Fool's Eye View

[ March 8, 2000 ]

Where Does TV End & Telephone Begin?

By Rob Davies (TMF Essex)

The wonderful world of communications seems to be changing daily. Today Pace Micro Technology (LSE: PIC), a manufacturer of set-top boxes (STBs) for digital televisions, announced the acquisition of Vegastream for a price of £19.7m payable in 1.77m Pace shares. A further 1.2m shares may be issued, taking the total consideration to £40m if certain gross margin levels are achieved. Vegastream is a new company that specialises in Voice over Internet Protocol (VoIP) products. Basically it makes a number of clever gadgets that convert traditional circuit switched analogue telephone calls into digital data packets that can then be sent using Internet Protocol (IP). The advantage for customers is that they will only need one telecommunication link for data, phone and video links, and everything will be charged at the local rate only.

The initial market is the b2b (business to business) SMEs (small to medium enterprises) but there is little doubt that this technology will eventually be introduced into the home. It is the domestic market that is really going to be transformed when unbundling of the local last mile is enabled in July next year. After that CLECs (Competitive Local Exchange Carriers) will be in a position to offer higher bandwidth and more attractive rates than British Telecommunications (LSE: BT.A) for integrated voice and data communications.

Vegastream has three products that are apparently very clever, and apparently unique. It seems that no one else makes such a low cost "gateway" between traditional products and IP that converts ordinary telephone speech to H.323 or SIP data packets. It also has a Multiple Control Unit (MCU) that enables speech conferencing over IP networks.

All this sounds very tech-tastic for Pace, but it doesn't sound too hot for poor old BT. But it is fighting back. Today it announced its Internet package, called BT SurfTime, that will provide access to any ISP using an 0844 number. There will be three different packages:

• A £9.26/month line rental charge, plus 1p/minute in the day, 0.6p/m in the evening and 0.5p/minute at the weekend. This is aimed at occasional users.
  
  
• More frequent users can opt for the £15.25/month unmetered flat fee that includes 80 minutes of voice calls.
  
  
• The third choice offers round the clock access for £29.25/month for residential customers.
  
  

But to really use the Internet customers will need broadband access that will cost an extra £17.74/month, and that depends on its availability. The new pricing scheme is planned to start on June 1st this year.

But who knows what other offers will be around then. The impact of Pace positioning itself as the home gateway for communications, VoIP technology, CLECs and the cable companies makes the whole market incredibly dynamic, and hard to call.

Related Links
• Telecoms discussion board
• Tech Stocks discussion board
• Fool's Eye View discussion board