Regardless of the qualms with my cell phone service, I still find it quite incredible how the world communicates seamlessly and more efficiently every day. And the new thing is still not satellite ( hopefully that is next) but broadband phone service. And boy do I have the company for you to sink your teeth into.

Long-Term Portfolio Material

Gracing our pages today is not only an undervalued provider of the aforementioned services but also a technology company that stands to capitalize on the ongoing de-monopolization of the Latin American communications industry while providing some very exciting investor returns in the often-slow summertime months.

Boasting 11 consecutive quarters of record revenue growth, 4 consecutive quarters of positive cash flow from operations in addition to 2 consecutive quarters of earnings per share, ATSI Communications (OTCBB: ATSX) is developing a strong competitive position in the surging international VoIP market.

Announcing today that annual revenues have already surpassed $30,000,000 for FY2007, up more than 100% from the $14.7M logged in '06. With more focus on bottom line expansion than top line growth, ATSX is capitalizing on a number of extremely positive trends including: increased international trade, international travel, immigration, and overall ramped up international communications traffic.

To give you a brief background. . .

ATSX's Digerati Networks, Inc. subsidiary is a well-entrenched provider of International Voice over Internet Protocol (VoIP) services. It operates its own network that now services emerging markets in Asia, the Middle East, and Latin America.

Currently, the main focus is on Mexico, the world's top producer of voice traffic. ATSX also owns a minority (49%) interest of a subsidiary in Mexico, ATSI Communications, S.A. de C.V., which operates under a 30-year government issued telecommunications license similar to the license owned by AT&T's subsidiary in Mexico. This contract has been in place since 1998 and gives the entity the right to install and operate a public network. I'm not sure there's a bigger competitive roadblock possible for potential market entrants.

Have we lost you?

Since we may not all be fully versed here, let's expand for a minute on some of this relatively new tech jargon. According to Wikipedia - Voice over Internet Protocol, also called VoIP, IP Telephony, Internet telephony, Broadband telephony, Broadband Phone and Voice over Broadband is the routing of voice conversations over the Internet or through any other IP-based network.

As evidenced in recent years, the communications industry is in the midst of a paradigm shift from traditional circuit switch networks to Internet transmission of global voice communication data.

While traditional circuit-switch systems incur unnecessary costs on a per call basis because valuable network resources must be dedicated whether parties are actually speaking, data networks such as VoIP break down voice transmissions into, small, individually addressed data packages or "packets" that are routed independently and do not waste bandwidth when no transmission occurs, therefore allowing for the network to carry more calls with the same bandwidth. In response to this technical innovation, communications carriers worldwide are scurrying to provide service.

On a very positive note for ATSX, the company's current infrastructure can be maintained with very little overhead. Since Internet technology is much more efficient and routing/transporting calls online can be done at a fraction of the cost of traditional telephone communication, ATSX is not subject to direct payment for relaying calls, rather buying large high quality "pipes" into the world wide web that are billed by bandwidth rather than usage.

For those of you wondering, here's how it all works: The telecom carriers of the world are fully cognizant of the growing demand for the transmission of international voice traffic and need efficient VoIP networks to optimally support the process. The only problem is that many of these suppliers lack what it takes to meet this rising demand.

"In its VoIP operations, Digerati receives voice traffic from originating carriers who are interconnected to its network via the Internet and routes that traffic over the Internet to local service providers and carriers in the destination countries with whom the Company has agreements or partnerships to manage the completion of the call. Digerati's global VoIP service enables carriers and other communications service providers to outsource international voice and fax traffic." (ATSX annual filing) This is where ATSX has grown its revenues from $1.6M in '04 to already $30M thus far in 2007.

The company's key competitive advantages lies in its holding of proper licenses, network redundancy, favorable termination agreements, and the presence of an optimal business infrastructure and relationships in some very lucrative markets - particularly Mexico. While the market is flooded with "rip off" services, mainly of low communication quality that simply "hacks" in to existing pipes, and also controlled to some extend by major carriers, ATSX has been able to gain a solid foothold by building a brand associated with value and quality.

According to the company. . . Digerati's market for international voice traffic is growing 11% per year and was expected to reach 291 billion minutes of use ("MOU") in 2006. ATSX also states that International VoIP traffic is growing faster than traditional circuit-switched traffic, accounting for 16% or 41 billion minutes of all international voice minutes in 2005.
All This - Undervalued

In terms of valuation, there is a strong argument for a much higher share price than current levels - by as much as 2X - 4X.

For the sake of discussion, let's look at the 2X argument. Applying a conservative P/S multiple of .77 (based on IBAS: NASDAQ) on our trailing 12 month revenue of $27 million, market cap would be approximately $21 million. With $37 million shares outstanding (only overhang is management and board stock options / no warrants) this would equate to roughly $0.56 per share or a 133% premium to today's levels.

We think the facts and trends here speak for themselves here. When it comes to communication, opportunity is stronger in regions lacking infrastructure. As ASTX builds a name for themselves in one of the largest (and most needing) communication markets, we think we will see much greater things to come from this company - and some pretty nice returns for shareholders. .