure." Of course, considering Globalive is buying a company that has certainly failed in some aspects, it needs a sound strategy as well. Whether ridding itself of the American operations and expanding in Canada will pay off remains to be seen, but Globalive is confident. Says Lacavera: "This is our first step into the consumer marketplace in telecommunications so we’re going to make sure we do this right."

Globalive has big plans for the Yak brand in Canada

News | September 28, 2006

Unlock all the Canadian telecom, broadcasting and digital media news you need.

FREE TRIAL

SUBSCRIBE

Inside The Wire Report

Information

Hill Times Publishing

Get in Touch With Us