2012 - Phone Card Industry Year in Review

Well we are just about ready to say farewell to another year and for the phone card business, it wasn't the most exciting of years in recent history. Unfortunately just like the year before, the top stories continued to be focused around the FTC crack down on deceptive practices in the industry and bankruptcies.

Some of the top phone card related stories of 2012 included:

• The once powerful STI going into Chapter 11 Bankruptcy protection (Vivaro is the parent company)
• Skype pushing into the hard card space (available at 7-11, Best Buy and Radio Shack)
• FTC fining DR Phone Card for deceptive marketing practices (case still ongoing)
• IDT expanding it's Point of Sale activation products into Rite Aid stores
• Millenium Telecard paying a 2.3 million dollar settlement to FTC for alleged deceptive marketing practices
• Consumer Reports publishing scathing review on phone cards finding that most cards tested delivered far lower than the advertised minutes. This report led a month long media flurry around the subject, painting a terrible picture for an industry which cannot afford more negative press!

While all of the above are definitely not positive news items that is not to imply that there were not at least a few positive things this past year. For starters in 2012 there was a huge expansion and mass acceptance of the "virtual" type cards also known as Pinless products. The most popular of which seems to be the IDT Boss Revolution offer followed hot on their heels by VoxCall a SpeedyPin product. Another positive in 2012 was the huge growth seen with the International Mobile Top Up products (IMTU). The margins are a ot lower than traditional calling cards but the consumer demand is there and it has helped many distributors replace some of their lost calling card business.

To all of my readers and those in the business have a Happy and Safe New Year!

Here is to better things in 2013!

IDT Inks a Deal to Sell Calling Cards in Rite Aid Stores

IDT has been selling phone cards in Walgreens stores for years but this month IDT announced that they have an agreement to sell IDT Phone Cards in Rite Aid stores across the country. The cards will be available in approximately 4700 retail locations in 31 states and will be co-branded with the Rite Aid logo. The cards will feature minutes ranging from as low as 150 per card all the way up to 2000 minutes per card and range in price from $5 to $50.

"IDT has been an industry leader for over 15 years and brings to Rite Aid a wealth of experience providing practical, prepaid communication solutions that we believe our Rite Aid customers will use and appreciate," said Bill Renz, Rite Aid vice president, consumables. "As an added incentive, customers who recharge an existing card with new minutes from a Rite Aid store will receive 10 percent additional minutes for free."

The deal probably means more in name than it does in terms of added revenue, but it still is a significant accomplishment especially in the declining hard card market. The deal also helps IDT push it's services to the mainstream as most of the companies success with hard cards has come from the recent immigrant consumers and not the mainstream.

Dollar Phone Enters The Pinless Agent Space

Not to be outdone, Dollar Phone has finally entered the pinless phone card agent/dtc game. Joining IDT (Boss Revolution), CallDirek, Inc. (Call Direk Pinless) and many others already in this space. The product will be called Dollar Phone Pinless and will be sold on their website directly to consumers and will also be available to agents/retailers.

While the offer is nothing new, Dollar Phone and their strong market presence in the prepaid space, should end up making some significant inroads with a product like this!

To read the full press release go to: http://www.pr.com/press-release/313039

Poll Results - Which Phone Card Provider Will Do Best in 2009?

The poll results are in and here is how all of you voted on the question of "Which Phone Card Provider Will Do Best in 2009?"

62% of respondents said STI will do best in 2009
12% of respondents said IDT would do best
10% of respondents daid Locus would be better
8% of respondents said Total Call would end up as the top performer
6% of respondents said Ibasis would do best

There is no doubt that STIs recent pick up of CVT puts them in the best position for 2009 but I wouldn't count out IDT, who still controls a very slight lead in market share. While all of these companies know how to do the tried and true, the leader will be the one that branches out and adds new products to their mix like international mobile top up, prepaid mobile, and money remittance.

IDT Announces Move To Smaller Headquarters

After years of downsizing it's number of employees, IDT announced today that they will be downsizing their square footage as well.

