offices of babyTEL have nothing of the frantic feel of a technology company
about them. To begin with, babyTEL resides on the seventh floor of a
brick building overlooking René-Lévesque Boulevard in the
city's core — far from the shabby highway-side tenements that typify
many tech firms. Inside, there is a quiet, reflective air broken only
by the occasional impassioned debate over a finer point of service provision.
The view from the windows in every office — no cubicles here — shows
the reviving business district growing up all around. And then there's
Wearing a comfortable V-neck sweater and grey slacks, Stephen Dorsey
couldn't look less like a person who feels he has something to prove.
relaxed man who rides to work on a bicycle, Dorsey is clearly enjoying
his latest incarnation. "I spent many years selling to the corporate
world where relationships develop so slowly," he says. "It's
a nice change of pace to be able to sell to the retail side where decisions
to buy or not can be made on the spur of the moment." Most of babyTEL's
20 employees have been with Dorsey for years, and it is easy to see why. "A
pleasant work environment makes for productive people, and that improves
the bottom line," says Dorsey.
Dorsey's habit of keeping his eye on the bottom line has served babyTEL
well. Since introducing its residential voice-over-Internet-protocol service
in May, babyTEL has received accolades from research groups and users in
this highly competitive field of telephony. The SeaBoard Group's report
on the state of VoIP in Canada called babyTEL's service quality "best
of breed" — an area where other VoIP companies have had issues.
The privately financed firm has grown its customer base surprisingly quickly,
and this despite not having the war chest needed for the kind of advertising
blitz U.S. competitors have been running.
The competitive heat in this field is understandable. Market analyst Frost & Sullivan
predicts that more than 375,000 Canadians will be using a VoIP service
by the end of next year, and this within the growing target market of three
million high-speed Internet users. The prospect of winning a slice of this
hefty pie has led many would-be telephone companies to enter the VoIP fray.
In the past six months, Internet telephony has grown to become a household
name from the technical abstraction that it was when babyTEL's parent company,
Voice & Data Systems, entered the field in 2002.
The major telephone companies have been characteristically cautious in
launching their own VoIP solutions, despite owning the vast majority of
high-speed Internet subscribers through services like Sympatico. They have
been installing the required technology for some time but are working to
overcome the fact that the proliferation of VoIP can only erode their own
telephone customer base. SaskTel, for instance, has launched its own VoIP
service through subsidiary Navigata — but only for customers in parts
of British Columbia and Alberta.
At the same time, the telephone companies want to make sure the Canadian
Radio-television and Telecommunications Commission leaves VoIP unregulated
before they enter the market. One way or the other, the telephone utilities
are expected to launch their VoIP solutions within the next six months.
Major cable Internet providers Rogers Communications and Shaw Communications
are expected to roll out VoIP solutions in early 2005.
Meanwhile, babyTEL has been taking advantage of its good position and
selling as much as it can. In addition to marketing to end users, it
has met success
in partnering with high-speed Internet providers that are looking to expand
their range of service and see VoIP as a natural fit. In some cases, babyTEL
service is being re-branded by ISPs and resold. "Many VoIP subscribers
might be using babyTEL without realizing it," says Dorsey.
It is no surprise, then, that babyTEL has attracted the attention of
venture capital firms looking to gain a foothold in this fast-growing
been approached by a few firms, from here in Canada and also the U.S.," says
Dorsey. "We'd certainly benefit from investment, but for me it's a
matter of making sure we find a good fit in a financial partner. Having
the right partner can make all the difference to an innovative company."
He should know. Dorsey has some background with innovative companies.
In 1967, Dorsey — a Massachusetts Institute of Technology-trained engineer — founded
AES Data Inc. in Montreal, developing industrial remote-control applications.
In 1972, AES launched the AES 90 computer, years before Microsoft and Apple
were companies. Marketed as a "word processing system," the AES
90 was really the world's first general-purpose personal computer. AES
went on to grow to more than $200 million in annual sales.
Dorsey launched his next venture, Micom Co., after selling his stake
in AES in 1975, again selling word processing and office automation
Having directed Micom to $200 million in revenue, Dorsey sold it to Philips
NV in 1984 and founded Voice & Data Systems in 1991. The company found
success in deploying cutting-edge fax-over-data network technology to phone
companies internationally and in providing unified messaging solutions
to some of the world's largest financial firms. And, once again, Voice & Data
Systems is poised to go big through its subsidiary babyTEL. Of this, Dorsey
is absolutely convinced.
The way he describes it, VoIP is a technology whose time has come. "Even
just a couple of years ago, the Internet didn't have the bandwidth or quality
to support an application like this," explains Dorsey. "We're
very lucky that we started working on it before some who are just rushing
to get into VoIP now. We've done all the technological development, and
now we can focus on growing our subscriber base while the other guys try
to sort out their service problems on the fly."
Given Dorsey's track record, it is hard to believe that luck has anything
to do with the company's success. Nevertheless, being ahead of the pack
has given babyTEL the opportunity to think about the future and work on
its customer interface. "Internet telephone is something that's in
everyone's future," says Iain Grant of the SeaBoard Group. "The
day will come when all telephone calls will be by VoIP. The significance
of it isn't just price, it's about the flexibility of the medium to offer
a wide range of features. BabyTEL's web interface is a perfect example
of this: you can check your voice mail and look at call logs in real time.
That just isn't possible with a traditional telephone line."
Voice & Data Systems today reaches more than 20,000 users daily, and
babyTEL's immediate plans are to reach an additional 1,000 high-speed subscribers
each week over the next year by partnering with ISPs. The company is in
the final stages of signing contracts with two large ISPs, and there are
no signs of this brisk trade slowing down. Because of the huge opportunity
and untapped market, all of the companies selling VoIP in Canada are growing
quickly — even those with spotty service records. If babyTEL keeps
meeting its growth targets, it will be generating roughly $50 million a
year in revenue by 2006, giving it a solid footing to compete with the
telephone companies when they enter the playing field.
The prospect of encountering the phone utilities on their own turf doesn't
faze Dorsey in the least. "I see our advantage as offering the kind
of fast and personal customer service that the telephone companies just
can't," he explains. "The flexibility of VoIP is a big selling
point. Last week my son called me from outside a hotel in Paris; he caught
their WiFi signal on his laptop and made a local telephone call over the
Internet to me here in Montreal. That sort of thing was unthinkable until
For now, though, babyTEL has an ongoing battle to fight competition from
around the world, as well as some public misconceptions about VoIP. It
may be tempting to imagine what could be, but Dorsey is keeping his feet
squarely on the ground, making sales one at a time — the same as
he's been doing for 30 years.