The Tel-Save saga took one of its stranger turns yesterday when CEO and single largest shareholder Daniel Borislow stepped down in favor of Gabriel Battista, who had been CEO of Network Solutions (the company that registers Internet-domain names). Tel-Save is the company that first gained public notice when it signed an exclusive deal with AOL to market its cut-rate long-distance services, and then gained public notoriety when Borislow began setting public deadlines for Tel-Save to merge with a larger company, deadlines that he continually violated.
Part of Tel-Save’s problem has been that its prices–nine cents a minute–are no longer as impressive as they were when the company first started selling its services. And part of its problem has been Borislow’s increasingly erratic behavior. Aside from the perpetual deadline-setting, which was a strategy without any upside, Borislow violently excoriated critics and reporters (for the story of his clash with TheStreet.com’s Alex Berenson, see this month’s Brill’s Content). He seemed less like a CEO than an ineffectual Mob boss. Not surprisingly, the company’s stock, in which most of Borislow’s wealth is tied up, has been hit hard in recent months.
Hiring Battista, then, is almost certainly a good thing. Borislow is now going to have nothing at all to do with the company. (He officially resigned as president, chairman, and CEO.) And in interviews yesterday, he seemed surprisingly humble, saying that he would make more money if he stepped down than if he stayed and talking about how hard it had been for him to restore his reputation on the Street. But the ironic thing is that although Borislow’s antics hurt the company, what’s really wrong with Tel-Save is its business model, not its leadership.
In the most recent quarter, for instance, Tel-Save increased its subscriber base substantially but did so while spending huge sums of money to acquire new users, and it doesn’t appear to be making anywhere near enough from continuing operations to justify its marketing and sales expenses. If you can get 10 cents a minute from AT&T, and 5 cents on the weekend, what’s the incentive to go with Tel-Save? And while the AOL deal has undoubtedly helped build Tel-Save’s brand name, it is not, in and of itself, a foundation for a real business.
In the end, Tel-Save is a classic example of a certain kind of American company, the kind that’s built on a gimmick but that doesn’t seem to recognize that gimmicks can only last so long. That’s why it came as no surprise that in addition to announcing Battista’s hiring, the company also announced it would be changing its name to Tel-Save.com. If you can delude yourself into thinking you have a real business, after all, maybe you can also delude yourself into thinking that adding dot.com at the end of your name will lead investors to value you as an Internet stock. But no matter how maniacal Internet investors seem to be, they’re probably not maniacal enough to be fooled by Tel-Save.