Loss-making VoIP service provider iBasis [IBAS] plans to raise $29 million through the issue of convertible notes and $9 million through a sale of shares to strengthen its balance sheet. The market for VoIP has been growing strongly, but there are a number of threats to the company that are worth noting.
iBasis is looking to raise more funds.
iBasis offers wholesale VoIP services through a network of local service providers in the US, Europe, Asia, the Middle East, Latin America, Africa and Australia. By using its network, the company claims that carriers and other communications services can outsource international voice and fax traffic, substantially lowering their transport and service support costs.
The growth of VoIP has sent shockwaves through carriers worldwide, but iBasis said a number of countries prohibit or limit competition in voice telephony services and have questioned the legal basis on which iBasis and its partners can offer services.
In the US, iBasis is not licensed to offer traditional telecommunications services in any state and has not filed tariffs for any service at the Federal Communications Commission or at any state regulatory commission. But this freedom from regulation could end. While the FCC has an informal policy that information service providers, including Internet telephony providers, are not telecommunications carriers for regulatory purposes, this stance has been challenged.
It said the FCC has announced a notice of proposed rulemaking on IP-enabled services, and this could lead to licensing requirements and additional fees.
Tax collectors also see VoIP as a source of new revenue. The IRS and the US Department of Treasury have issued a notice of proposed rulemaking suggesting that VoIP calls may be subject to a 3% federal excise tax.
iBasis said that in recent years, prices for long-distance telephone services have been declining as a result of deregulation and increased competition. It faces competition from major carriers, such as AT&T, BT Group, Deutsche Telekom, MCI WorldCom, and Qwest Communications, as well as new carriers. It is also up against other Internet telephony service providers, and while they generally focus on retail customers, they may eventually enter the wholesale market.