THE WALL STREET TRANSCRIPT

 

Questioning Market Leaders For Long Term Investors


ARTHUR KLEIN - IPVERSE
CEO Interview - published 10/25/00

DOCUMENT # LAA219

ARTHUR KLEIN is President and Chief Executive Officer of ipVerse Inc. He has more than 25 years of management and sales experience in the networking industry. Prior to ipVerse, Mr. Klein co-founded Assured Access Technology, Inc., where he was Chairman of the Board, President, and CEO. Assured Access Technology, a provider of multi-service access concentrators for service providers, was acquired by Alcatel in March 1999. Prior to Assured Access, he spent three years as Vice President of Worldwide Sales at Alantec, a provider of layer three Internet switching solutions. At Alantec, he was part of a team that conducted a successful IPO. Alantec was later sold to FORE Systems, at which time he was named FORE’s Vice President of Strategic Sales and Marketing. From 1985 to 1993, he held various senior sales management positions, including Vice President of Worldwide Sales for Vitalink, a provider of remote Internet working products. His extensive management and sales experience also includes Doelz Networks, a packet network equipment manufacturer, Cylix Communications, a satellite network services provider, and RCA Global Communications, a provider of switching services. He holds a BS degree in Business Administration from the New York Institute of Technology.

Sector: Networking & Communications Equipment

TWST: Would you provide our readers with a brief overview of ipVerse?

Mr. Klein: ipVerse was founded in September 1998, so we’re just two years old. We believe in that time we’ve become recognized as the leader in next generation software-based switch solutions, also known as softswitches. Our primary customer targets are communication service providers. We are deploying solutions to leading integrated communications providers, both competitive and incumbent telecom carriers, serving either local or inter-exchange markets. Currently, we have over 150 people in the company, over 90 of which are engineers with expertise in both voice and data, drawn from leading service providers, telecom vendors and data networking vendors. We have an experienced management team and a technical advisory board that includes industry leaders such as Vint Cerf and Ike Elliott. We are privately held, funded by leading venture capital firms, including Kleiner Perkins Caufield & Byers, Norwest Venture Partners and Battery Ventures. We’ve raised $40 million to date.

TWST: What do you see as the most significant trends or developments in the field of service providers in the next couple of years?

Mr. Klein: Traditionally, data has been an application to the voice network; however, the voice network wasn’t designed to carry as much data as is required today. The trend we’re now seeing is the move toward what we call a new public network, where voice is becoming an application to the new data network. This is not to say that the PSTN (public-switched telephone network) is going away tomorrow. It’s not. That will be an evolution, not a revolution. There will be elements of the PSTN that will continue to carry some voice traffic. But, there will be elements of the new data network that will create new services not possible before which combine voice, data, video, etc.

TWST: As opposed to a public network?

Mr. Klein: What we’re seeing is that you and I as users, whether individual or corporate users of voice services, have had our services dictated to us, giving us little choice or control over how we will use them. So, if you take the most simplistic features, like call waiting or call forwarding, there’s a way you can enable and disable call waiting, and the telephone company tells you how to do that; you don’t have a choice. Moving forward, the user will be able to define how they want services delivered to them. A great example of this is the option to move PBX (private branch exchange) capabilities into the network. This benefits large corporations with telecommuters, where telecommuters can have the same exact phone, Internet, etc. features and access at their home as they do in their corporate office. For example, you have three-digit dialing for reaching other extensions in your office that will follow them home as well. The PBX functionality will sit in the network where users can access and define their features. Another big trend that we’re seeing is akin to the data network of 25 or 30 years ago, which was made up of really big iron, the big mainframes. These mainframes were eventually broken up into smaller components to make way for distributed computing. This is similar to the transition we’re experiencing now in the telecom world. This time it is the class switches that are being broken up into smaller, distributed components. We’ve positioned ourselves effectively as the key software element in this distributed model, de-coupled from the hardware, with the ability to create services and evolve service providers to an efficient converged network.

TWST: What is your most significant competitive advantage right now?

