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Executives

Steven Gatoff – CFO

Evan Kaplan – President and CEO

Analysts

Frederick Ziegel – Blue Water Capital Markets

Kevin Hanrahan – KMH Capital Advisors

Daniel Wiseman – Wiseco

Marc Silk – Silk Investment Advisers

iPass Inc. (IPAS) Q2 2011 Earnings Call August 4, 2011 5:00 PM ET

Operator

Good day, and welcome to the iPass Second Quarter 2011 Earnings Conference Call. As a reminder today’s conference is being recorded. At this time, I would like to turn the conference over to the company. Please go ahead.

Steven Gatoff

Thank you, operator. Good afternoon and thank you for joining us to discuss our financial and operating results for the second quarter 2011. This is Steven Gatoff, Chief Financial Officer of iPass, and I’m here today with Evan Kaplan, President and CEO.

Before I turn the call over to Evan, I’d like to bring the following to your attention. The date of this call is August 4, 2011. Our discussion today contains forward-looking statements about events and circumstances that have not yet occurred, statements regarding our projected financial results for the third quarter of 2011 and the full year 2011. Statements containing words, such as will, expect, anticipate, believe, plan, intend and should, and other statements in the future tense are forward-looking statements.

Actual outcomes and results may differ materially from the expectations contained in these statements due to a number of risks and uncertainties including those set forth in today’s press release, our quarterly reports on Form 10-Q and Annual Report on Form 10-K that are filed with the Securities and Exchange Commission. These reports are available on our website and at www.sec.gov.

Please note that iPass undertakes no responsibility to update information in this conference call. On this call, we will provide and talk about our results using non-GAAP financial measures. The press release on our website includes text and tables that explain how we define and calculate the various non-GAAP metrics and the reconciliation of non-GAAP results to GAAP results.

The press release and Form 8-K announcing our financial results are available on our website at www.ipass.com. This earnings call is being recorded for replay. It is being webcast and will also be available on our website for one quarter until the next earnings call. Please note that this webcast is a property of iPass and any copying or rebroadcast without the expressed prior written consent of iPass is prohibited.

With that, I’d like to turn the call over to Evan.

Evan Kaplan

Thanks, Steven. Good afternoon everyone and thanks for joining us. Over the past several quarters you heard me talk about the long term vision for iPass, the natural and formidable role iPass is playing in the stockholder value they were just looking to continue to create.

As I look at some compelling intangible data points, my excitement about the opportunity continues to grow from a solid Open Mobile product that’s now reaching broad enterprise appeal and is positioned to scale nicely to our early success in leveraging our unique technology and know-how into an entirely new Open Mobile Exchange business. I believe the long term iPass vision look strong and financially rewarding.

And so with a good mix of both conviction and evidence of traction around the long term goal I’d like to focus today a bit more on the near term business and what I’m looking for over the next several quarters or so. In that light, I look forward to going through the following three topics with you today.

First, I’d like to give you an update on the progress we’re making in our enterprise business specifically with our Open Mobile Platform. Secondly, I want to give you some color on the progress we’re making with the new Open Mobile Exchange or OMX business as we call it. And third, as I said earlier I want to give you a view on what we’re looking at to achieve over the next two or three quarters as we continue to execute our plan and create value.

Let’s start with our Open Mobile enterprise business or OME as we refer to it. As a brief reminder, Open Mobile is our technology platform that includes our Cloud based mobility management portal, our various client agents for MAC, Windows, iPhone, iPad and Android devices and our worldwide transaction and settlement infrastructure that securely authenticates bills and clears Wi-Fi transactions for Enterprise customers and carrier partners.

In Q2 we continue to see traction with enterprise customers committing to the Open Mobile Platform. Specifically, we are pleased to see a bunch of household names and leading Fortune 1000 companies sign Open Mobile agreement.

We now have more than 140 customers signed on Open Mobile, including the recent additions of Coca Cola, Stanley Black & Decker, OfficeMax, Emirates, Brown and Forman, Fidelity, Ferrari, Macquarie Bank among others. And while deployments continue to be slower than we’d like tied to hardware, OS and refreshes, we’re seeing very healthy gains in paying OM seats under contract as we continue to grow our platform revenue.

