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Interview conducted by:
Bud Wayne, Editorial Executive,
CEOCFOinterviews.com,
Published – March 4, 2011
CEOCFO: Mr. van der Velden, how long have you been with Elephant Talk,
what attracted you to the company and what is the vision?
Mr. van der Velden: I have been with Elephant Talk since the end of
2006. Our investment fund QAT Investments, became a shareholder a year
earlier and at the end of 2006, we felt that repositioning the company would
make sense in order to give it a good opportunity to be successful in the
market. What attracted me to Elephant Talk was that they basically were an
outsourcing partner for other businesses that need telecoms as a component
of their overall offering. Elephant Talk had become successful through a
couple of acquisitions in being a landline outsourcing partner for such
businesses. Those included call centers, transaction companies, content
companies, white label calling card companies, all kind of dial around
companies, but also other operators that did want to expand to another
geographical area and rather wanted to outsource the network and back office
requirements than to do any upfront investments themselves. Being in that
market position as a virtual network enabler, Elephant Talk had developed
their own software in some of the crucial areas that are required to produce
telecom services, such as rating, billing and customer care.
So when I came onboard, we had a very interesting starting point, but it was
limited to landline business only. As a lot of traffic migrated over the
last decade into the mobile space, more and more of our existing customers
also asked for capabilities to have access through mobile. Therefore, using
the existing capabilities as a basis, we added on top of that all of the
specific network elements that are required to also deal with mobile
traffic. And thereby we kept the philosophy of Elephant Talk: put your
customer in the driver’s seat to make sure that your B2B partner can succeed
by providing him a very simple, low cost interface to manage and manipulate
everything that is required to run a telecom company. As such, telecoms is a
very complicated type of business and if you add mobile it even becomes more
complicated. Most of the traditional vendors have always had a kind of
business model whereby they sell complexity. They may sell you a box or a
solution for a relatively low $1 million, but they do so only because they
know that by keeping the source code, over the next twenty years they will
be able to bill you another $20 million to maintain, manage and upgrade that
piece of equipment for you. Over the years, in order to keep its
capabilities up to date, a mobile operator may have assembled a few dozen
different systems from over a dozen different, often competing vendors. And,
as even the smallest change in one piece of equipment may have an effect on
any of the other pieces of equipment, a mobile operator is all the time
completely dependent on their vendors, and has no choice than to live by
this costly business model of selling complexity, selling dependency. Over
time, mobile operators turned into the kind of most complicated, inflexible
and costly IT back office environments that you can imagine.
What Elephant Talk did was actually take out that complexity and put all the
elements to run a complete mobile operation into one platform. We take care
of all the complexity while making it very easy for our B2B customers, with
the use of a very simple Windows interface, to manage everything themselves
through a self-care solution. This would include pricing, billing, bundling,
provisioning, promotions, customer care and all administrative functions.
Thereby Elephant Talk has actually turned the business model from selling
complexity into selling simplicity. And as important, we do not sell our
boxes, we just install these systems at the premises of a mobile operator
and manage and sell services through a so-called SaaS model, Software as a
Service: on a pay as you go basis, our virtual operators can make use of
that complete set-up for a low monthly fee per subscriber.
Over the last couple of
years, we invested some $50-60 million to add the specific mobile network
capabilities on top of the land line outsourcing platform that already
existed within Elephant Talk. Now we can say that we probably have one of
the most comprehensive platforms to run a complete mobile operation. Instead
of having twenty to thirty different operating and mediation systems in the
average back office of a mobile operator, we have all brought it down to one
big platform, something we could do because we own ourselves the source
codes of most of the underlying modules like rating, billing and customer
care, intelligent networking, switching, dynamic rating engine, digital
rights management, etc. These are all key elements that are required to run
sophisticated mobile services. Owning all the source codes we have been able
to combine all these modules deeply embedded, so that the user only has to
manage one single platform that contains all relevant elements. We believe
that by positioning us that way, we are able to help mobile operators to
better service their current and future virtual operators. At the same time,
we are also able to contract any virtual operators ourselves, bundling the
airtime that we purchase at wholesale from our MNO, our mobile network
operating partner, together with the managed services on our platform. So
basically what we do is to host on behalf of the virtual operator all of the
subscriber modules on our platform, thereby making it possible that the
virtual operator can thoroughly focus on what they are usually very good at:
sales, marketing and distribution. Around the world there are about 900
mobile operators and they basically all have the same problem, as they
mostly grew from being a relatively simple, lean and mean operator into
operators of very complex IP back office system. We help them by bringing
back simplicity, by taking away that complexity. We believe that there is
quite a great market in that respect; to bridge the gap between what a
mobile operator can easily offer on one hand and what a virtual operator
requires on the other hand, to make his business work.
