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Phone.com buy may signal future universal messaging deals

The wireless Internet software maker acquires start-up Onebox.com for $850 million, potentially marking the beginning of a consolidation among a variety of communications companies.

Upstart wireless Internet software maker Phone.com agreed to acquire start-up Onebox.com today for $850 million in stock, potentially marking the beginning of a shakeout among a variety of new communications companies.

The move highlights the changing nature of the communications industry, in which traditional voice services, prevalent wireless technology and the Net are melded into an easy-to-use package.

Phone.com is working with mobile phone manufacturers such as Nokia and Motorola to deploy its "microbrowser" for wireless Net access. With today's purchase of Onebox, Phone.com will be able to add a variety of services such as Net-based email, voicemail and faxes. It also will gain access to 2.5 million registered Onebox users.

"What's becoming possible now is the combination of voice and data into a variety of powerful new services for consumers," said Ben Linder, Phone.com's vice president of marketing.

In another example, email outsourcing company Commtouch invested $3 million in ThinkLink, a similar integrated messaging firm. Commtouch will offer ThinkLink's package of voicemail, email and fax management tools in addition to free local and 5 cent-per-minute long-distance calls.

According to ThinkLink, International Data Corp. estimates the U.S. integrated messaging market will grow to 25 million mailboxes from 750,000 today, making the market worth $5 billion.

Phone.com at a glance

HQ: Redwood City, CA  
CEO: Alain Rossman  
Employees: 233  
Annual sales: $13.4 Million  
Market cap: $7.6 Billion  
Date of IPO: June 1999  
Ticker: PHCM  
Exchange: Nasdaq

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Bloomberg (2/14/99)

Dozens of companies such as Ureach, EFax, JFax, Office Domain, TellMe.com, HearMe and others are scrambling to offer Internet-based voice calls, text-to-voice email conversion, free electronic faxes, wireless Net access and a variety of other advanced services that promise to change the future of communications.

But these new companies will fight one another and the major telecommunications firms for customers, leading some to believe consolidation could come quickly.

"With so many players there's got to be some consolidation because consumers can't figure out 50 different services from 20 different players," said George Peabody, managing director for telecommunications research at industry consultant firm the Aberdeen Group.

Other analysts agree the market will begin to see more consolidation.

"There are so many new services that are available that it's like trying to drink from a fire hose," said Megan Gurley, an integrated messaging analyst at market research firm The Yankee Group. "Unified messaging in and of itself is not enough to sustain these companies. I think they'll all be acquired.

"Most of the people that have offered integrated messaging thus far have offered it on a free basis with ads to support it," she said. "People are not willing to pay for unified messaging alone, but they'll pay for a larger bundle."

Phone.com, with its buoyant stock price, has been at the forefront of the consolidation. Last week the company closed its $285 million acquisition of @Motion, a voice recognition company, and announced its proposed $500 million purchase of Paragon Software, a maker of products that allow users to synchronize their handheld devices via wireless connections.

Many believe the Baby Bell local phone companies and other entrenched communications companies also are interested in many of these upstarts.

"These services do not make sense as an island. If someone calls your free voicemail number but it doesn't ring your home phone or cell phone, that's not exactly of great use to most people," Linder said. "What you really want is for them to be tied in very closely with the telephone system. That's when it becomes really important."

Phone.com executives believe partnerships and mergers are the first steps in combining the limited abilities of traditional communications services with dozens of new--but sometimes not-so-convenient--Internet-based services.

"It's really the convergence of the Internet-based services with the traditional networks," Linder said.

But given some hesitancy concerning new ways of combining Net-based communications with traditional methods, stock in Phone.com, formerly Unwired Planet, has slipped some since announcing the acquisitions.

Phone.com shares have risen rapidly and split once since its initial public offering last summer and have traded as high as $175 and as low as $16.13.

Expected to close during the fourth quarter, the Phone.com-OneBox deal calls for Onebox shareholders to receive a fixed number of about 6.5 million shares of Phone.com stock. Phone.com will integrate Onebox's 70 employees while Onebox chief executive Ross Bott will become chief operating officer for the product groups of the combined company.