According to their press release, sometime within the next 90 days, the company will relocate it's headquarters, currently located at 520 Broad Street (former headquarters of Mutual Benefit Life Insurance Company) down the street to the smaller 550 Broad Street building. The move, according to IDT Chairman Howard Jonas, is a cost savings measure aimed at reducing costs: “We have fewer employees than we did several years ago, and, as a result, we now use considerably less corporate office space. Consequently, we have decided to consolidate our operations into a more cost effective facility.” The company has less than 600 employees left at the location and the cost to maintain the roughly 200,000 square foot building alone exceeds 5 million annually.

IDT moved to Newark back in 2000 when it outgrew their smaller Hackensack location. Lured by lucrative tax breaks by local and state agencies, the IDT buildings giant American flag became a fixture in the Newark skyline for almost a decade. Recently the company began looking for new tenants to occupy many of it's now empty floors but the challenge of renting in Newark has proved a daunting task with many surrounding buildings also half empty and desperate for tenants.

According to the Star Ledger the building, which is owned by an affiliate company, will most likely go into foreclosure but Howard Jonas said it will try and work something out with the lenders.

IDT Posts It's First Quarter 09 Results

IDT just announced their Q1 09 results yesterday and the results were as expected! The company is still seeing overall loses but at a much reduced rate than in previous quarters largely because they have paid out most of their outstanding debt to the IRS, severance packages etc.... They have also significantly reduced their operational expenses by streamlining their work force and working on Network efficiencies.

They seemed optimistic about the prepaid pone card business in the United States claiming that their legal actions against unfair marketing practices have helped turn the tide in their business and are seeing steadier numbers now.

Overall I won't bore you with all of the financial results (if you want to see them please view their official release) but the long and short of it is that IDT is still continuing to dump unprofitable business units and is seemingly just in survival mode right now! Other than Zedge, and Shale Oil they don't appear to be working on any long term new business strategies and as a result the stock prices didn't go up too much on the news of their results. Investors want to see the possibility for long term growth, but IDT seems to be in short term survival mode at this point and it is clearly visible.

Survival mode is not necessarily a bad thing, as IDT needs to get its core business's act together, and most importantly profitable, before it can go out and spend money on long term strategies. It looks like IDT still has a few quarters to go before it sees true operational profitability but at least it is a step in the right direction.

IDT Corporation CEO Jim Courter To Step Down In October 2009

IDT Corporation announced that current CEO Jim Courter will begin what will be his last year in that position, retiring at what will be age 68 (Born October 14th 1941). The long time CEO and former NJ Congressman (1979-91) will be replaced by majority owner and founder Howard Jonas. The previously announced company stock instead of cash payments will continue to be Howard Jonas's form of payment for at least 3 of his 5 year contract and Jim Courter will begin receiving company stocks instead of cash salary beginning in January of 09 all the way through his retirement in October.

Jonas had previously served as the companies CEO from 1991 until 2001 when he agreed to vacate that position in favor of Jim Courter, who had been serving as president of the company for the previous 5 years (1996-2001).

While there is no word on the conditions surrounding this change, there is no doubt that Jonas returning to the helm will signal a change in direction for the company. We will just have to wait and see if that change in direction is a positive or negative one!

IDT Releases Q4 Financials and The Numbers are Poor as Expected!

IDT Corporation released it's 4th Quarter earnings on Monday and the results were as expected... poor! In total they had a net loss of $86.4 million mostly due to what they are claiming as restructuring costs. The company has undergone what it calls a major restructuring and to be fair this was announced in the Q3 results and investors were warned that this expense would be hitting the books in Q4. This exercise is going to provide IDT with what they claim will be a cash flow positive business by end of Q1 09.

There is no doubt that IDT has come upon rough economic times and is in need of some major changes to help it survive, but I am afraid this down turn is not unique to them and I am sure if other phone card companies were publicly listed (most of which are not), we would see the same results on their books.

IDT has to accept the fact that telecom is a shrinking business and in order to survive they need to streamline operations considerably. While cutting staff will be the main way to get there, they can't just cut blindly, they will need to streamline all back end operations through new management styles, outsourcing and new systems. This company will ultimately need find another new big cash generating business now or be in the neighbourhood of less than 500 total employees by the end of fiscal 09 in order to have enough cash to survive.