In that light, we look at the second half of the year with increasing optimism driven by our visibility on a few important drivers beyond just the growth in paying OM seats. First, we have visibility to five or six very large technology refreshes and customer deployments going on this quarter and extending through early next year.

Secondly, we’re starting to see our carrier partners in market with the product as both Telstra and Deutsche Telekom are now showing early initial Open Mobile monetized user accounts.

It’s small but they are there and we look forward to continued growth with these partners as we head into the last two quarters of the year. And lastly as we come out of the summer we are rolling out our next generation of tablet and phone clients. This OM application do adds a good significant additional functionality targeted at the end user and importantly will take some of the friction now at the enterprise deployment and activation throughout the app stores.

An interesting dynamic with all of this is the global reach of the Open Mobile Platform. We continue to grow our mobility business outside of the U.S. and expect to exit this year with slightly more than 50% of that business driven internationally. Our European activity is picking up and is helped further by our growth in footprint there. We also expect to expand our business in Asia on the back of some important relationships we are developing in China. Look for more on that later this quarter.

From a trending point of view it’s clear that outside of the U.S. Wi-Fi is growing. Paid Wi-Fi is the norm and our footprint is expanding there. To take advantage of these trends we are increasing our selling capacity outside of North America.

On a more fundamental note I believe that over the last two years we have successfully delivered on our promise to turn technology development into a competitive advantage. The team here at iPass is executing exceptionally well. We are consistently delivering innovative and quality products that are developed and brought to market in an agile and efficient manner. Look for continued innovation and expanded platform capabilities we execute on the OM Enterprise opportunity and the Open Mobile Exchange opportunity.

Finally it’s important to note that continued expansion of our global footprint. Two years ago our reported global Wi-Fi footprint was approximately 120K, 120,000. And today we have more than 550,000 hotspots around the world and we expect to exit the year with substantially more than that.

I think the growth of the footprint speaks to the quality of our supply team and the desirability of iPass as a non-competitive value-added partner for almost all players in the Wi-Fi ecosystem. As we execute on the OME and OMX value proposition, this growth in footprint should be an important driver of traffic and future revenue growth.

On the strength of our strong product development our rapidly expanding network footprint, I’d like to talk about the regional OMX or Open Mobile Exchange business that we launched. I believe the Open Mobile Exchange is developing nicely and we are excited about the financial and strategic value of that business. If you remember our last call, I spoke about the second wave of Wi-Fi and our partnership with Deutsche Telekom and the rollout of the Wi-Fi Mobilize platform as an important first in the space.

As a follow on last month we delivered that same unique functionality for other global carriers under our own OMX brand. The response that we’ve received from mobile operators, service providers, and other ecosystem partners on the Wi-Fi Mobilize and the OMX announcement has exceeded our expectations. I said the commitment and the focus of the team at Deutsche Telekom are exhibiting as they pursue a strategic beachhead in this market.

I look forward to show you the results in the quarters ahead. To provide a little bit more detail our context around that opportunity. We are hearing from just about every carrier that Wi-Fi is reemerged as an essential service for network access.

Mobile operators just need to be in the mix and have access to Wi-Fi if they want to thrive for three very simply reasons. First, they need to offload expensive data traffic if they’re going to keep pace with the unbelievable increases in demand for wireless bandwidth and provide their end-users with an acceptable level on great user experience.

Second, carriers need to offer their international traveling subscribers a cost effective way to use their devices when they’re traveling. As you likely know very well, the $10 to $15 per megabyte cellular roaming fee just doesn’t hunt for most travelers especially leisure travelers. And towards a result, behavior modification is taken hold, many travelers just simply turn-off their sales signal and that’s critical loss revenue for the carriers and a bad customer sad event to booth.

And third, the carriers need an effective way to monetize their own increasing Wi-Fi network investments by letting other carrier subscribers roaming and use those growing Wi-Fi networks.

Let me reiterate an important point that I state on the last call. Over time, we believe the mobile operators will come to dominate the commercial Wi-Fi space. Owning those assets and the billing relationship with the subscriber will become increasingly valuable for these operators.

It’s that dynamic that’s driving our strategy to work with our carrier partners to pursue the mass market through them not directly. As it relates to iPass simply, we help enable those Wi-Fi services for the carrier, while at the same time helping them to manage their infrastructure cost. Our new OMX business immediately brings to the table our 320 plus network relationships, a global transaction network and settlements hub that authenticates and clear transactions across all of those networks.