CEOCFO: Are Virgin Mobile and AT&T customers of yours?
Mr. van der Velden: No company in the United States is a customers of
ours at this moment as Elephant Talk is not yet operational within the
United States. We service and partner with T-Mobile in the Netherlands,
Vodafone in Spain, and soon KPN in Belgium, and we are currently negotiating
with about a dozen of the largest mobile operators in the world to also set
up partnerships in their respective countries.
CEOCFO: What is it that you are offering; is it strictly back-end and
how do you get to the landlines and antennas?
Mr. van der Velden: We have everything that is required to run a
complete mobile operation, except the antennas and spectrum. That is really
to be done by the licensed mobile network operators, who we are partnering
with. After the installation and testing of our mobile platform is
completely done, a process that may take a few months, our mobile operator
partner will in first instance use our setup to fully service their
wholesale customers, their virtual operators. For this purpose we completely
bypass the legacy Telecom-IT back office systems of the mobile operator: we
simply interconnect through a voice, a data and a signaling pipe, so all the
relevant traffic is directly brought to our platform, where it is completely
handled.
CEOCFO: Has mobile surpassed your landline business, and will mobile
be your focus going forward?
Mr. van der Velden: No, not yet. Actually, it took us a quite a few
years to build up the whole platform as it is today and only about a year
and a half ago did we have our first inroads into the mobile market. For
this year, our landline business may still count for some 80% of our
revenues while mobile could possibly reach some 20%. However, over the
coming years we expect that our mobile part will dramatically increase, as
our landline business stays more or less flat. Virtually all of our
resources are now focused on the expanding mobile business. Therefore, in
the future we expect that mobile will become seriously more important than
our landline business. It is not only becoming more important from a revenue
point of view, but also seen from the margins that we are able to realize:
these are much, much higher than in the landline business. In the mobile
space, we achieve average margins in the range of 30% to 40%. Therefore,
adding more and more mobile revenues with much higher margins, we expect
will soon bring us to a cash flow positive operation and ultimately put us
in a position to achieve a very interesting bottom line.
CEOCFO: Do you deal directly with the banks and supermarket chains
that want to get into the mobile space?
Mr. van der Velden: We do indeed work directly with banks,
supermarkets, insurance companies and companies in many other lines of
business that want to get into the mobile space. Elephant Talk wants to be
in a position to manage the mobile cloud, the mobile internet and thus
access to mobile networks by all of the hundreds of thousands of businesses
around the world that are non-telecom, non-technology companies, but have
huge databases with customers and customer information. These are companies
that want to use the mobile channel to better connect to their customer
base, to their communities and to build a 24/7 relationship through the
digital space.
Whilst
certainly mobile networks will continue to be a primary channel for
traditional communications, like voice, SMS and data, the leverage potential
is enormous for an “always-on” channel. Embracing the customer, in essence
KYC, Knowing Your Customer, can be truly achieved in the global mobile
network, creating unique value propositions and customer loyalty programmes
that extend the business model into the hands, and minds, of the customer.
Expanding
mobile networks will be the basis for the mobile cloud, the global mobile
internet. Many of these businesses, that may soon consider to start to use
the mobile cloud as a channel to their stakeholders, and indeed want to take
advantage of the digital space, will most probably not like to invest
themselves in all the existing and future telecom and IT technologies to run
all the backoffice requirements of these mobile networks. Therefore, they
would rather become a virtual operator, they would rather leave those
requirement to an outsourcing partner like Elephant Talk. We take away all
of the technical headaches, so these businesses can concentrate on
interacting with their customers. We provide them with a simple Windows
interface that they can use to manage all relevant aspects of their
community, of their customer base themselves, without the requirements to
have a high level of technical knowledge about mobile networks or all the
related IT platforms. We are really focusing our whole organization to
enable all of these new businesses that will come onto the mobile cloud in
the next decade, so that they can focus on sales and marketing and their
channel management towards their customers. Therefore, on one hand we deal
directly with the mobile operators to get access to antennas and spectrum,
while on the other hand we work directly with virtual operators to give them
access to those mobile networks and to our platform that fully manages that
access on their behalf.
