Miltel Communications began as a subsidiary of Milgam City Services, a provider of services to municipalities. Miltel now has 25 employees at its Petah Tikva office. Five years ago, Milgam, which specialized in providing meter reading systems, realized that the future lay in pooling information coming from various systems at the home of the end user, and sending the data, by means of a wireless device, to the utilities' facilities. This development would eliminate the need for a meter reader, thereby saving money.
Three years ago, Miltel officially spun off from Milgam, ostensibly in order to shed the image of a service company. Miltel wanted to adopt the model of a start-up company, which was engaged in technological R&D. "Another factor behind the spin off was that Milgam operates solely in Israel, while the new company intends to operate in the international market," says Miltel co-CEO Yarum Locker. "There are about 1.5 million water meters in the Israeli market, which is a very small number for a company that plans to have a long life, and the internal competition made our life difficult, because there are 150 municipalities in Israel, each of whom is defined as a service company. The result is that the market isn’t just tiny, it’s also splintered."
To carry out the exit from its incubator, Milgam also had to bring in external partners. Milgam retained a 14% share of the incubator, while a real estate concern made a strategic investment in Miltel at its seed stage. Actually, Locker now prefers that people avoid relating to his company as a start-up, but in the absence of any other appropriate term for an external financing round, we will stick with the usual terminology.
"We used the investment from the real estate company to facilitate the first breakthrough in the US market. That was a strategic move, because the US automatic meter reading (AMR) market is divided among several utilities providers, such as electricity, water, and gas companies. There is also 'sub-metering', which is a common utilities service model overseas. These are complexes whose size ranges from one to three or four neighborhoods, where most residents are tenants. Until recently, there were no water meters in these areas, and the rent included an estimated utilities charge for each tenant.”
"This began burdening both the landlords and tenants, because both parties wanted to precisely know the water consumption (of each tenant) when prices began rising, in order to know exactly what to pay or charge. At the same time, electricity utilities also began moving over to wireless reading of meters. They began looking for a comprehensive solution for all meters."
The company's first investor was a property management company in the US that wanted to speed up the delivery of its products to Arizona, in order to use them and get a return on its investment. About a year ago, Miltel held its first financing round, in which other US investors, all affiliated with the real estate industry, also participated. The participants included CAP Ventures of Israel and TASE-listed Plasson, which invested $500,000 for a 9.4% stake (and an option to double its stake to 18.8%). Locker says Plasson's investment was also strategic, based on its worldwide customer base of gas and water utilities. Plasson has been distributing Miltel's products in the UK for the past 30 months.
Miltel raised $2.5 million in the two financing rounds, and Locker believes that another round will be held next year.
"Globes": Why didn't you raise money from venture capital funds?
Locker: "We know the venture capital guys, and we think we’re not quite defined as a high-tech company or as a company they would like to invest in. We’re not in their mainstream field, especially in times like these. We simply are not in their area of interest."
But you have a product that is a fund's wet dream. You have a parent company and have produced revenue from day one.
"Yes, our sales are coming along quite nicely. In Israel, we have agreements with the Ra'anana municipality, which has connected the system to 25,000 water meters in the town, and we have made plans with other cities, as well as with foreign companies. Nevertheless, (because we operate) in this sector, we can’t go to most Israeli venture capital funds, despite the investment by Michael Anghel's CAP Ventures. However, there are European funds that are interested in the energy, electricity, water, and related sectors. I think we’ll probably raise money from them. We plan to reach the break-even point next year. Our revenue is now several million dollars a year."
After the reorganization (or repositioning, if you prefer) three years ago, the controlling interest in Miltel was transferred to a US management company that hired Locker. Miltel is now developing and selling a system that combines wireless transmission technology over radio frequencies, connecting the meter to the utility center, with software for managing the readings. The company’s customers include municipalities in Israel, France, the UK, and US. Miltel's development, which can be hooked up to several meters made by different manufacturers, measures the consumption of different utilities and transmits the figures, via a miniature wireless transmitter, to a location chosen by the company.
Locker says, “It’s terribly sexy today to tell a company that it can obtain information as a file downloaded from the Internet, but we prefer trying to adapt the system to as many existing systems as possible. You cannot ask an enterprise whose CRM system handles 1 million customers to download files from the Internet every day. You must be able to integrate their system with yours.”
Locker says the wireless option is gathering momentum. “There’s a large AMR company in the US that sends a truck to the relevant neighborhoods, where it receives the transmissions from meters fitted with wireless transmitters. They solved several key problems in this way: they eliminated the need to physically go from meter to meter and (improved) the accuracy of the reading itself, not to mention that they can now avoid the problem of dogs biting the meter readers, and angry, uncooperative residents, locked gates, etc. A fifth of meters are almost inaccessible for various reasons.”
As the home utilities market expands, more and more companies are trying to get a piece of the pie. Locker tells a story about one of the company’s customers who encountered a well-known situation. A university that bought a fixed quantity of water from the company got a cheaper offer from a competitor. In order to keep the customer, the original supplier told the university that it would charge a fee based on precise consumption. The company decided to look for a solution that would precisely measure consumption, and allow it to refrain from hiring meter readers.
Locker says, "The world is going through unbundling, a concept we might recognize from the Israeli communications market, but it (the concept) also refers to any instance in which a service is transferred through the infrastructure of a former competitor or monopoly. Under these circumstances, the competing companies must have accurate information about customer consumption in order to compare proposed prices and maintain their ability to remain profitable.”
Accurate information allows utilities to charge more wisely and offer the data as a product in and of itself. The customer can receive, for a fee, a chart of his consumption for each hour, day, or month (the chart is similar to call information provided by telephone companies). A study by Israel Electric Corporation a few years ago revealed that Israeli consumers wanted to know how their bi-monthly bills were calculated, and exactly what they were paying for. Customers can now receive a graph of their electricity consumption. Bezeq also recently began differentiating between calls to different networks on customers’ bills. Receiving information on demand allows customers to carefully plan their expenditures and not be shocked by their bills. The immediate connection to centers that continuously monitor meter consumption can also reveal break-downs and leaks, and warn the customer about them, increasing his trust in the utility’s quality of service.
In order to use the wireless option, transmitters have to be installed on existing meters, and components also have to be inserted into them. Since a meter has a limited life-span, usually about 15 years, the initial candidates to welcome in the new era are homes that already have old meters installed, which have to be replaced, anyway. New homes already have convenient interfaces for the new technology. The effective transmission range is a few hundred meters, and a shorter range can support a greater number of meters. Repeaters that extend the range can also be installed in locations such as street lights.
An interesting derivative from Miltel’s products is the possible use of wireless to transmit information. Alvarion (Nasdaq: ALVR ) (the Israeli company that was formed by the merger of BreezeCOM and Floware) transmits information via wireless, as an alternative to broadband hook-ups. Other companies, such as Israeli Main.net, Itran Communications, and Nisko Advanced Metering Solutions (NAMS) are trying to transmit data over residential electricity networks, and several other Israeli companies are developing wireless technologies for offices. It is patently obvious that Miltel will not be positioning itself as an alternative to Alvarion.
Locker says, “We're not necessarily bound to the wireless model. Our software can efficiently handle services and interfaces with up to ten meters on a single line.” Locker mentions that Miltel is attempting to cooperate with some of the companies that deal with the deployment of Internet over electricity grids, in order to create an infrastructure with joint consumption and fees. After all, some of the companies that use electricity to transmit data began as meter developers, and now believe that if it is possible to transmit information about consumption using electricity, it is reasonable to assume that it is possible to transmit other information in this way as well.
Published by Israel's Business Arena on 12 December 2001