And our Open Mobile Platform and technology that creates a seamless end-user experience in the management platform for our carrier partners. Finally, these assets put us in a relatively unique place in the market one in which we could help mobile operators and service providers further their interest in the Wi-Fi space without ever owning network footprint and competing directly with them. We are uniquely positioned with little competition to be a neutral market maker in this exciting emerging space. And in the process expand our served market to include the increasingly important mass market customer.

Now, looking ahead consistent with my goal of trying to how do you see what I see and laying it out in plain English, it’s been a rough road the last 2.5 years as we’ve seen significant revenue declines in the phase of struggling customer value proposition. While there are still drains on our P&L as we transition to a more compelling model and value proposition, we see iPass is being in a very good position. We’ve refreshed the enterprise value proposition. We’ve expanded the opportunity to mass market customer and I believe we put the company on a path to return to growth and profitability.

Looking ahead to Q3 and importantly the next few quarters I’m focused on accelerating both of these businesses. On the Open Mobile enterprise side I’m focused on growing users under contract, accelerating customer deployments, increasing monetized users and signing new logos.

In terms of gauging our progress in this business we look for us to continue to announce enterprise customer wins and provide some case studies it evidenced higher customer utilization and value and look for continued growth in OM platform revenue.

On the Open Mobile Exchange side of the OMX side of the business we’ll continue to build on the already valuable and increasingly strategic asset. In terms of our gauging our progress on this side of the business look for us to develop a series of important strategic relationships with new Wi-Fi distribution and technology ecosystem partners and look for some significant carrier wins as we exit this year.

On a broader note look for us to continue to manage our investments closely and to turn narrowing losses into a growth story over the next several quarters. With that I’d like to wrap-up with our views. This is an exciting time for iPass. It’s been moving nice traction and there are lot of opportunities in front of us. We feel comfortable with the strategy we’ve adopted and the resources allocated and the way our team is executing.

And I believe we have and are doing the right things to drive shareholder value. Thanks for your time. Let me turn it over to Steven for some insights on our financial performance in Q2 and some color on Q3 and I look forward to taking your questions at the end of the call.

Steven Gatoff

Thanks, Evan. As Evan said I would like to talk you the key financial highlights of the second quarter and then provide some color and our guidance for Q3. Jumping right in there two key messages that we would offer hold true and looking at our Q2 results specifically and for our overall financial performance in the past few quarters in general.

First on the top-line we saw another quarter of sequential platform revenue growth driven by moderate but important progress with our Open Mobile enterprise customers and initial participation by our carrier partners.

Second on the bottom-line we continue to manage our risk, reduce our expenses, and narrow our operating loss as we execute on our Open Mobile enterprise and carrier Wi-Fi exchange businesses and focus on returning to growth.

Starting with the platform revenue growth, total platform revenue increased by a net $300,000 in Q2 or 7% sequentially. The continued growth in platform revenue was primarily due to increased adoption of our Open Mobile Platform and was from existing as well as some new enterprise and carrier generated enterprise customers.

And so far as the components of this growth we are encouraged by their early OM adoption and usage characteristics within our large enterprise customer base, while the deployed number user number is small customer count continues to ramp as does commitments on the OM platform.

In Q2 Open Mobile enterprise platform uptake drove about $300,000 of gross incremental platform revenue growth. Further as Evan said it’s early but we saw our Open Mobile carrier OEM relationships with Deutsche Telekom, Telstra, and OBS providing some initial enterprise customer deployments and ramps that also contributed gross incremental platform revenue of about $300,000 in Q2.

As our carrier partners built steam and formally launched their offerings in market, we would like to see this leverage from our Open Mobile OEM distribution model continue as we move through the balance of the year and into 2012.

I also wanted to provide some color on the usage side of Open Mobile that’s driving the numbers. Overall, it feels like our hypothesis around realizing better economics and greater value creation from the OM platform is starting to take off. We are seeing this in two important areas. One in the penetration of platform users across the deployed population and two insofar as how much network usage, OM users are driving. In our early OM user accounts, we are seeing about 25% greater uptick of network services from OM users than iPass has seen historically from its legacy IPC product.

Further from an overall product traction standpoint, we continue to see meaningfully greater penetration of OM platform users across the deployed OM user base and we believe exists with the legacy IPC offering. In other words, there is a greater percentage of platform use among Open Mobile deployments versus the usage experience in the IPC legacy population.