The interesting thing is that once you bring all these new businesses to the
mobile cloud, and manage the mobile cloud on their behalf, there is also
going to be a very big requirement for mobile security, for cloud security.
That is the reason why about a year ago we purchased a company called
ValidSoft Ltd., who specializes in security for that mobile cloud. A couple
of people from Goldman Sachs created ValidSoft with the idea to expand on
what they call the Out-of-Band concept. This means that if you want to check
or validate what is happening on one network, you basically need another,
completely independent network to verify what is happening on the first
network: By definition you cannot use the same network. For example, if you
want to check what is happening on your ATM network you should not use the
same ATM network to verify what is happening. You should use a completely
independent network. That is how they came up with the concept of using
mobile networks to verify what is happening on other networks. One of their
great ideas was to use this in the space of credit and debit card
transactions. One of the patents that they have been granted is the
correlation between the location where a payment card is being used and the
actual location where your mobile phone, belonging to the card holder, is at
the very same moment. Not that they need to know where you are; they only
need to know the proximity of both. Either your credit card and your
telephone are in proximity of each other, or are they not. Therefore, if
your card is being used in France, while your phone is in New York, it is
kind of strange and therefore very likely that it is a fraudulent
transaction. However, if you are using your credit card in Los Angeles and
your telephone appears to be in the same area in Los Angeles, there is the
highly likelihood that it is a fully legitimate transaction. All of the
tests have shown that this application of ValidSoft can help banks to avoid
most of what they call their “false positives”. That is when they decline a
transaction, even though it is a completely legitimate transaction.
Globally, in over 90% of the cases where the processer of that transaction
declines the transaction, it has been shown to be a completely legitimate
transaction. Our application can very well help to sort out that problem and
avoid virtually all of these false positives, allowing the banks to fully
focus on the real fraudulent transactions. And even most of the fraud itself
can be tackled in real time, because if your card is being used in Paris and
your cell phone is in New York, it can be red flagged, even before the
transaction is completed. So in combination of ValidSoft, using the mobile
platform of Elephant Talk, we have the capability to tell a bank or a
payment processor in a sub-second whether a card and the corresponding
telephone is in proximity of each other. We can do that completely
anonymously which is also the reason why we are the only security software
company in the world that was able to obtain the European privacy seal.
European privacy and data protection laws are the most stringent in the
world and we believe that now that we fulfill all of those requirements in
Europe, being certified there, we certainly will not encounter any major
obstacles to fulfill all of the requirements in the rest of the world. That
is why we believe that in the next two years we will be able to roll out
this service on a global scale and help banks, credit card companies and
financial institutions to reduce credit and debit card fraud dramatically.
CEOCFO: Will future growth by geography, will it come through
acquisition and what is your financial picture; do you have the money to
continue growth or will you have to go to the street to raise funds?
Mr. van der Velden: Let me first start with how we might expand as a
company. The landline business currently has operations in about a dozen
countries. The mobile business is currently operational in Spain and the
Netherlands. We are about to get started in Q2 in Belgium and as I said
before, we are currently negotiating with about a dozen of the largest
mobile operators around the world to help them out with our platform and to
partner with them to service virtual operators more efficiently than they
could do themselves. Of course, each market will have its own dynamics. We
believe that on average, a market should be able to command revenue levels
of $20 to $40 million per market. You will not get that right away, but
ultimately, after some ramp-up, you will be able to reach those levels of
revenue. As I indicated before, our margins in the mobile space today are
somewhere in the range of 30% to 40%, so you can more or less imagine per
country what the revenue base and the margin base could be. Growth will come
in two dimensions. First of all, we want to grow our business in existing
markets and secondly we want to expand into more geographic markets. Next to
the Netherlands, Spain and Belgium, we expect to be able to open up this
year two markets in the European/ Middle-East area and two markets in the
Caribbean/South America area. In our plans, we envision that we will be able
to open up four to five markets per year for each of the following years.
