Seeking Alpha
Profile| Send Message|
( followers)  
I've been a big fan of Acme Packet (NASDAQ:APKT) for some time as the best way to invest in the accelerating transition to voice-over Internet protocol (VoIP). Acme shares have soared nearly 400 percent in the past year as demand for its VoIP gear has skyrocketed.

The Bedford, Mass.-based company makes session border controllers, which connect businesses with Internet networks to allow the secure transfer of voice, video and other data. Acme, which saw revenue surge by 63 percent last year to $231 million, expects continued growth as large telcos build faster next generation long term evolution networks.

Acme is the top holding of my iTech portfolio, which has outperformed the S&P by over 30 percent annually. I recently discovered BroadSoft (NASDAQ:BSFT), a small company in Gaithersburg, Md. that sells VoIP software to Verizon (NYSE:VZ). The company's shares have quadrupled since it started trading on June 16. I picked up a few shares of BroadSoft for my iTech fund, just to have some skin in the game.

Verizon and other phone companies compete with Cisco (NASDAQ:CSCO) and Avaya to sell Internet network equipment to corporate customers, says Diane Myers, an analyst at research firm Infonetics.

"For phone companies," she points out, "there's a lot to gain as businesses move to IP telephony."

A significant part of Acme's growth comes from helping phone companies contain the costs of expanding their wireless networks, says Acme co-founder and chief executive Andy Ory.

"They have to lease out connections from other managed network service providers," Ory says. "so if they set up their own wireless networks and trade traffic with each other for free they can end up taking advantage of IP and significantly improve their economics."

Ory also points out that there is a "Movement away from TDM, or time-division multiplexing, to IP for voice, video and other types of services. That's a global phenomenon, and that's a big driver for Acme Packet."

Marketing research firm In-Stat issued a report last month pointing out that business mobile VoIP is on the rise. "One of the key benefits of mobile VoIP for enterprises is extending desk phone functionality to mobile devices," says In-Stat analyst Amy Cravens. Expenditures on mobile VoIP gear will exceed $6 billion by 2015, predicts In-Stat, who sees mobile business users increasing 10-fold during that time.

Mobile VoIP is moving beyond just being an inexpensive alternative for making international phone calls. In-Stat recently forecast that there will be some 139 million mobile VoIP users by 2014.

Acme's growth will continue as more and more people use cell phones to make VoIP calls. Acme marketing executive Kevin Mitchell said that the "most significant trend in 2010 was the rise of mobile VoIP," especially after Apple (NASDAQ:AAPL) "stepped into the fray with FaceTime."

Verizon will begin selling the iPhone for the first time next Thursday. FaceTime video calling on the Verizon iPhone will be restricted to Wi-Fi networks, the same as it is for the AT&T (NYSE:T) iPhone. Video calling, including FaceTime, does not work well over 3G networks. Verizon Wireless Chief Technology Officer David Small says that "my team and the Apple team have both been using that feature" over 3G connections. At present, however, neither Verizon nor Apple have announced plans to offer FaceTime over 3G in the future.

Social networking will also be a big catalyst for mobile VoIP. In-Stat's Cravens says that as mobile apps combine with "social networking apps, the realm of potential use is expected to broaden. This has created a great deal of jockeying among mobile VoIP players trying to develop market share and mobile operators trying to determine the best response to this potentially disruptive service."

The popular VoIP service offered by Skype has recently been integrated with Facebook.
Source: Acme Packet a Key Player in Building VoIP Networks