All of this is encouraging news as we look to grow deployments, this should potent to greater usage and revenue on an apples-to-apples basis. As we communicated, we expect a decline in legacy IPC users and revenue as customers migrate off to legacy IPC product and increasingly transition to the new more feature-rich OM platform.

In Q2, these two dynamics as well as some more usage amounted to a gross platform revenue decline of about $300,000. While we are talking about revenue, let me spend a moment on the network side of the business. The network revenue was down about $1.2 million from Q1, about a third of this was from the anticipated decline in dial-up minimum network commitments and 3G network revenue. The balance of the decline was from lower usage hours on some holidays and unique events such as The Royal Wedding in the UK and the Women’s World Cup in Germany that both translated to lower usage levels in Q2.

And finally on the revenue side, we are bullish on the prospects of our new carrier Wi-Fi platform offerings, both with Deutsche Telekom’s Wi-Fi Mobilize and our own Open Mobile Exchange. It’s important to note that there was no revenue contribution from these services in Q2 and we do not anticipate material revenue from these offerings for the balance of 2011.

We are seeing good momentum and activity building with carriers around Wi-Fi offload and exchange services and we anticipate that our carrier partners will prioritize and roll out their various infrastructure initiatives on the offload side as well as their consumer facing Wi-Fi roaming services over the 2012 timeframe. To be clear, these mass market oriented carrier Wi-Fi offerings are new services and revenue streams that our new Open Mobile Exchange business is driving with the carriers.

With that, I’d like to talk briefly about the expense side of the house where we continue to effectively manage operations and cash. Despite our decided investment and funding on development and growth of our Open Mobile Enterprise and Open Mobile Exchange platforms in Q2 and a concurrent decline in revenue associated with legacy products we nonetheless delivered a well improved adjusted EBITDA result versus the prior quarter. And at a modest adjusted EBITDA loss of $165,000 our Q2 result that was well ahead of guidance.

Our Q2 expenses came in lower than prior quarter due to lower head count related costs and some nice operating expense savings pretty much across the board and so far as both expense category and business functions. We will no doubt continue to exercise discipline and careful execution as we manage the transition of the business, the ramp in our Open Mobile Platforms and the building of stockholder value.

Closing out Q2 with a look at our balance sheet and financial position, we ended the quarter with more than $26 million in cash and continue to have zero debt. As a point of fact, working capital increased by $600,000 from year-end and as noted continues to be well-managed.

With that, I’d like to move to look at Q3 as both Evan and I discussed we continue to feel good about where we are with the progress we’ve made on Open Mobile customer contracts, the increasing platform revenue from our Open Mobile offering, and the good early momentum we’re seeing from carriers on our new OMX, Wi-Fi authentication and settlements business.

We continue to watch enterprise deployments and are actively engaged to drive those forward to the best extent we can. Given these dynamics and the nature of the anticipated summer seasonality and continued decline in 3G and minimum commitment network revenue. For Q3, 2011, we anticipate total revenue to be in the range of approximately $33 million to $35 million. And we anticipate adjusted EBITDA for Q3 to be a loss in the range of $500,000 to $2 million.

I’d like to wrap up by circling back to the important themes that we’ve discussed over the past several months and from a financial perspective leave you with three brief but important messages. First, we like the technology and strategic assets and the result in revenue and growth opportunity that we’ve driven for our stockholders, which we feel has established a strong foundation of value.

Second, we continue to manage the company responsibly and with discipline preserving cash and managing spending, all a while balancing that with making some very real investments for future growth. And third we’re enthusiastic about what we see as a path to growth as we continue to pursue it with rigor around both the Enterprise Mobility and carrier Wi-Fi exchange opportunities.

With that we appreciate your time and interest and would be glad to open the call for any questions. Operator?

Question-and-Answer Session

Operator

Thank you sir. (Operator Instructions) And we’ll take our first question today from Fred Ziegel with Blue Water Capital Markets.

Frederick Ziegel – Blue Water Capital Markets

Good evening everybody.

Evan Kaplan

Hi, Fred.

Steven Gatoff

Hi.