Ultimately, we will be expanding the footprint of the company to possibly
some 30 to 40 countries. Next to organic growth, we may also consider to
expand and accelerate our expansion by looking at some of our colleagues
that have a footprint in some countries, but may not have the best
technological solution to service these markets. Therefore, they may be
willing to partner with us, let us acquire them, and replace their technical
infrastructure with our own platform. We would then make use of their
existing contacts, both with mobile network operators for antenna and
spectrum access as well as with their virtual operators.
We have raised some $60 to $70 million in the last couple of years. We have
done that together with Dawson James Securities, through which we raised
over $ 20m from American investors, next to the $ 40-50 million that have
been raised through QAT Investments, the group of funds that I serve as
Chairman, and related European shareholders. Most of the funding rounds had
warrants attached, and some of these warrants are now very attractive. Our
share price is currently trading around $2.50 and most of the warrants can
be executed for $1.50 or $2.00, so we believe that in the next couple of
months, many of our shareholders will voluntarily choose to exchange their
warrants, raising some $10 to $15 million in additional cash to come into
the company, on top of the almost $6m already received through warrant
exercises over the last few month. In combination with the expected
reductions in our burn rate, this funding should be enough to gradually
expand the company. The same combination of additional cash coming into the
company and the reduced burn rate should position the company to upgrade to
a national exchange. Today, Elephant Talk is listed on the OTC Market,
however, within a few months we expect to fulfill all of the requirements to
either be submitted to AMEX or Nasdaq.
CEOCFO: Do you do much investor outreach?
Mr. van der Velden: On average, I am in the United States twice a
month for a few days for all kind of face-to-face meetings with current and
hopefully future shareholders. We also have a Vice President of ValidSoft,
Steve Gersten, who lives in the United States, and who spends a lot of time
in reaching out to the investment public. We have done quite a few road
shows, and still do many presentations and discussions with our investors,
where we give them feedback on how we are progressing. We have press
releases, and we started the end of last year with a conference call to
inform our investors and we will continue to do so, probably on a quarterly
basis, to inform our shareholders directly. We also plan to have a regular
newsletter starting this year So far, most of our investors are private
investors and I think they certainly appreciate the way that we have been
dealing with them through all of our communications. We certainly intend to
keep up with doing that in the near future. Next to building up our business
in the USA, one of the reasons to move the company headquarters to New York,
planned for later this year, is to be closer to our investor base. My
function will then be centered in New York City, next to a couple of other
functions, mostly related to marketing communications and investor relations
so that we are closer to our shareholders and our future business partners
in the United States.
CEOCFO: In closing, why should potential investors consider Elephant
Talk at this time?
Mr. van der Velden: We believe Elephant Talk is very well positioned
for what our ambitions are. Elephant Talk wants to manage the mobile cloud
on a network embedded basis on behalf of virtual operators. Next to Elephant
Talk’s sophisticated Platform, ValidSoft will be key to secure the cloud
and we believe that over the coming years, thousands and thousands of
businesses from other industries like banks and insurance companies,
supermarkets and other fast moving consumer goods companies, and for example
also health maintenance, logistic and security companies as well as
governments will use the mobile cloud to better reach out to their customer
base or to their constituency. We believe that all of these businesses will
need a strong partner to help them to manage and navigate that mobile cloud
and to keep it secure. Therefore, we believe that Elephant Talk will be the
preferred partner to be working in that sweet spot between the mobile
operators on one hand and all of these virtual operators from these ”new to
mobile” industries on the other hand. If you look at the credentials of the
members of our management team and see what we have accomplished in the past
with other companies, we certainly have all of the required capabilities,
experience and leverage to achieve those ambitions. I certainly believe that
we have a very good chance to succeed in that market place. Being ourselves
the largest investors in this company, we are also very well incentivized to
make it work. That is why we work very hard to realize these ambitions.
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