With deltathree Inc. (DDDC.OB) reaching the end of the line as a standalone company, the persistent questions about the pure-play VoIP provider business have crystallized. And the answers don’t look good for Vonage and other erstwhile deltathree competitors.
Once a promising dot-com-era startup, deltathree sold itself for 42 percent of its stock-market value to a multilevel marketing company known more for its sketchy business practices than its telecom products. Pushed by circumstances including meager cash reserves, management upheaval, patent lawsuits and the end of its lifeline contract with Verizon Communications (VZ), deltathree’s management had little choice but to unload the company’s few remaining assets. The move again draws a dark curtain over VoIP adoption and the viability of multiple companies offering pure-play voice service in a tough economic environment.
Founded in 1996, deltathree went public in 1999, and, for a while, enjoyed its status as a hot growth stock. The company forged consumer-oriented partnerships (such as Joip, the VoIP service paired with Panasonic hybrid phones) and elbowed its way into the crowded wholesale sector as a way of diversifying its business model.
But the burst of the tech bubble hit deltathree hard. Despite boasting some high-profile partnerships and customers, deltathree couldn’t seem to regain momentum. Operations started to falter and then, last year, hit freefall. In March, deltathree was delisted from the Nasdaq exchange. CEO Shimmy Zimels resigned, and when Verizon shut down its consumer VoIP service VoiceWing, which was based on deltathree technology, the provider’s fate was sealed.
On Feb. 1, deltathree handed itself over to D4 Holdings LLC, an investment fund run by the owners of American Communications Network (ACN). Direct seller ACN hawks telecom and energy services through “independent representatives” worldwide; it has come under fire in countries including Australia, Canada, France and the United States for allegedly deceptive marketing practices. D4 — or, more realistically, ACN — now owns a 54.3 percent stake in deltathree. D4 paid $1.17 million in cash, less than half of deltathree’s $2.79 million market cap.
Future Plans Unclear
Few particulars are available regarding D4/ACN’s plans for deltathree. It stands to reason that deltathree’s brand and services — including the Joip phone from Panasonic — will be folded into ACN’s portfolio. That way, existing subscribers could continue to use their Panasonic hardware. What’s interesting, though, is that ACN already offers digital voice, plus a video phone.