iBasis claims No. 2 spot in global voice traffic

The new iBasis has emerged this week, calling itself the second largest carrier of international voice traffic in the world, exceeding AT&T and second only to Verizon.

That volume is the result of the merger of iBasis with the wholesale voice unit of KPN, KPN Global Carrier Services, approved last week by company shareholders. With more than 1000 customers, most of whom are service providers, iBasis will continue to grow its international voice business, said Ofer Gneezy, president and CEO.

“We are the first pure-play VoIP carrier that is breaking into this range of the top three,” he said in an interview prior to the shareholder vote. “We are the only new player – not an incumbent – that has achieved this level and volume of traffic.”

The KPN transaction, announced last June but delayed while a stock option investigation was conducted and iBasis was cleared, transfers the KPN wholesale unit and $55 million cash from KPN to iBasis, which then pays a dividend of $113 million to all stockholders of record. KPN receives 51% of the diluted shares of the new iBasis, which becomes a stand-alone, publicly traded company, based in Burlington, Mass., and headed by Gneezy and the existing leadership.

The company is focused on the mobile and VoIP markets, Gneezy said.

“We are very well positioned in the two fastest growing areas – there are over 100 mobile operators using the KPN services that we are acquiring,” he said. “And over 70 VoIP providers are using the iBasis network, so we have significant strength in fastest growing areas.”

The new iBasis footprint will include 100 countries, more than 1000 points of presence and 1000 direct routes, Gneezy said. The company intends to leverage the advantages of its distributed routing network to serve a broad range of VoIP needs for customers that include Skype, Yahoo!, Qwest, Verizon, Sprint and more.

In addition, iBasis maintains retail services such as disposable and “virtual” prepaid calling cards and private-label calling cards and Web-based services.

Its new bulk will establish iBasis as a profitable company going forward as well, Gneezy said. The new company will more than double its revenues to $674 million for the first half of 2007, with gross profit almost doubling to $65 million and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) jumping from $5 to $28 a share.

Major cost savings from the merger will result from moving KPN’s wholesale voice traffic from a TDM network to an IP network, Gneezy said. “In terms of cost synergies, the biggest bucket is reduction in cost of revenue,” he said. “On each side we have a large supplier base and doing least cost routing over a larger base reduces the cost of traffic. Moving the transmission of KPN network into IP from TDM, is a second major bucket and the third is normal reduction in expenses from a combination of the organizations.”

As other service providers look to make the move from TDM to IP, they are having a hard time justifying the cost, and will find it more cost-effective to outsource that traffic to a wholesaler such as iBasis, he said.