Telecom Ramblings

Q1 earnings season starts in earnest next week of course, if we are lucky it will be a long parade of remarks that boil down to ‘Yes it was bad, but it wasn’t that bad!’  How’s that for setting the bar low?  It’s sitting on the ground so try not to trip over it ok guys?  🙂  In the meantime, here are a few tidbits I’ve been catching up on. [Read more →]

Imagine a technology that promises to revolutionize the way a whole sector works.  It will make what we do now cheaper and more scalable, and it will enable new capabilities across a wide spectrum of technologies.  It will disrupt and revolutionize the way the industry does everything, although nobody is quite sure exactly how it all will really play out.  Everyone wants a piece of it, from large existing corporations all the way to one person basement startups, and it seems as if each one thinks the opportunities are boundless and unplundered.  Whatever happens, the technology is real and important and change really is on the way.  That might describe cloud computing today, but it also described where VoIP was 5 years ago in early 2004.  If we look at what happened to VoIP, can we intuit anything about what might happen to the cloud?  [Read more →]

Long after it was clear that VoIP Inc was swirling down the drain for good, the SEC has finally stepped in to sniff around.  What it found will surprise only those who weren’t watching at the time.  The SEC says that through 2004 and 2005 executives of the company cooked the books, inventing revenues to make it look like they were doing better than they were.  Well, ok that is a bit surprising, because their reported revenue numbers never looked the least bit healthy, and their costs were even worse – you’d think if someone is going to cheat they might as well cheat enough to win or at least to look viable.  [Read more →]

These days, so many telecom eyes seem to be trained on Africa.  AT&T (NYSE:T, news, filings) announced today that they have signed an agreement with South African based Telekom, in which the two networks will basically just interconnect and promise to talk about more stuff later.  What stuff? Just about everything from wholesale voice to telepresence seems to be on the agenda, at least someday.   It’s hard to envision a big market for telepresence in Africa when we have little more than dreams of one in the US and Europe.   But if they mean it, real value could come out of the relationship one day.  Telekom has dreams of becoming a truly [Read more →]

Over on his Communications blog, Brough Turner took a swing at Credit Suisse’s analysis of YouTube last week.  Credit Suisse had said that YouTube’s 2009 revenues would be about $240M whereas its costs would be $711M – which would be a spectacularly bad business to be in by anyone’s measure.  However, they somehow came up with the number of $360M for third party bandwidth costs.  Brough’s point is that this is ridiculous, as it discounts the common practice of peering to reduce costs.  He’s correct about this, Google’s scale gives them all sorts of bargaining power with internet backbones.  That financial firms don’t really understand the economics of peering isn’t surprising.  Heck, few people really do.  However, Credit Suisse should have known [Read more →]

Digital Realty Trust (NYSE:DLR, news, filings), which specializes in datacenter facilities, design, and management, raised $260M today.  The notes will pay 5.5% interest and are convertible at $43, 20% above where the stock currently trades.  As pricing goes it’s not like a few years ago where money was growing on trees, but neither is it terribly bad.  This follows unexpectedly successful money moves by Level 3, Qwest, and Frontier over the last few weeks, and it implies that indeed the credit markets have melted a bit at the edges. [Read more →]

Italian controlled ISP Tiscali staggered under another blow today when its accountants refused to sign off on the final 2008 numbers.   When you tally up all the things that are going wrong for Tiscali, it looks pretty grim.  They are desperately trying to refinance debt amid this economic storm, and have been trying to sell off their UK division.  But nobody is willing to pay the $500-600M they want or simply need for it, a sale to BSkyeB having already fallen through.  Refinancing right now is all but impossible, and you know it’s not going well when interest payments get suspended.  Banks don’t make standstill agreements unless the alternatives are far worse.    We’ve seen this story a few times already this year at Nortel and Charter, will Tiscali be the next victim of the recession?  [Read more →]

Ebay announced today that it plans an initial public offering for Skype in 2010.  This at least makes it unequivocally clear that Ebay is looking to divest itself of the internet voice phenomenon.  CEO John Donahue effectively admitted that they never should have bought it in the first place with this quote:

But it’s clear that Skype has limited synergies with eBay and PayPal. We believe operating Skype as a stand-alone publicly traded company is the best path for maximizing its potential.

In other words, it used to be a standalone company and it still ought to be a standalone company, Ebay paid far too much based on synergies that just weren’t there and never will be.  But an IPO?  I seriously doubt it will get that far.  [Read more →]

There was an article the other day by Jeffrey Kaplan on Seeking Alpha, asking the question “Can Telcos Dominate the Cloud Computing Industry?”  The question was prompted by a blog post from an AT&T exec.   My gut reaction to that title was “Hell no”.  There are good reasons why few if any telecom carriers are in the dedicated server business, and why there is a huge difference between telco colocation and carrier neutral colocation.   Processing bits and transporting bits are very, very different businesses; only a company like AT&T (NYSE:T, news, filings) that never saw a vertical it didn’t like would think they fit together well. [Read more →]