Don't get me wrong, I think IDT CAN DO IT and WILL find a way to survive. However, they need to pick up the pace in order to keep check with the market. Phone cards may be a shrinking business but they will still remain a real business for many years to come!

IDT Expands Oil Shale Business Into Israel as Shares Drop Below $1

IDT Corp has been granted a licence to produce oil from oil share reserves in Israel. The deal will allow IDT 7 years exclusivity on mining and extracting oil from the countries vast oil shale fields between Kiryat Gat and Bet Shemesh. This deal follows only months after IDT had purchased the rights to rich oil shale land in Western Colorado.

This deal seems to solidify the fact that IDT Chairman, Howard Jonas, views the oil shale business and not so much telecom, as the future of the company. Investors seem to be reluctant to believe that this oil shale industry can be capitalized on any time soon, as witnessed in the sharply declining company stock price, dropping below the $1 mark for the first time today even after the announcement of the deal in Israel!

IDT Leases 39 GHz Spectrum To Clearwire

Clearwire in their move to push their huge investment in WiMAX technology forward has signed 3 one year leases for the 39GHz spectrum from IDT Spectrum. Beta tests are already underway in Portland Oregon with a full roll out in that city, as well as 3 other cities (Las Vegas, Grand Rapids, and Atlanta), expected to be complete by sometime in early 2009. Competitor Xohm is expected to do similar launches this year in cities like Baltimore, Chicago, and Washington D.C. so the race is on!

IDT Spectrum had held the licence for 39GHz for sometime and up until recently these spectrum's were not seen to have much value but with this recent WiMAX push it is likely that the spectrum's will now start delivering some value to their owners.

Could this have been the big deal with a telco that Howard Jonas referred to in his conference call addressing the shareholders?

Full Article: Clearwire’s WiMAX Tests: Acquisition of IDT’s Spectrum

Prepaid Calling Card Consumer Protection Act Hearing Delayed

With all of the recent uproar from local officials about the deceptive practices in the phone card industry, it looked like the issue was finally going to reach the federal level, with scheduled hearings to be conducted by the Senate Commerce, Science and Transportation Committee on Senator Bill Nelson's (D-FL) proposed bill S. 2998. However, it looks like that hearing has been postponed with no new date given leaving us to wonder if the calling card persecution movement is truly dying down?

It was commonly known that IDT had been the lead lobbyist for reforms in the business, utilizing heavy political contributions and insider CEO Jim Courter's connections to help push these initiatives along. However, with Jim Courter's recently being forced to step down from John McCain's fund raising committee due to the scandal behind a shady IDT and Telco Haiti deal, the movement may have lost it's conductor.

It's my personal opinion that the worst of the witch hunt against the phone card industry for the last few months may be behind us. It will never completely go away, but I think the process has run it's course, with lot's of positive changes in the industry like a higher percentage of cleaner cards, clearer advertising and most of all more legitamate overall business practices.

IDT CEO Jim Courter Forced to Step Down As John McCain Fundraiser

Jim Courter the CEO of IDT Corporation was forced to step down this week as one of 21 campaign fundraisers due to the FCCs finding this past week that his company was guilty in violating communications guidelines for improper payments to foreign officials in return for preferential rates.

The violation in question dates back a couple of years and stems from an alleged preferential rate that IDT procured from Telco Haiti in which IDT got a preferred termination rate of $0.0875 into Haiti when the government of Haiti's mandated inbound rate was no less than $0.23 per minute. In exchange for the lower rate IDT paid into an offshore bank account that allegedly belonged to former corrupt president Jean-Bertrand Aristide. Apparently $0.03 per minute of the $0.0875 went to Aristide and the rest to Telco Haiti (numbers form Portfolio.com).

The issue was outed in 2003 when former employee Michael Jewett, The Caribbean Sales Manager, brought suit against IDT for wrongful termination when he was fired for not wanting to go along with the deal.

The FCC finally acted last week after investigating the issue and fined IDT 1.3 million dollars for this violation. As a result of the news, McCain's camp quickly went into damage control mode and I imagine got Courter to step down. However, not before the press began having a field day with the issue! The issue got so much attention that it even made in into Comedy Central's Indecision 2008 web site. As the days go on more and more major press outlets like the NJ Star Ledger, Washington Post, and many more. A black eye for both McCain and for IDT!