Frederick Ziegel – Blue Water Capital Markets

Let’s see, one question I think on the first quarter you gave us an Open Mobile -I guess paying customer number of 13,000 or 14,000 of MEM reserves, can you update us on that than to Q2 or where we stand today?

Evan Kaplan

Sure and just to be clear what the metric is we’ve always talked with you about monetize user count, average multi monetized user, which represents those users of the iPass products that are paying us. Right, so in other words you can take a user account times in ARPU and get a revenue number in the P&L.

And what we talked about last quarter was that while deployments have not progressed with certain customers they still are committing and signing contracts and paying for users for the Open Mobile platform.

And Evan spoke last quarter about that number of backlog if you will of users that are paying us, but are just about waiting to be deployed by the customer. It was about 13000, that number now has increased meaningfully and is probably just shy of 50,000 users. So, in other words, those are seats if you will or backlog of committed and paying users from customers of ours who’ve not yet physically been deployed and are not yet physically using the service.

Frederick Ziegel – Blue Water Capital Markets

And the fact that they’re not deployed, is that tied to what Evan referenced about corporate refresh cycles which I presume is around Windows 7, but I’m not sure exactly.

Evan Kaplan

Yeah, a lot of it – hi, this is Evan. So, lot of it is around the Windows 7 refresh. It’s also a lot just – is Enterprise is even once they make a commitment and this is more evident on the SaaS side of the business than ever was on the software side, right. Once they make a commitment, it takes a fair amount of time sort of dial-in the full deployments and all the engineering that they feel like they need to go through around the deployments.

So, I think that it’s sort of almost a standard enterprise cycle. We would like to see those deployments follow much closer to the commitments, but I suspect there will always be some sort of gap between them.

Frederick Ziegel – Blue Water Capital Markets

Is the fact that Windows 8 literally right around the corner at least so far is that throwing a little monkey wrench in Windows 7 deployments?

Evan Kaplan

No, I don’t – it doesn’t appear to be. People are talking about their Windows 7. They – and people are starting to do it and so that’s why we start to see these things. But I don’t think Windows 8 is quite yet throwing a monkey wrench and had customers tell me they’re waiting for Windows 8, because if you know the normal laptop cycle is you wait a year even after a year or two after the OS is released actually think about deploying, but that with Windows 8 out two or two years.

Frederick Ziegel – Blue Water Capital Markets

One more question, on OMX we talked about the fact that there are three revenue bucket opportunities. There is a platform bucket, there is a transaction bucket and then there is kind of the long tail network extension if you will bucket. Should we think of those as or how mutually exclusive or those are how interconnected are those o as carriers think about them?

Steven Gatoff

So they are not none of them are mutually exclusive what I would expect is one is always see the first bucket a platform fee anybody we engaged with. Two is you are likely to see maybe always are likely either always are very likely to see an authentication bucket every time getting paid per transaction every time somebody uses or clear with us.

And then I think for most carriers you are likely to see a long tail revenue and here is the reason why is if say you are large domestic U.S carrier we won’t name you. And you have a big not you have some percentage of your installed based traveling internationally regularly.

The majority of those are going to be in five or six countries. And so maintaining a bilateral supply relationship with five or six countries, that’s going to be great, that’s going to cover 75% of your need. But maintaining it with I don’t know the exact number we have 80 or 85 countries that might be actually to put together a good service. It’s just not going to make a lot of sense and it’s a lot of administrative overhead and so it’s easier to use our platforms to just deliver on that. So I imagine most folks will have all three buckets going forward. And I imagined most folks will start with all three buckets too so.

Frederick Ziegel – Blue Water Capital Markets

Okay. All right, thanks.

Evan Kaplan

You’re welcome.

Steven Gatoff

Thanks, Fred.

Operator

(Operator Instructions) Next we will hear from Kevin Hanrahan with KMH Capital Advisors.

Kevin Hanrahan – KMH Capital Advisors

Hello Evan, hello Steven, I had a couple of questions. First one I guess would be – do you expect to have more carrier wins in the second half of ‘11 and going forward than the ones you have already added so far?

Evan Kaplan

So, the answer is quite simply, so we have two kinds of it. So the relationships that we have today the primary the largest ones being Deutsche Telekom and Orange, and Telstra.

Kevin Hanrahan – KMH Capital Advisors

Right.

Evan Kaplan

Are on the enterprise side. So we haven’t announced any official carriers on the OMX side yet.

