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On June 24, 2022, when we spoke with Sean McEwen, the CEO of Konatel Inc (OOTC:KTEL), we went into the conversation hoping that he would go into sufficient detail on the progression of the company’s business, especially in light of the $3 million dollar loan they just closed to fund the purchase of phones it distributes to low income households who sign up for the company’s government subsidized telecom services. Sean talks about how the company analyzed the cost benefit of taking out a loan at 15% interest versus issuing dilutive capital and the speed at which the loan could be repaid as it drives a significant expansion of its recurring revenue customer base.
A good bit of the Management Briefing also revolved around how their subsidized telecom services overcame the challenge of being approved in California, and how it served as a perfect example of a tenacity spanning 2 years in dealing with all the red tape to gain licensure to operate as a provider of Lifeline services in the state. Many great things came out of this portion of the meeting, as it put into perspective the overwhelming opportunity and addressable market that Eligible Telecommunications Carrier (ETC) companies like KTEL will have access to, in both California and many other states.
As Sean put it, about a year and a half ago (per numbers based on FCC disclosures), after taking into account the 7 million households that are already taking advantage of the Lifeline services nationwide, about 30 million are still eligible, with KTEL having head start in already being licensed in a slew of states, as well as intimately knowing how to get approved in others.
A very important piece of information that was previously buried in one of KTEL past SEC filings was that at one time the company was actually selling subsidized services under the Lifeline program as a reseller. At that time, KTEL was lighting up 10,000 lines per month. So, that gives us an indication of what the potential in California is, right off the bat.
California has recognized how consumers have been bleeding from the pocket due to inflation in basically every facet of life. As a matter of fact, due to the state’s biggest ever budget surplus on record, nearly $100 million, the state made the decision to distribute up to $1050 per family as a small gesture of recognition that it has not been exactly peaches and cream, as the cost of living has increased 7.6% year over year. In the context of LifeLine and circumstance-induced inflation, the question is, is it safe for us to assume that there will be an even greater pool from which to fish from? How many households, old and new, even know that they are eligible for the Affordable Connectivity Program (ACP) or Lifeline?
We were also able to meet Charles Griffin, the newly appointed President and COO of KTEL, who discussed his experience in the telecom industry and provided/added some much needed perspective on some of the more granular ways that KTEL is approaching its potential customer base in the approved states, and how they might have an advantage over the bigger players in the industry.
His views continued to convey the tactical measures KTEL is taking to widen its distribution footprint through social media outlets, search engine presence, and markets such as those that exist with the older population, subsidized housing and a segment of the potential customer pool that represents an interesting angle, college graduates:
“…we have college campus type verticals that we’re working on, for college students who basically then you know, are emancipated from the parents’ household as they begin their college careers, and now have the ability to gain this benefit.”
As KTEL creeps up in price, we are excited to see how the company’s story plays out since it’s obvious to us that Sean and his team are embarking on a multi-pronged approach for implementing their strategy. They are learning along the way and now seem to be on the offensive when it comes to the practices they can employ to be a major player in the telecom space they serve.
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