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Reading the Web page mission statement of USA Global Link's Chairman, Chris Hartnett, is akin to reading dialogue from a Star Trek "to boldly go" script. And this says a lot about Hartnett, his "number one," Chief Executive Officer C. Holland Taylor, and the company, which boldly goes into telecommunications territory uncharted by the mainstream "telecom service" providers. Starting as a "callback" telephone company initially aiming at the Southeast Asian market in 1992, it became the biggest in its field with a customer base stretching from one side of the globe to the other and projected annual turnover revenues, revealed in the Financial Times, of "just under $1 billion."
Now in the past two months USA Global Link has received worldwide attention for two strategic moves, with a number of major articles in the Wall Street Journal as well as virtually every other top financial publication in the world. Their first move came when they alertly saw the new availability of international 800 numbers as a major opportunity, getting a wry article in the Wall Street Journal to the effect "where's AT&T and what are they doing letting USA Global Link beat them to the punch?" Then, just as things were settling, they burst on the scene with their second quantum leap: they would use a new technology letting them route international long-distance phone calls over the Internet rather than the usual phone-switch network, dramatically reducing the costs. The announcement combined with press conferences in countries around the globe, including Germany, Japan, and Australia, and ignited attention worldwide.
Given the changing technologies and the climate of deregulation, the structure of all telecommunications corporations is now under pressure, largely speeded up through the low prices of long-distance calls offered by callback companies such as USA Global Link. They are one of a small number of truly international "telecom services" companies with a geographically diversified international market base and an innovative mix of services.
And despite its enormous ambition, USA Global Link is still a small player in a field of giants and has a number of challenges to meet, not the least of which is being an outsider among an almost "old boys" telecommunications club which has, outside the U.S., historically consisted of the telephone companies of governments--governments which sometimes haven't taken kindly to the callback industry, the king of which is USA Global Link. But under the leadership of Chris Hartnett, who was named as "Entrepreneur of the Year" in Iowa and Nebraska this past year, and C. Holland Taylor, who is a now a member of a committee advising the U.S. Government on international communications, the odds are in USA Global Link's favor to become a mainstream international telephone company as the global telecommunications shakeout continues.
By early 1996, after only four years of operation, the company was a leader in callback, a mechanism which effectively bypasses foreign telephone companies' high costs by re-originating the call from a U.S. switching platform--in effect, exporting inexpensive U.S. dialtone to foreign subscribers. According to Hartnett, USA Global Link is a new breed of "virtual telecom" company, offering international virtual private networks, private lines, Internet access, and travel and prepaid calling cards. It was also represented in 120 countries, with customers in over 200 nations. But the company realized the niche was closing for its "fringe" service, and started the transition to offer conventional long distance telephone service by investing $100 million in telephone switches in Germany and Japan.
Other callback operators were doing the same, but USA Global Link's vision didn't stop there. When a total of 17,000 global 800 numbers were made available by an international agency, with a January 31 deadline, it was USA Global Link that garnered the limelight of media attention in its application for over 1,100 numbers. And it was the only company to reserve the number 800-USADIRECT, the well-publicized AT&T brand which AT&T had dropped from usage in 1995.
But it is USA Global Link's latest announcement of its "Global Internetwork" which has it boldly going where no man or woman has gone before, and well ahead of its callback competitors, into the largely unregulated territory of the World Wide Web. The new service will be the first global phone-to-phone Internet service where users of touch-tone phones will be able to call any other telephone in the world via the Internet, and without the need for a computer. The cost will even beat callback rates and will be 80-90 percent cheaper than traditional international rates. It is potentially an arena more controversial than the influence callback was on governments. Just as the World Trade Organization and the International Telecommunications Union, a branch of the United Nations, are seeing the light at the end of the black hole of pricing disagreements and disputes, another shattering influence to the International Accounting Rate System manifests.
The Accounting Rate System is a pricing mechanism used by an effective cartel of the telecom service providers of many nations and has kept the price of international calls artificially high. It sets the amount each country charges for terminating calls. Callback operators threatened the structure of the Accounting Rate System and provided the catalyst for not just a virtual free-fall in charges but also speeded up deregulation of the industry which, according to the Wall Street Journal, is 80 percent regulated now, but will be 95 percent unregulated in a few years. A Wall Street Journal article from London estimates the worldwide telecom revenues at $650 billion today but at one trillion dollars in only three years' time. If USA Global Link really can overcome the congestion and two-way voice problems on the Internet with what it describes as its "advanced switching, compression, and digital signaling processors," the Accounting Rate System will be completely shattered.
Many big companies from developed countries will eventually fare well from this, such as British Telecom which, along with its takeover of MCI, has formed a joint venture with the Spanish company Telefonica, and looks set to dominate the Latin American network. But it's also providing an opening for smaller, aggressive, more flexible companies. USA Global Link is well poised, but there is not only the challenge of moving into new markets with their new technology but also the considerable political challenge of competing with government-run companies. How USA Global Link will fare in its delicate relations with foreign governments will depend on maintaining its market share and its prime directive: providing good service and honing its diplomacy skills.
USA Global Link could even provide a new bargaining tool for the smaller economies as a lever to better trade access the U.S. market. Also, having an Indonesian company as a partner is certainly a plus. Not to mention Indonesia as having the fourth or fifth largest population in the world, a burgeoning middle class, and an influential force in the Association of South East Asian Nations (ASEAN). This augers well for solid placement, even without the Internet services, in an area of the world which has been experiencing tremendous growth and which doesn't appear to have a single dominant international telecommunications provider on the horizon. There are a lot of possibilities opening to achieve both the goals of foreign nations and of USA Global Link.
In the meantime, the company's senior executives are boldly going globetrotting to promote the new Global Internetwork service and to establish affiliations with Internet service providers who will sign up customers to be charged on a per-call basis. During March and April an executive team from the company made a worldwide tour, which included the UK, Germany, Japan, Australia, Singapore, and Hong Kong. Media coverage was widespread and very positive.
Executives are also boldly planning their foray into publicly listing the company. According to the Financial Times in London, the company plans to have a public stock offering this year. The Times continues that, according to USA Global Link's principal officers, the initial public offering could value the company at between $3 billion and $6 billion. With USA Global Link's company stock plans, Fairfield could look forward to a few new millionaires.
The window of callback discounting may be closing, but it has opened a door for the establishment of multinational telecommunications corporations which would be quite compatible merger targets of software developers, Internet service providers, as well as cellular and the traditional telephone service companies. But USA Global Link seems to have created enough excitement with investors without even contemplating that. It seems poised to easily raise the $500 million needed to provide its Global Internetwork. Overall, if USA Global Link continues its innovative pace, it looks set to fare well in the telecommunications rationalization and in the potential price war. But what next for USA Global Link? How about better video internet service? Why not even try holographic video telecommunications? Better still, shoulder pin communicators. Ah, to heck with it--just beam us up and over there.
Author Patricia Boland is an Australian-qualified CPA who has worked in the finance area of international investment banks. She has also studied and researched the sociological impact of development on lesser developed countries.
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