Kevin Hanrahan – KMH Capital Advisors

Right.

Evan Kaplan

Having said that just following my comments before I’d expect to have a few by the time we exit the year few on the OMX side.

Kevin Hanrahan – KMH Capital Advisors

On the OMX side.

Evan Kaplan

Yep.

Kevin Hanrahan – KMH Capital Advisors

And then do you expect a few more on the enterprise side as well?

Evan Kaplan

I am not – at this point I am not committing to that I am not..

Kevin Hanrahan – KMH Capital Advisors

Okay.

Evan Kaplan

I am not giving whole guidance on that.

Kevin Hanrahan – KMH Capital Advisors

Right, right, no comments there, all right. It looks like the – I guess I should congratulate it looks like the second quarter in a row you beat what was your prior guidance. So in other words came in little higher than expected in terms of EBITDA. So I see you had a loss in Q3 projected as well, which is normally I think is – I think of your Q3 as the slowest quarter because of travel and summer vacations in Europe.

So my question is your guidance pretty much incorporates that. And have you seen any slowdown in Europe especially Southern Europe given some of the problems we see in the media anyway?

Evan Kaplan

Sure Kevin I mean you know that both on Q2 and looking into Q3, Q2 came in ahead of adjusted EBITDA expectations as kind of 50/50. Half of it was just closed management of head count and the other half was just incremental strong management around all of areas OpEx categories, so that accumulated to have a good result this quarter.

And then as you said next quarter Q3 is really seasonally slower because of the July and August timeframes, a large portion of our network operations and revenues are from Europe. And so that obviously in the month of August and Europe is pretty darn slow.

Kevin Hanrahan – KMH Capital Advisors

Right.

Evan Kaplan

And so that whole dynamic is factored into our guidance number and that’s – given that all together that’s how we see an impact.

Kevin Hanrahan – KMH Capital Advisors

That’s how we see it. And so separate from what you’ve carried forward, if I can ask my question again, have you seen any problems in Europe especially Southern Europe or is business still going pretty good in Europe.

Evan Kaplan

We haven’t seen any material impacts.

Kevin Hanrahan – KMH Capital Advisors

Okay. That sounds great. Thanks a lot.

Evan Kaplan

Right I’m glad too. Thanks.

Operator

That is all the time we have for questions. I would like to turn the conference back over to the speakers’ for any additional or closing comments.

Evan Kaplan

No operator there is..

Operator

Would you like to allow one more question.

Evan Kaplan

Yeah actually there is another question came through please.

Operator

Thank you. And we’ll go to Daniel Wiseman with Wiseco.

Daniel Wiseman – Wiseco

Hi guys how are you?

Evan Kaplan

Good Dan.

Steven Gatoff

How are you?

Daniel Wiseman – Wiseco

Congratulations you guys seem to have your timing down with these earnings releases. I believe you also released after the Flash Crash last year. So that’s the eye there. Congratulations, it sounds like business is good. And I have a very simple question you are sitting on $25 million plus in cash and you are not really using a lot of it to build out what seems to be some very interesting businesses.

Have you guys given thought there as to what the long-term plans on and I know you want to have a rainy day fine but is there something I’m missing in terms of a CapEx requirement on do you have a large carrier win that all of a sudden you need the cash for the current quarter or something like that or is the board considering some alternatives?

Evan Kaplan

So just we’re clear what we covered in the last call Dan and subject to reiterate is this business takes advantage of the technology platform that we’ve already built. And so there is not a big technology investment the way it stands today. But what I would say is, as we approach this business and we start to see really meaningful traction showing up on the financial statement with this.

I believe that there will be a fair amount of opportunity to add in capability to aggregate capability and things like that. And that to me in my mind that happens when you have acceleration or when you start to see real acceleration on the new opportunity and so that’s how I view that capital that’s currently on the balance sheet today. Steven, do you want to add into that.

Daniel Wiseman – Wiseco

Okay.

Steven Gatoff

Yeah, yeah it’s spot on green and Dan as you said the capital nature of this business is pretty modest but still we want to fund that. There are cash losses this quarter that we wanted to fund and so we think we are approaching a pretty responsibly. Yeah we will cross the bridge with what some of the stuff you said in a quarter or two to Evan’s point. Once you start seeing some really nice acceleration then it’s a different set of discussions to have around deployment of capital.

