deltathree Hopes Shakeup Spells Success

Yet another VoIP provider faces an uncertain future. Wholesaler deltathree Inc. has been kicked off the Nasdaq, and is replacing longtime president and CEO Shimmy Zimels. The problem that plagues the VoIP industry – selling service at unprofitable prices – has seeped into deltathree’s operations, said analysts and telecom insiders.

Indeed, the Israel-headquartered company, which runs a division in New York, reported a fourth-quarter 2007 loss of $5.2 million. On March 28, it was delisted from the Nasdaq because its stocks had sunk too low. At press time, deltathree’s shares were sitting on the Over The Counter Bulletin Board (OTCBB) at 14 cents, pennies away from the year-low of 12 cents.

Because of the ups and downs, deltathree on April 1 announced Zimels was resigning and that Dror Gonen of billing provider Comverse Technology Inc. would become president and CEO on May 31, after a transition period. Zimels’ resignation, however, was planned. deltathree and Gonen inked an employment agreement on March 26, the day after deltathree said it was moving off the Nasdaq.

Zimels told PHONE+ it’s time for new direction at deltathree. “Turnaround is always good so the company will do better, and that’s okay with me,” he said. Zimels, who ran deltathree for almost 12 years, will remain on the company’s board. He said Gonen will bring fresh market perspective and management to deltathree.

Patrick Monaghan, a senior analyst for Yankee Group, agreed. “Desperate times call for desperate measures,” Monaghan said. “deltathree needs to rethink their strategy and the best way to do that is by replacing Zimels. Any company presented with the same situation, potential bankruptcy, would do the same thing. This is a last-ditch attempt to right the ship.”

deltathree’s troubles come from competing on price, Monaghan explained. And that’s bad business, added Peter Radizeski, a telecom marketing expert and PHONE+ blogger. “CEOs need to realize that in today's market, you need to sell your services at a price that can afford a profit,” Radizeski said on the PHONE+ Web site on March 26, regarding deltathree. “Remember ‘profit’ from MBA school? It's what's left after you pay all the bills to deliver your service to your customers.”

Zimels said price competition “definitely” causes problems. But, he pointed out, from about 2001-2006, deltathree showed growth. “2007 was a challenging year,” Shimels said. That was because deltathree developed joip for Panasonic, a project that consumed “a lot of focus.”