IDT Seems To Have Closure On Their Outstanding IRS Tax Issue

In a SEC filing last Monday, IDT disclosed that the IRS had sent a notice that they finalized their audit and have found that IDT owes about 76 million (not including interest). While this may sound like a lot of money, it is actually much less than IDT anticipated. In fact it was about 56 million less, with IDT having stated that they had established a reserve of about 132 million for this purpose.


What does all this mean you ask... Well it means that since IDT had already put aside this money they have just found themselves a nice cash reserve of about 50 million or so (remember they still have to calculate the interest). This is a huge win for the company and most likely should help their business out (50 million could help anybody out!).

IDT Corporation Chairman Howard Jonas Addresses Shareholders

With all of the recent bad news and rapidly declining stock prices, IDT Chairman Howard Jonas decided to have a conference call on Thursday to address many of the issues and declare that the company is poised to be profitable in the near future, a feat that they have not been able to accomplish in more than 14 years. The call itself seemed to have two purposes, one explain how and why they were heading towards being in the "black" and two allowing the Chairman to tout his new and prized possession, the Shale oil company AMSO.

The companies Telecom unit is in the process of performing a lot of cost cutting measures which should help it reflect the smaller pie which is the phone card business. This was the first time that I know of that IDT admitted that the phone card business decline was not just a temporary thing but an overall shift downwards in the market. They still blamed the unfair practices a little but seemed to imply that they feel the business is now close to stabilized and should not be declining any further... Being that IDT was the lead on the "cleaning up the phone card business" maybe this means that we will see a reduction in state and federal government investigations into these businesses??

Jonas also sounded optimistic that a key deal with "one of the largest telecom providers" could be likely and if that deal goes through should make IDT into one of "the leading terminator of international calls and leading seller prepaid products" in the world. While Jonas stressed that this deal was in no way certain, just by them talking about it, might suggest that the company feels strongly that the deal has a good possibility (otherwise why get people's hopes up...).

Other topics of the call included Zedge, their food company, and of course AMSO Shale Oil... a subject that dominated the call but being that this is a telecom blog, I will leave this topic alone. If you would like to read the unofficial transcript to this call you can view it on the Silicon Investor blog.

IDT Announces Third Quarter Results and They Are Not Good!

Prepaid phone card giant IDT made public their third quarter results yesterday and the news was not good, an 82 million dollar loss for the quarter, up from last quarters 60 million dollar loss. To get an idea of how bad this really is, last years third quarter results only had losses of around 15 million. Revenue also fell a more modest 7% to $453.2 million from $485.4 million.

From the transcript of the earnings call you can see that IDT has a clear strategic goal of reducing company overhead (which usually means layoffs), dumping many of their unprofitable businesses either through sale or through plain discontinuation and finally pursuing their recent investment opportunities in business like Zedge, Shale Oil and a few others which they believe are going to be viable entities. Here is a quote from Jim Courter:

"The direction of that line is functional with and consists of four basic strategies: one, selling, spinning off, or shutting down nearly all businesses that won’t help us meet our goal; two, reducing our corporate overhead; three, streamlining our core businesses; and four, making modest investments in very limited number of closely managed opportunities."

As far as calling cards go, IDT continued to blame their shortcomings in this field on the unfair practices of many of their competitors but hinted that they are closer to a level playing field now with all of the recent actions taken by the FTC.

The biggest kicker on the whole earnings statement was the 10 million that contributed to the loss for Executive severance packages. IDT was recently cited in some online circles for having instituted some of the most excessively high severance packages in recent years for a business of it's size.

Golden parachutes aside, the results from this quarter can't get much worse! In the coming months I am sure that many layoffs will come, operational improvements will be made and some assets sold off. So in all I am labeling this as the ultimate crossroads for IDT, they either turn the corner now or risk being too far gone to right the ship! It will be a challenge but 100% possible.

Here is a link to the IDT earnings call transcript and the financial statement for Q3 08.