Mr. Klein: First, you have to define who the competition really is. There is incumbent competition, which basically includes the big vendors that provide traditional class switches. When facing those particular vendors, it is important to get the market to move from the traditional way of building networks to the new way of building networks. The incumbents, the Nortels and Lucents of the world, are not motivated to cannibalize their big iron-type sales. So, there’s competition on that side of it. The other competition that we look at is the competition of the new world. Carriers talk about wanting the ability to buy best-of-breed equipment in order to solve problems, instead of being locked into an end-to-end solution from one vendor. Going back to the analogy of the transition in the data world, people have bought best-of-breed, not necessarily from one vendor and not necessarily coupled with hardware and software; people have been willing to do that in the data world. The real question is whether carriers are willing to do the same in the telecom world. From our extensive experience working with service provider customers and with partners who are looking to bring us in to offer their customers joint solutions, the signs say that they are willing to do it. We are different in that we provide a true softswitch with open interfaces on all sides to easily interoperate with all other network elements; it does not include any hardware. It became very confusing because the term “softswitch” was coined by Lucent with the help of Level 3. Since the market grasped onto the softswitch term and deemed it a hot trend, a lot of companies started calling themselves softswitch companies. The reality is that a good portion of them are not softswitch companies. Many are companies that provide feature servers, concentrating on the voice applications, still relying on a true softswitch for call control, routing, etc. We have a completely different approach. We want to be the operating system for the new public network. We want to be the brains for the new public network, which acts as the central nervous system. In a PC environment, for example, it would represent the drivers within the operating system. So, if you have a Word document, the Word document doesn’t care whether you’re printing it out on an HP or Compaq printer; the operating system takes care of all that. The same goes for whether you’re going to save that document to a hard drive or a disk drive; the application doesn’t care, the operating system handles it. Our softswitch will provide this control for the new public network; we’re going to be this operating system. We provide the control of every media gateway; we don’t care whether the service provider customer wants to use a Cisco media gateway, a Tellabs media gateway, a Sonus media gateway; we will interoperate with all of those media gateways. We will also be responsible for the interoperation of those media gateways, and the same thing for integrated access devices (IADs). We don’t really care who’s they are. On the application side, there may be some staple applications that we’ll write to our software, just as the Windows operating system comes with Word and Excel. However, we have an open API based on XML to make it simple for third-party developers to create new services. Those third-party developers could be third-party vendors or they could be the service provider themselves.

TWST: Where did the name ipVerse come from?

Mr. Klein: When moving from voice-based networks to data-based networks, IP is the protocol that’s prevalent in data networking, so that’s where the ‘IP’ came from. The ‘verse’ came from ‘universe,’ so the name would play off “IP across the universe.” But, IP Universe became a mouthful, so the founders cut it down to ipVerse.

TWST: Will you be growing the company organically, or will you also be partnering with other companies?

Mr. Klein: We’ll absolutely be partnering with other companies. Partnering is a very important component to our success. That’s an excellent question because in this world, partnerships are going to be a strong necessity, whether it’s ipVerse or other vendors that are providing solutions in this space. Partnerships are beyond just saying that you can do a handshake through a standard protocol. You’ve got to bring equipment into the labs and go through a true interoperability testing environment. For example, we have a fail-over mechanism in our product. The other party may have a fail-over mechanism in their product. If that product fails, how does the joint solution react? What do we do with their fail-over? Similarly, if a network path goes away, how does the joint solution react? We have a very strong partnership with Cisco, Tellabs and any of the media gateways we’re working with in that regard. There are partnerships obviously on the feature side, the server side and the back office side. Partnerships will play a very important role to us.

TWST: You mentioned that you have about 90 engineers overall right now. Are you enthusiastic about your engineering team?

Mr. Klein: Absolutely. The main core of engineers reside here in Sunnyvale, California. We’ve also opened up an engineering center in Richardson, Texas, so we’re drawing people out of telecom alley in Richardson as well. We’ve been very fortunate in our ability to recruit a good cross-section of engineers coming from, as I said earlier, the telecom world and the data world, as well as service providers themselves.

TWST: What’s your goal with regard to market position?

Mr. Klein: We think we have emerged as a market leader in softswitches and the goal is to remain that market leader. I’m using the operating system analogy and I don’t use it lightly — I want to be the Microsoft of the new public network. That’s where I’m headed; I want to be the software for the new public network.

TWST: As CEO, where do you spend most of your time in the company?

Mr. Klein: Fortunately, I have a great staff of people who, operationally, know what needs to be done. So I have been spending a great deal of my time with customers, potential customers, partners and with the financial community.

TWST: What are the greatest challenges or risks that ipVerse faces over the next couple of years?

