MCC Overview v6x - Mobile Captions Company

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14 déc. 2013 (il y a 3 années et 3 mois)

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Confidential Summary

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1


Business Overview

Mobile Captions Company is a Delaware LLC
.


The LLC has been funded by its founders and a few
“friends” of founders.

MCC takes captions, generated by a caption provider,
currently
,

exclusively
Hamilton Relay
(HR)
and
conveys them to a cell phone.
The users do not pay for the service.
See ne
twork diagram, Exhibit 1.

MCC has operated with two partnerships, one with the caption provider
, HR,

and

one

with a cell phone
service provider, Consumer Cellular
(CCI)
who

sells a Nokia phone that is specially set up with the MCS
application.

The caption provider,

is also the certified

relay provider, and

bills the states

and FCC

for the use of the
service and then pays MCC.
MCC is paid $.35 per conversation minute used
by its customers who do not
pay for the subsidized service. MCC’s cost is estimated at less than $.05/minute

which is to be paid (but
has yet to be billed) to Consumer Cellular
. So the gross margin is $.30/minute.

About June 1,

2011,

MCC launched a
ver
sion

of its handset software that runs on Android, and does not
requ
ire a partnership with a cell phone service

operator. However, Consumer Cellular is planning to
launch an Android phone, and MCC intends to work with CCI to provide the MCS on the CCI And
roid
phone, which will consist mostly of specialized promotion and customer support.

The Android
application has greatly expanded MCC’s potential market and has been a success so far.

The Android
application and the Symbian based application operate exact
ly the same way from a network
perspective.

Complaint Overview

On June 13
, MCC received a letter from
Hamilton

Relay

saying

that they were pulling out of a trade show
that had been plann
ed
for

many months: t
hey had discovered a contractual issue that pr
eventing them
from participating in the conference and that would prevent them from further promoting the MCS until
it was solved. They said
“Hamilton believes that the fastest way to resolve this issue may be to add MCS
to the CapTel platform
.


In a subsequent
conversation

(see conversation notes from 6.16.11)
, Dixie Zeigler, VP of Hamilton
indicated that the contract issue was not with MCC. We inferred that it was with CapTel (Ultratec
,

or
“UT”
) as they were indicated in the letter, and
they
ar
e the only other party that has a contract with
Hamilton that would be of
interest
.

She did not deny that

it was UT in this conversation and in fact said
something to the effect of “You said it, not me.”

She also said the source of the issue was Sprint Re
lay. Sprint Relay is a division of Sprint, and is the
largest provider in the market with about 65% market share of the state
-
based business.

Sprint is being
brought under scrutiny in New Jersey by an advocate not associated with MCC, but who wants MCS in
his state.

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We agreed to let them figure out what to do and get back to us.
On June 21
st

Dixie indicated they were
still working on trying to resolve the contract issues (issues external to our contract) and would get back
to us the following week.
They n
ever did.

On July 1, MCC received a notice of termination from Hamilton Relay, citin
g a clause in the contract that
gives them
the right to terminate at will
if “
any such tests, pilots or
trial launches are unsuccessful.”

However,
this termination grounds
was clearly false. T
he service was fully launched in
November of 2010, with great fanfare, press releases, etc
. Customers were never told they
were signing up for trial. Hamilton worked on getting approval in many states for the program,
something they wou
ld never do if the program was only in a trial stage.

On July 13, we had another conversation with Dixie Ziegler, who again did not deny that the
contract issues were with UT

(CapTel)

and further said that they were not sure what they were,
but Hamilton ha
d determined that it was not worth solving them as th
e service was still low
volume.

On July 1
3, we sent a letter disputing th
e

reasons

for termination and invoking the dispute
resolution process in the contract.

Hamilton subsequently agreed to the dispute

resolution and brought up additional issues that
make little sense to us as explained below.

