Seeking Alpha
Long only
Profile| Send Message|
( followers)  

At Mobile World Congress yesterday, WhatsApp announced that it will add internet voice calling to it services as early as April of this year. WhatsApp will initially release a version for Apple's (NASDAQ:AAPL) iPhone and Google's (NASDAQ:GOOG) Android platforms. Also at Mobile World Congress yesterday, AudioCodes (NASDAQ:AUDC) announced an expansion of its One Voice, a cloud-based enterprise mobility solution suite for business customers. There may not seem any similarity between the two announcements but, I believe that WhatsApp's announcement is a wakeup call to service providers that they have to be ready to face the challenge of Over the Top (OTT) calls, and that AudioCodes' announcement highlights that it has a solution that allows service providers to offer AudioCodes' OTT applications to its business customers.

AudioCodes currently provides OTT applications to retail customers and to a number of tier one service providers such as Liberty Global, Telefonica Argentina, Bezeq and Vonage (NYSE:VG). With 20 years experience in Voice-over-IP (OTCPK:VOIP), AudioCodes' OTT applications work with many different platforms. AudioCodes is looking to add to its tier one customer base with the threat of WhatsApp's internet voice calling service driving service providers to its door and the threat could be even greater still with the introduction of Hotspot 2.0.

To understand why WhatsApp is now planning to add internet voice calls and to understand why Facebook (NASDAQ:FB) paid $19 billion for WhatsApp, I think you have to understand Hotspot 2.0

Hotspot 2.0:

You are at the mall, and you walk into a coffee shop, you have to ask for the password to log on to its WiFi hotspot. You leave the store and as you walk outside you are asked for the password for a new hotspot. This keeps happening as you walk down the length of the mall. As you can imagine this would make it difficult to make an OTT call when you're on the move. Hotspot 2.0 will allow you to join WiFi hotspots without entering a password and will pass you on from one to another seamlessly. It will create a network out of random WiFi hotspots and new updated protocols will allow you secure automated access. It is mirroring what happens with cell phone calls as you're passed from cell tower to cell tower securely, without any disruption to your call.

Currently, most OTT calls such as Skype (even when connecting through a cell phone) are done from a stationary location. You are connected to a WiFi access point and you don't move from it. With Hotspot 2.0 you will be able to make OTT calls on your cell phone even when you're moving. WhatsApp is the biggest messaging company with 465 million users, after it adds voice calling, it is looking to have 1 to 2 billion users. This could be devastating for the service providers.

Challenge to Service Providers:

According to research from Ovum Ltd, in 2013 global telecom service providers lost out on $33 billion in texting fees due to free texting services such as WhatsApp and Viber. Clearly the service providers don't want to see a repeat of this with cell phone calls and as a result should be looking to bring out their own OTT services. This is where AudioCodes could be invaluable to the telecom and cable service providers and its MobilityPlus product portfolio should be attracting a lot of attention at the Mobile World Congress and I will be looking for announcements out of the company.

Why AudioCodes is in Pole Position:

The fact that overnight AudioCodes finds itself at the epicenter of the move to OTT is no accident. AudioCodes' management decided a long time ago to focus on OTT and has been using all its voice knowledge to build the best OTT network. Google seems determined to become a Unified Communications (UC) player with its OTT applications Google Talk and Web RTC (which AudioCodes has been stealthily working on) and Facebook is making an enormous bet on OTT with its purchase of WhatsApp. For the service providers, the sudden arrival of these powerful companies looking to compete against it is like when the weather forecast calls for 2" of snow and instead you're dumped with 20". The city grinds to a halt and is basically shutdown. Service providers need to dig out and the company they need to turn to is AudioCodes.

I believe that AudioCodes' management needs to get out the details of what it has with OTT and if it does that then I believe we could see increased interest from the service providers and it could spark the interest of the likes of Google and Facebook keen to get access to AudioCodes voice technology and know-how.

As investors begin to understand the implications of Hotspot 2.0, I believe we could see a run in AudioCodes' shares which could take it all the way to $15-$20.

Chart:

(click to enlarge)

As you can clearly see from the chart above, AudioCodes had a significant breakout at $8. It was a textbook cup and handle breakout and it was confirmed as it traded six times normal volume. The chart is telling me that we should see a continuation of this move to $15.

Conclusion:

It was no accident that AudioCodes traded 1.9 million shares at 52 week highs late last week. The market wants to see and hear more about AudioCodes' OTT ambitions through news of new partnerships with cable and service providers that are in dire need to compete as Hotspot 2.0 moves to become mainstream. I believe that Facebook just gave AudioCodes and Hotspot 2.0 a big draft into pole position. Now it's time for a checkered flag.

Source: Hotspot 2.0 Puts AudioCodes In Pole Position