Ditech Networks: From Mature Telecom Firm to Early Stage Play

 |  About: Ditech Networks, Inc. (DITC)
by: Top Textrader

For nearly 30 years, investors in Ditech Networks Inc. (NASDAQ:DITC) have seen their share of disappointments. A once leading provider of telecom voice quality enhancement (VQE) solutions, for what is now an outdated 2G network, is now trying to revamp its offerings and focus more on voice communication enhancements. It appears this transition changes the firm’s core business from being a mature telecom company to being an early stage social networking/communication play.

The company still derives the majority of its revenues from VQE solutions, and it has upgraded its offerings to include a packet voice processor (PVP) that offers non-intrusive voice processing for VoIP and 3G networks and mitigates acoustic echo, packet loss and ambient noise. This positions DITC for further survival in this highly fragmented and competitive corner of the telecom market. However, it is unlikely that PVP technology will give the company the impetus it needs for strong growth.

Instead, the firm is taking its strength in voice processing technology and unveiling new concepts in social networking and telecom/Internet communication, which have boom or bust written all over them. These solutions are mStage, toktok, PhoneTag and PoketyPoke.

According to the corporate website, mStage Media Processor (MP) enables mobile carriers to offer subscribers a new way to experience the Web through the power and simplicity of human speech. It delivers continuous, personal two-way access to Web services, including social networking, with one word spoken in the midst of a mobile phone call. Provisioned on a per subscriber basis or network wide, the mStage MP detects keywords in the media stream and connects the call to the appropriate Web application through the toktok Application Server and an IVR System.

Ditech's toktok Voice Applications Solution offers a compelling integration of voice and Web applications. By enabling voice integration with Web applications before, during, or after a phone conversations, toktok provides subscribers with “any time” access to Web applications. It does so in an intuitive format that complements current text-only access models, for times when text entry isn’t practical, effective, or even safe.

For the first time, integration of voice with Web applications pulls voice into the rich, interactive environment of the Web. With toktok, it is now possible to access the Web simply by saying so - and Web applications will be able to send information to subscribers even when in a call. These capabilities can be applied to both consumer and business applications. This will revolutionize the way people use the phone. And most importantly for service providers, people will pay for this ability because toktok offers tangible value that is directly connected to the one application that people still unambiguously associate with service providers and are prepared to pay for: voice.

The possibilities of toktok Voice Applications are endless, but here are some examples:

  1. Multi-party calls can be completed simply by saying “toktok! Call John” instead of fumbling with taking the phone away from your ear, placing party one on hold, scrolling the address book for party two, calling party two, and finally putting the two calls together.
  2. Adding voice to social networks – Send someone a message from your favorite social network while they are on the phone and have it “whispered” in her ear, immediately, while they're still on the call.
  3. Be reminded of an upcoming important meeting, while on the phone. toktok will monitor your online calendar and “whisper” in your ear that a meeting is about to happen, linking you to your calendar with your voice service.

PhoneTag technology empowers carriers and developers to transcribe voice into text. Currently PhoneTag offers three unique API's to carriers and developers.

Voicemail Transcription

  • PhoneTag Hybrid - A high accuracy, proven voicemail transcription platform, which uses the same technology that powers PhoneTag.com and well-known application service providers like British Telecom's (BT) Ribbit. This API uses a proprietary blend of technology and strategic, real time human correction to deliver consistent, highly accurate voicemail transcription. It is available over the PhoneTag API as a hosted service.
  • PhoneTag Auto - A fully automated voicemail transcription platform that runs on highly advanced recognition technology with PhoneTag's proprietary models. This platform delivers the highest automated voice recognition in the industry and is available as a cloud service or on premise, behind a firewall for highly data sensitive.

Voice Transcription

  • Transcribe ALL - A real-time, high accuracy transcription platform designed for any file that needs transcription, regardless of applications (conference call transcription, dictation, etc.).

A few months ago, PhoneTag Auto achieved the highest accuracy in automated voicemail transcription, based upon a study released by TMA Associates, which was partly supported by the company. With 86% word accuracy, the independently-scored study found that PhoneTag Auto is the most accurate, 100% automated voicemail transcription solution among those surveyed. Microsoft (NASDAQ:MSFT) and Google's (NASDAQ:GOOG) voicemail transcription solutions ranked second and third, respectively. A fourth company in the study, Yap, achieved 78% accuracy.

The firm recently made available PoketyPoke, a service that makes scheduling calls, especially conference calls, simple and easy - you no longer need to remember conference numbers, bridge identifiers, pin numbers, leader id's, or codes for recording or transcribing phone calls. PoketyPoke calls you at the time of your call and automatically places you into the bridge.

PoketyPoke is a reference application from Labs at Ditech Networks that showcases how quickly and easily new applications can be delivered using API's available from Ditech. By leveraging the Ditech API's, as well as Ditech's back-end processing capabilities, PoketyPoke went from concept to delivery in a short period of time.

To use PoketyPoke, simply forward any email or calendar invite containing a phone or conference number to your PoketyPoke account. PoketyPoke then calls you at the time of the meeting and puts you directly into the call, without you having to enter a single digit.

PoketyPoke works for all of your conference calls, across all conference bridge providers. Your user experience is the same regardless of whether you are using your bridge, or the bridge has been set up by someone else. PoketyPoke can also be used with simple two party calls, to make sure you don't miss the call and take advantage of advanced features such as call recording and transcription.

All these new technologies are being pushed out as the firm is trying to find some new revenue streams based on its core strength: voice telephony.

A corporate makeover is vital to the firm, which was made especially apparent in the last earnings call. According to management, their was a decrease in revenue during the three months ended January 31, 2010, compared to the same period in fiscal 2009 because of a decline in revenue from the five largest customers. This decline was largely the result of delays in closing orders/contracts with two major customers. The orders had been anticipated in the third quarter of fiscal 2010 but were not received until February, resulting in revenue shifting out of the third quarter and into the fourth quarter of fiscal 2010.Click to enlarge

We like DITC at these levels as an early stage play regarding pioneering voice telephony technology. The impact of toktok, PhoneTag and PoketyPoke are too early to estimate but we see immense growth potential in these new markets and recommend the $26 million firm as a way to play a new frontier in social and business networking technology.

Our firm is not the only investor betting on this firm doing great things. Successful micro/smallcap investor Lloyd Miller has recently taken a 11% stake in the company. He is one of the few whales we follow regarding buys and sells. He tends to find value in more obscure, tiny companies.

Disclosure: Author long DITC