AT&T also has a smaller relay business with a few states. We have been courting them for some
time, but they recently signed a deal with UT to provide CapTel serv
ice in (some?) of their
states. AT&T has now informed us that to continue, they need legal advice. (note that there are
NDA’s in place with these companies.)

We believe that UT is interfering in our contract with Hamilton by putting pressure on
Hamilton,
using their extensive business relationship to do so. We believe the sorest point is
that we released an Android application which puts us in more direct competition with
CapTel

(UT)
, indeed with Hamilton
-
CapTel,
(HC)

a separate company formed to carry out the
HC business
.

(and in our

opinion
to
skirt some FCC and/or state regulations which require all
services to be marketed under certain contracts.)

Purely from Hamilton’s perspective, what they are doing makes no eco
nomic sense. They
make more revenue per call with an MCS call. They have made the investment, etc.

We believe there are monopolistic
, anti
-
trust

issues here also, as
both Sprint and
CapTel (UT)
each
ha
ve

a huge percentage

of the

market in many segments, an
d appear to be putting
pressure on other companies not to supply us/do business with us.

CapTel are likely to have
above 90% of the
caption telephone market.


In 2006
, the New York Public Service
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Commission noted in a published order concerning caption te
lephone service that Ultratec,
via its service named CapTel was the only company offering caption telephone service.
W
e
know of only one other company,

CaptionCall

, that has just sta
r
ted to offer caption
telephones

(landline, not mobile)
.

Relationship wi
th Hamilton Relay

T
he
following

are key dates and

agreements with

respect to

Hamilton Relay:

Agreement

Date

Exhibit

Mutual NDA

11.24.09


Letter of Intent

4.7.10


Terms of Equity Investment @ pre
money of $3.5 million

6.10.10


Commercial Agreement

9.7.10


MCS launched in 5 states

11.1.10


Additional states added

11.10
-
4.11


Letter/notice of contractual problem
and pulling out of HLAA conference

6.13.11


Notice of Termination

7.1.11


MCC response to Termination Letter

7.13.11


Response from HR

7.17.11


Email JM/MCC to HR

7.18.11


Letter MCC to HR Follow Up to email
above

7.24.11



As of July 1, MCS was

available in 11 states and D.C.

(D.C. and WY were lost by Hamilton, and will
switch providers in August, 2011)

Regulatory Overview

The
Americans with Disabilities Act set up a system for subsidies for Telecommunications Relay Services
(TRS). The TRS fund was set up in 1993 to bring communications services to the hearing and speech
impaired, and is funded by the carriers and administered

by the FCC. In 2008 there were 17 million
minutes of communications services per month used by an estimated 150,000 people and subsidized by
the TRS fund. The services are free to the hearing impaired persons, but the reimbursements make
relatively low
volume services profitable
. The fund’s budget for 2009 was

$861 million up from $805
million in 2008. There are also state funds for the same purpose, with a total expenditure of about $1.3
billion.

Each state contracts with one TRS providers (except Cal
if which has 2) to provide the range of TRS
services within its state. Hamilton Relay is one such provider, and they have contracts with 18 states
and U.S. territories. In addition, the FCC directly funds certain Interstate services; in fact the bulk of
the
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funding is distributed on a national, not state basis. The major play in the industry is Sprint Relay which
has about 30 states. AT&T Relay has 4 states
.

MCS calls are classified as VCO (voice carry over) calls and reimbursed under existing
state and
FCC
arrangements. Before launching the service, Hamilton and MCC

did extensive analysis, including a white
paper and legal opinion from Hamilton’s regulatory attorney to document our regulatory position.

Ultratec has a system of creating captions through
operators that “revoice” what is being said into a
system trained for their voice. UT supplies this
service

to Sprint Relay, Hamilton, and recently AT&T
Relay. There is a defined call type “Captioned Telephone” and reimbursement rate for these calls. UT
has been until recently, the sole and exclusive provider of this call type, and has worked to maintain that
position. There has been concern on the part of states and the FCC about this. However, UT has been
able to dictate contract terms.

