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Using Net to Reach Developing Countries

By Yuki Noguchi
Washington Post Staff Writer
Monday, February 7, 2005; Page E05

David Kovach and Nersi Zand are in a business that sometimes takes them where other telecommunications companies don't want to go.

The company has built an Internet-phone network into developing countries such as Vietnam, India, Turkey; into combat areas such as Iraq and Afghanistan; and even into Iran, which does not have diplomatic relations with the United States. In all cases, setting up the network required a lot of negotiation, Kovach said.

Xyrous Communications chief executive Nersi Zand, left, and general counsel David Kovach use voice-over-Internet technology to help U.S. customers reach telephone networks in developing countries. (Rich Lipski -- The Washington Post)

In Profile

Name: Xyrous Communications LLC

Location: Vienna

Big idea: Setting up networks in developing countries, then selling network capacity to carriers transmitting Internet-phone calls to those countries.

Founded: December 2003

Web site: www.xyrous.com

Who's in charge: Nersi Zand, co-founder, president and chief executive; David Kovach, co-founder and general counsel

Funding: The co-founders' money and a line of credit from banks

Employees: 5

Revenue: $1 million in 2004. The company is profitable.

Big-name clients: The largest U.S. carriers and about 50 smaller carriers that interconnect with Xyrous's network

Origin of company name: The founders wanted to name the company Cyrus, after a famous Persian king, but that name was taken, so the company settled on a phonetically similar name.

The two and a silent partner started Xyrous Communications LLC in Vienna in December 2003, using several hundred thousand dollars of their own money and by securing a line of credit from banks. The idea for their business was to set up a network, then turn around and sell access to the network to other telecommunications companies that carry the calls into those areas.

Xyrous installs voice-over-Internet equipment in those countries. That equipment helps carry calls in large volumes over the Internet, which lowers the cost of transmission. Then the company negotiates deals to be able to hand off calls to networks in those countries. Most of the traffic Xyrous carries originates in the United States.

The company is selling a new Internet-voice technology that is grabbing attention in the industry because it is less expensive than traditional calling technology. But for Xyrous, the biggest challenges aren't technical, they are political and diplomatic, said Kovach, a former director of technology transactions with MCI Inc. and now general counsel of Xyrous.

"The hardest part of dealing with those countries: Rules of law don't really exist," Kovach said. In many of those countries, Xyrous has to deal with unelected government bodies, which rule mostly by executive order. "The biggest challenge is making sure you've got your bases covered in terms of who you need to know."

Initially, Zand would spend every other month in Iran, trying to meet with the country's information minister, he said. He never was able to get a meeting with the minister, so he tried to meet with the minister's assistants and lieutenants. That took 10 days, plus five months more to get the network up and running.

When the company tried to extend its network into Turkey last year, Kovach and Zand had to negotiate a deal with the state-run former monopoly, Turk Telecom. Negotiations dragged on for months, Zand said, until the Virginia Economic Development Partnership arranged a meeting between Xyrous and a former Turk Telecom businessman who was running a consultancy in Turkey. Within four months, and after paying the consultant, Xyrous had its agreement and connected to the network in Turkey.

"It was frustrating because it took longer than I thought it was going to take. Corporate culture in the Middle East, and parts of the Far East for that matter, doesn't exist," said Zand, a native of Iran who became a U.S. citizen in the 1980s. The company has repeated that process in other countries, but "we still have a lot of growing to do," he said.

The financial benefit, however, comes from the fact that few competitors are willing to deal with the headaches, or aren't willing to invest much in new technologies in out-of-the-way places, Kovach said. That also means Xyrous can charge far more -- 12 times more in some countries -- for carrying a phone call to those areas than to Canada or the United States, for example.

The company is profitable, Kovach said, with revenue last year of $1 million.

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