Mr. Klein: Obviously, one of the greatest risks is continuing to execute and stay focused on what we need to deliver. You can very easily be led astray by even a prospect or a partner, so we need to continue to stay focused on what we’re all about. The other thing is that if the market continues to expand the way it has over the next couple of years, spending should continue, which I believe it will because I think this is a global opportunity. It’s not just an opportunity for North America; it’s a global one.

TWST: Is it a big challenge to keep up with the growing demand for IP services?

Mr. Klein: The challenge is that the PSTN was not designed to carry data. Rather, it was designed to carry voice. With this in mind, if you look at a traditional class switch, each port on this switch was designed for three-minute telephone calls, averaging 10 subscribers for that one port. Both Internet and data traffic has overloaded the class switches, with each data call averaging about 45 minutes. In addition, a class switch is giant hardware, which is very expensive. The move is away from this legacy mainframe-type equipment and into a new way of doing voice-data integration, making voice an application on a new data network. First, you need to be able to deliver features that currently exist on the voice network, meaning you have to match those. And then it moves to new service creation because it gives the service provider new revenue opportunities, as well as the ability to do things that haven’t even been thought about or possible before. As an example, we did a demonstration at the Voice-on-the-Net show in Atlanta a couple of weeks ago. Let’s say you’re not in your office right now and you’re actually at home. A telephone call comes into your office. On your web-enabled wireless device you receive an alert telling you that your call is coming in, as well as who’s calling. In real-time, you could transfer that call to your home phone, or you could say, no, I don’t want to take this call and put it into voice mail or no, send a short text message back. These are the things that you could be able to do going forward that you really can’t do in the current infrastructure.

TWST: Do you have a global presence?

Mr. Klein: Yes, we’re being pulled into the global market. As a young company, resources are always an issue. Initially, we’ll do it through either some partnership arrangements we have or through new distribution partnership arrangements that we are making. Currently, we have a distribution arrangement with Nissho of Japan to provide Japanese carriers with our softswitch.

TWST: I realize you’re a private company, but what two or three reasons would you want to give potential long-term investors for investing in ipVerse right now?

Mr. Klein: One is that the market potential is huge. Estimates of the softswitch market alone by the year 2003-2004 are anywhere from $4 billion to $5 billion, and these are early estimates since the market is emerging. But the market potential is just huge for the long term, so that’s number one. The convergence of voice and data is real, it’s happening and it will continue to go on. As I said earlier, it’s an evolution, not a revolution, so this will go on for the next five to 10 years. I believe that ipVerse, in and of itself, is extremely well positioned to be the brains of that new public data network. The PSTN is a great network. It did what it was supposed to do, but the world is changing. Although the PSTN still performs fairly well, it will not be able to keep up with today’s growing demands. However, it is not going to go away that fast. We bring value in that we understand this, and make it a point to interoperate with the existing network as well as bring people to the new world. We’re not telling people to abandon the PSTN. We’re telling them we’ll use that when we need to.

TWST: Is there anything I’ve missed or overlooked that you want to point out or highlight?

Mr. Klein: As I said, our goal is really to be able to create new revenue possibilities for service providers, as well as third-party application developers, by delivering solutions that are based on an open, intelligent network operating system for voice-data integration.

TWST: Thank you. (JF)

ARTHUR KLEIN
 President & CEO
 ipVerse, Inc.
 490 De Guigne Drive
 Sunnyvale, CA  94086
 (408) 830-3200
 (408) 732-1101 - FAX
 www.ipverse.com
 e-mail: info@ipverse.com
Each Executive who is the featured subject of a TWST Interview is offered the opportunity to include an Investors Brief or other highlight material to be provided and sponsored by and for the company. This Interview with Arthur Klein, President & CEO of ipVerse, is accompanied by an Investors Brief containing corporate information.

To ask a question of this or any other publicly traded company, visit QAWire.com


Copyright 2000 The Wall Street Transcript Corporation
All Rights Reserved

The Wall Street Transcript (TWST) interviews are published verbatim, and TWST does not in any way endorse or guarantee the accuracy of any information or opinions expressed herein and all opinions are subject to change without notice. Nothing herein constitutes a solicitation to buy or sell any securities. TWST interviews with CEOs may include include "forward-looking statements", which are based on factors that involve risks and uncertainties. Actual results may differ materially from those expressed or implied. TWST shall have no liability whatsoever for any trading losses arising out of use of this information. Copyright 2000 Wall Street Transcript Corporation. All Rights Reserved.