Technology Ov
erview

MCC has a server on the network and an application on the handset. Together
they
set up calls and
convey text of the conversation to the user. The phone has a two way open voice channel (both parties
can hear each other) and the app on the phone
displays text to the user who is hard of hearing. The text
(captions) are generated by a third party, Hamilton Relay.


Various Issues

and rebuttals

1.

The assertion in the Termination Letter that the trial has not succeeded.

a.

There is no trial

launch
. The se
rvice was fully launched in November. Hamilton Relay
put out numerous press releases
, articles in their newsletter and other
representations
,
especially to the states

to that effect.


See Attachments

b.

Trials and field tests were conducted leading up to the

launch

with lots of
documentation
.

2.

The assertion that we have not achieved sufficient volume.

a.

Dixie Zeigler, Hamilton VP stated in February that even though we were behind our
projections, we were in fact where she thought we would be volume wise.

b.

There a
re no volume requirements in the contract

c.

Hamilton has primary responsibility for promoting the service, but has consiste
ntly held
back,

in favor of CapTel.

d.

The business is experiencing fast month over month growth.

Although

the numbers are
small, (MCC Jun
e
revenue was $1,300 and gross margin about $1,000) growth is
averaging 55% month over month.

Hamilton’s revenue in June is about $10,000.

NOBODY shuts down a business that looks like this

where the incremental cost is low or
zero and the investment has b
een made
:

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3.

Evidence that it is really about Hamilton being pushed by Ultratec/CapTel who is doing so and
interfering with our business.

a.

Hamilton has been touchy from the beginning about UT.

See email re: AARP, etc.

b.

The LOI contained a paragraph which
said that we would use CapTel as a back end.

c.

There have been numerous discussions about how important UT is to them and that
they were the first priority.

d.

The letter of 6.13.11 stated that a possible
solution

to the “contractual issue” was that
we introduc
e a CapTel product.

i.

Dixie Ziegler stated, in a subsequent
conversation

that the real issue was that
Sprint was taking heat in New Jersey and had spread rumors/raised questions


not in writing or in direct
conversation
. The nature of the so
-
called
question
s
,
and the nature of the so
-
called contractual issues was never revealed to us.
What was
revealed

was

that this was being presented by UT (who also does
business with Sprint) and unnamed “others.”

ii.


(It is possible that Sprint Relay put pressure on UT to use their clout with
Hamilton to Terminate our agreement).

e.

A few weeks ago, Sue encountered the UT people at the HLAA show and seemed to
know what was going on, making condescending, snide remarks.

f.

T
he Termination letter cited
alleged
interference with their Mobile CapTel product as
“very concerning”


4.

The Android application should not be an issue.

a.

They have known we were contemplating an Android app from the beginning.

b.

It has the same functionality a
s the Symbian app.

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c.

Even their letter says they received no “formal” notice; admitting that they did receive
informal notice months ago.

d.

In any case, this
should

be handled by a notice
under

the contract.

e.

As a note, they did not specify what interference th
ey were talking about, but one
possible item (an MCS notice on an incoming call that could not be turned off) has been
fixed.


The following documents and email
s help support the above points starting on Page 45


Email informing us that Hamilton will notif
y
CaptTel (UT) about the MCS

2.22.10

Email conveying document developing regulatory
strategy that mentions Android

4.21.10

Regulatory Strategy Doc

4.21.10

Email and attachment on terms including equity
investment @ $3.5M pre money

6.1.10


Email
conveying an article on MCC to be published
in the Hamilton Newsletter


9.13.10

The article cited above


9.13.10

An email from Dixie showing touchiness and
exclusivity around CapTel for an AARP show in
Sept. 10


9.22.10

Press Release: MCS launched in Ar
izona

11.15.10

A press release from Georgia Relay introducing the
MCS

12.15.10


Conversation Notes DZ

6.16.11

Conversation Notes DZ

7.13.11

Conversation Notes CCI

7.15.11


.