Daniel Wiseman – Wiseco

And you guys do acceleration in terms of top-line or cash flow or EBITDA or all of the above?

Steven Gatoff

Probably all of the above – Probably all of the above and then key strategic relationship that you can see on the OMX side creating clear path to grow in other words...

Daniel Wiseman – Wiseco

Okay.

Steven Gatoff

Either committed or obvious.

Daniel Wiseman – Wiseco

Okay. And my follow-up question is on the OMX side, there is not going to be meaningful revenue generated in 2011 from this new business. It’s unclear as to – it’s kind of easy to reverse engineer the given the ARPU and given the number of committed users and things like that on the Open Mobile side.

It’s not that easy to have any sort of reception here from my perspective of what’s the size of the opportunity on the OMX side. I was wondering if you could just very generally walk through sort of like a single transaction, what was the charge would be the clearing charge, what your guys just take would be and then of course sort of what perhaps expectations would be in terms of the number of transactions in a given day or week or just something very back of the hand if you don’t mind?

Steven Gatoff

Sure, yeah glad to, glad to and glad provide what’s kind of responsible or reasonable to provide for example, some of the stuff is coming together where you don’t know, right, it could be a huge range. But having said that, the platform element of the OMX revenue is really kind of as we’ve said kind of that cost co-card price of entry that a national carrier participant would pay for their subscribers under coverage.

So, a large carrier with $20 million, $30 subscribers under coverage would pay a large monthly fee of peg a number, $100,000 a month whereas a low subscriber carrier with 1 million or 2 million subscribers would pay something much lower of $10,000, $15,000 a month. And then on top of that, the way the transaction settlements and on authentication revenue works it’s really some rate times activity, right. And that could be at a user level or it could be at a megabyte pricing level depending upon the carrier relationship or could be time-based right, it could be $0.03, $0.04, $0.05 per minute if you will.

And those are really specific to the carrier conversations that we have for each partner as they price out their offering and as they think about how they’re going to market with their own pricing tends to mirror that. And then the third element is the network pricing which really will resemble and a very large part of the network revenue on average that we are doing now, some of them will be a little bit higher margin by nature where it is, some of it maybe a little bit lower.

Daniel Wiseman – Wiseco

Okay. Congratulations keep doing what you are doing. Thanks a lot, guys.

Steven Gatoff

Yeah, good stuff. Thanks.

Evan Kaplan

Thanks, Dan.

Operator

From Silk Investment Advisers, Marc Silk.

Marc Silk – Silk Investment Advisers

Hi guys, I guess..

Evan Kaplan

Hi, Marc.

Marc Silk – Silk Investment Advisers

As far as the cash you could add that if there is some private companies out there that take cash a while you can scoop something up for pretty cheap. Evan, my question is I have been reading up I guess in Europe, there has been pressure to have the carriers bring down their roaming fees and obviously it’s not that good under zero. But what’s your take on that because obviously if it gets really cheap it could be a threat to the parts of your business model but I just was looking for your comments on?

Evan Kaplan

Great question, Marc. Clearly we follow the news also. So I have been watching that. So I think the right way to think about this is where we think about it, so I’ll say and I can see the right way to think about that, but the way we think about it is, it’s going to come down. We expect it to come down we expect it to come down especially with inter opco. So, Vodafone with their subs and T-Mobile with their subs and that sort of stuff. So, we expect it to come down. But so also is Wi-Fi, a, Wi-Fi is today 1/100th of the cost. We can’t see a time when it’s not at least 1/120th of the cost.

And the dynamics are such that even if the EU forces the inter-standard roaming rates down, there is a lot of pressure on the carriers when there is a global bandwidth shortage and they are going to prioritize traffic then in that case to their home subscribers not to roaming subscribers which is going to make Wi-Fi look more attractive anyway. And so there is a bunch of dynamics that make us feel pretty safe that Wi-Fi is a long-term part of the infrastructure not a short-term and is to inter-standard roaming stuff is a long-term phenomenon not a short-term even with the regulations coming down.

Marc Silk – Silk Investment Advisers

Thank you very much. And good luck going forward.

Evan Kaplan

Thanks, Marc..

Steven Gatoff

I appreciate it.

Operator

And that does conclude today’s question-and-answer session. We thank you all for joining us. You may now disconnect.

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