IDT Global Service - "break even by July, (or) it will be closed down"

According to the site seekingalpha.com, IDT global Services, IDT Corporations Israel based call center company has been given a mandate to either start breaking even by July or the division will be closed down.

Once over 900 employees strong, the division is now estimated to be down to around 700 employees and will likely see further cuts in the coming months. The company which handles outsourced call center solutions for US and other international companies, has been struggling, like it's parent company, to keep the business rolling in and is now at a crossroads...get going or get gone! Beyond staff reductions some of the other things the company is trying to do to become profitable is: rent out their other call center in Beer Sheva and Safed, getting rid of paid lunch breaks for employees, lowering salary levels, and increasing sales agents target levels.

IDT Global Services CEO Eli Ninio is rumored to have purchased a bulk of the ownership of the Israeli operations from the parent company.

IDT Global Reduces Workforce In Israel

It was reported last week that IDT Global Services, a division of IDT Corporation, is believed to have laid off roughly 150 employees from it's call centers in Jerusalem, Tel Aviv and Be'er Sheva Israel. The cuts are rumored to have happened as a result of IDTs poor financial situation and the rumored sale by Howard Jonas of this division. IDT is one of the largest employers of English speaking people in Israel and this layoff will make it tough for those Eenglish only individuals living in that country as there are not many jobs for those that don't speak Hebrew. According to reports most of the individuals laid off were on the management and administration side.

This marks a huge change in the Howard Jonas's philosophy which has always prided itself on being a contribution to the Isareal economy and it's job market. However, with such hard financial times being faced by IDT, they have no choice but to consolidate operations in order to curb their bleeding. No doubt this will not be the last we hear about workforce reductions for this company with others sure to follow.

Report

The Ludicrous Executive Payouts Continue at IDT

For a company that is just bleeding money, IDT sure does like to keep those big pay days going for senior management. In a disclosure notice today, IDT announced that they had given CEO Jim Courter a cash bonus of $372,000 and 93,234 shares of restricted stock (valued at $372,000). They also gave the Telecom Chief Operating Officer Yona Katz a contract extension until September of 2008 in which he will be paid $125,000 a MONTH with a bonus to be awarded in July for $155,280. Katz also has a clause in his contract which states should he be terminated between now December 2009 he is entitled to a severance payout of $2,177,023.

So if you get your calculators out, and you better have one that can sum up that high, IDT has just committed to paying out more than 1.5 million dollars this year to two people! This is just plain obscene! Are 2 people who have been running a sinking ship really worth that much money? If the company was doing well, I would think that this amount is fine, but for a company who has been nose diving quarter after quarter, this is just plain wrong!

Oh yeah I forgot to mention that they paid out some smaller bonuses as well to some of those other exec's! You can read the whole sickening report at this link!

IDT Management Merry-Go-Round Stops And Three Fall Off!

On Tuesday IDT announced that two of it's senior Telecom executives are gone! Chief Operating Officer Marc Oppenheimer and Executive Vice President Motti Lichtenstein were said to have resigned (wink, wink, nudge, nudge) and Liore Alroy, former Net2Phone CEO, has been appointed as new CEO of Telecom.

This is a momentous time for IDT, not because of Liore Alroy taking over the ship which should help them, but because it marks one of the first times in a long while that IDT has pushed out executives. Normally the executives just get moved around! To me this move shows that IDT is finally realizing that it has to change and that change starts from the top down! The industry has changed in leaps and bounds and IDTs management has not.

For investors and business partners of IDT this is probably the most encouraging news from the company in years! It suggests that Howard Jonas is finally serious about turning things in his core business around.

You can read the full press release here

Howard Jonas "Jew of the Day"

No this is not some anti Semitic post, there is an interesting article out there where Howard Jonas is the called "Jew of the Day"

http://www.jewoftheday.com/categories/culture/Jonas%20Howard.htm

The article basically touts his work and support of the Jewish community and gives you a feel for just how Jewish IDT is as a company, talking about the Kosher cafeteria, the synagogue on site and it's orthodox employee base.

Not really news but the name of the site caught my attention and the background it gives you on Jonas is insightful and on point.