We spent a few hours yesterday catching up with VelaTel’s world travelling CEO George Alvarez (currently on East Coast of United States) on the transformational changes in VELA’s China 4G strategy and updates on recent 8k filings and their existing LOI’d acquisition deals in the Balkans/East Europe.
We will break this extensive report into a few reports over the next few days.
Update Report #1:
The End of the VelaTel 1.0 (The Chinacomm JV) and Beginning of VelaTel 3.0:
The Global Emerging Market B2C/B2B 4G LTE Carrier
The short-version on Chinacomm JV: With CECT-Chinacomm and VelaTel at an impasse since early 2011 over Chinacomm’s request to remove dual-signatory requirements from the JV agreement, something had to give. VelaTel had a fiduciary responsibility to safeguard the assets contributed to the JV.
When it was discovered that Chinacomm had illegally removed VelaTel president Colin Tay’s signature from the funds deposited by VelaTel for down payments on ZTE base station equipment, VELA had no choice but to seek an injunction to insure the safe return on its money.
VELA made its case to the local Hong Kong magistrate (i.e. showing the court the existing contracts and agreements and events where Chinacomm had violated the agreements) and was granted an immediate injunction securing the cash on deposit in the Standard Chartered bank domiciled in Hong Kong.
With Chinacomm reportedly to be stripped of its 29-city wireless broadband license by China’s telecom agency (MIIT) for not following the agencies request for a 12 city first phase deployment (Chinacomm only deployed Beijing and Shanghai), the JV arrangement appears to have ended.
The VelaTel 1.0 era—developing the Chinacomm Network and right to acquire a 49% interest in that wireless broadband network, is closed.
What emerges from the ashes of that JV will not be known till the judges render a decision. By all accounts it is most likely the deposit will be returned to VelaTel and the remaining asset—the Beijing network operating center—is up for grabs.
VelaTel 2.0—the move to add additional operating units OUTSIDE the Chinacomm JV (i.e. GBNC 4G network development JV, Sino Crossing fiber optic network) now looks quite prescient (understatement of the year).
The GOOD news from the apparent demise of the Chinacomm JV (and the addition of multiple NEW 4G network development deals closed or announced/anticipated to close in the next 30-45 days) creates the emergence of “VelaTel 3.0: The International Emerging Market B2C and B2B 4G TD-LTE Carrier.”
Reality Check: In today’s global environment, successful start-up companies have to learn to “pivot”—that is be ready, willing and able to change their business plan and strategy to adapt to the world as it IS, not as they originally hoped it would be.
We believe VelaTel has successfully pivoted its plan and strategy into a 4G carrier development and operating company employing multiple 4G network development and operating strategies.
We will go into greater detail on the terms and structure of the new VelaTel 3.0 in a later report, but the simple story for VelaTel and shareholders for the new China B2B network agreements is as follows:
100% of revenues consolidate to VELA income statement.
In the CAST network, VelaTel retains 75% of all revenue and 85% of the equity. In the NGSN, VelaTel retains 65% of all revenues and equity UNTIL an IPO—where NGSN gets an additional 10% equity for the successful listing of the company.
Key Point: The pre-existing and paid for 29-city pre-deployment assets owned by VelaTel are being contributed to the two new private TD-LTE network development deals with major state-owned enterprises (SOEs) in China: Aerostrong Company Limited, a subsidiary of $10 billion revenue China Aerospace Science and Technology Group (CAST) www.spacechina.com and New Generation Special Network Communication Technology Co., Ltd. (NGSN).
It is the 2-year head start on upgrading the existing B2B networks that made VelaTel the perfect partner for these giant SOEs: No other company on earth could build these 4G networks as quickly and cheaply as VelaTel for their SOE partners.
In technology, 2 years is forever.
There is a massive opportunity in China to bring “carrier grade” cloud computing and services to the CAST and NGSN ecosystem of subsidiaries and related companies. Carrier-grade networks are known for their high reliability and
availability and their fast fault recovery—all benefits NOT available to most companies in China. The VelaTel carrier class cloud:
According to Mr. Alvarez
“We have been said in our statements and filings that we would not continue with Chinacomm if we did not continue to have 2 signatures for each individual operating checking account. We ended the impasse when we found out they removed (illegally) Colin Tay as signer and we were forced to file for protective injunction.
The courts will figure out our damages and decide what to do with our stock in Chinacomm.
In the mean time we obtained new contracts with NGSN, CAST, Sino Crossing and GBNC to revamp and greatly improve our China game plan—all with superior economics and 100% consolidating revenues to VELA in 2012 versus our Chinacomm deal negotiated in 2008 when JV laws and wireless technologies were much different.”
NGSN and Aerostrong Deal Highlights
The Big Picture: VelaTel 3.0 to Pro-Forma $100 Million+ in Revenues for 2012