We've all watched the meltdown in the financial sector over the past few weeks with awe. All these household names, giants of stability, the very definition of wealth, all seemingly helpless against a tide of bad debt of their own creation. But what does it really mean for the internet and all the companies that hold it together?
Well, slowdowns eventually affect sales of course, but other than that the effect is limited to those who need access to the debt markets. What does TW Telecom care about the debt markets right now? They're cashflow positive and have no maturities until 2013. What about Equinix? 2012. Global Crossing? 2012 again. Internap? Abovenet? Nothing to see there. Good thing too, if AT&T can't access the markets you can be sure nobody else in the sector can either. Except of course Zayo which seems to have an almost magical touch these days.
Of course, there are some who need to access the credit markets a bit sooner. The easiest to spot is Level 3, which has $362M due next September, then slugs of $514 and $374 due before mid 2010. But they are sitting on $790M in unrestricted cash and say they will be generating positive cashflow from here on out. So they will pay the $362 in cash and can wait a while if necessary before worrying about the rest. They've always had backers with deep pockets but such money would be expensive and I'm sure they'd rather wait. If the liquidity crisis lasts longer than that, we've got bigger problems to worry about. It mainly acts to force Level 3 into a laser-like focus on cashflow for the near future.
The remaining effect is simply to reduce the potential for M&A. If one can't raise money, one can only use cash on hand or issue more stock. And in the face of uncertainty, few will want to take chances anyway. On the other hand, those who have the funding and the stones for it are finding bargains out there.
So I guess most of the sector just gets to watch and hope the fire doesn't spread so far as to do serious damage to sales. That and sell services, light more fiber, and deliver more data. Despite everything, internet traffic is still going to grow from here and the market for fiber and data services doesn't have a huge supply imbalance this time. It's a nice tailwind to have whether the markets recognize it yet or not.
Anyhow, that's my opinion. What's yours?
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