Over the weekend, the NY Times revealed that the dynamic duo of Niklas Zennstrom and Janus Friis may be about to buy Skype back again.  When they sold it to Ebay in 2005 for what eventually amounted to $3.1B, it had 53M users.  Now, they hope to buy it back for around $1B when it has 405M users. Om Malik says Ebay should take the offer, and I tend to agree – it’s time for Ebay to admit they aren’t the right owner and never were.  You have to hand it to Zennstrom and Friis, they sold high and might soon buy back low.  Perhaps this is the turning point for them, where they see value in the running of a business rather than in creating it.   Or perhaps it is just that Joost is looking less and less disruptive, whereas Skype now has the scale to really do something and little real competition.   If it happens, the question then will become: just what do they intend to do with it? [Read more →]

Internet infrastructure and networks change so much, and the media reports on them are so sketchy, that it can be hard to really keep up with who does what and where they do it.  Paid services like those of Telegeography make a good living off of that ambiguity, but sometimes we don’t need that much power.  Simple, centralized repositories of public information like the metro fiber provider list I have been keeping and the CDN provider list Dan Rayburn keeps are a way of keeping track of a sector independent of the media and PR spin our world runs on nowadays.  Therefore, I will be adding additional lists here on Telecom Ramblings for the subjects I care about.  Today I am posting a listing [Read more →]

My 10 year old daughter returns with a new self-programmed holiday card, we will return to your regular programming tomorrow.

AT&T (NYSE:T, news, filings) won a victory yesterday in the deep south, they managed to convince the Alabama Senate to pass a bill ending regulation of phone services, both for home and business.  Apparently, it was being filibustered by one state sentator, Bobby Singleton, but he stepped out of the chamber and they pounced and approved it 19-8.  Sort of a Mr. Smith goes to Washington moment, but with a bathroom break.  What does it mean?  If it becomes law, landline rates will be deregulated just like wireless and voip.  The argument was that since AT&T has lost 10% of its landlines in the state to those services, sufficient competition exists and landlines were at a disadvantage.  [Read more →]

Tens of thousands of people in the Santa Clara area lost connectivity today, with fiber cuts in two locations.  Apparently, however, this was not the work of the usual wayward backhoe nor did any earthquake or other natural disaster strike.  Vandals seem to have actually opened two manholes, gone in and cut multiple fiberoptic cables of AT&T (NYSE:T, news, filings).  It’s no laughing matter, as evidenced by the $100K reward being offered by AT&T to catch the perpetrators. [Read more →]

In a release yesterday, glbc staked out its position regarding the federal stimulus money that will be funneled into improving broadband access.  The company wishes to help “by expanding its world-class fiber optic network to support ‘middle-mile’ facilities that connect rural last-mile broadband providers to the Internet backbone.”  Of course, Global Crossing’s network is not itself geared toward offering broadband access to consumers, nor even to reaching rural areas that happen to fall along it without help.  Their point is that a national fiber backbone is nevertheless an integral part of the process, and they stand ready to [Read more →]

According to Dan Rayburn, Cisco Systems (NASDAQ:CSCO, news, filings) is out in the market buying third party datacenter space. Why? To build its own content delivery network.  If one wants to compete with one’s customers, you would think last month’s very public entrance into the server market with its new Unified Computing System would suffice.   But now they are considering taking on Akamai as well? What gives?  Actually, there’s a perfectly logical reason. [Read more →]

Today q announced they have raised $750M, selling $810.5M in 8.375% notes due 2016, priced at about $0.925 on the dollar.  They had originally planned to raise just $300M, but apparently there was much more demand for the paper than anyone anticipated.  When coupled with the recent $220M expansion of its senior secured debt by Level 3 Communications (NYSE:LVLT, news, filings) on Monday, one has to wonder if the credit deep-freeze is over or at least melting just slightly here and there. [Read more →]

In response to my post Fiber Valuations – April 2009, a reader who goes by the moniker Homer made an interesting comment:

you might want to add an extra column with a measure of “% increase in value of common stock per unit increase in EV/EBITDA multiple”… this delta measure would tell your readers which stocks would benefit the most from a recovery of valuation multiples towards historical “normals”… equity investors would see where they would get the most leverage in such a recovery

Homer’s point is that the rise and fall of the market’s valuations of fiber-based telecoms does not translate into parallel stock price movements [Read more →]

In a surprise attack on Telstra’s dominance of the Australian telecom market, the Australian government announced a new initiative to bring 100Mbps FTTH to everyone.  Well, 90% anyway with the rest needing wireless or satellite presumably because they are out in the outback or close enough.  The network will be purely wholesale and no private owner will control more than 20%.  The government will own 51% while the network gets built over the next 7-8 years, by which time the government will have sold its share.  The total price tag? [Read more →]

SEACOM, the new undersea cable that will soon run the length of Africa’s east coast and connect to South Asia and Europe, has signed with Interoute for direct connectivity to Europe.  SEACOM has been making news lately, as they bring fiber ashore along the routes to places that have never had such connectivity.  Their website claims 93 days to completion, which suggest it will be in service sometime this summer.  To connect with Interoute, they will land in Marseilles, France.  Interoute has been looking southward quite a bit lately, adding undersea cable connectivity to [Read more →]

RCN Metro, the metro and regional fiber subsidiary of RCN Business (NASDAQ:RCNI, news, filings), announced today that they have built a new ethernet circuit for Lafayette College.  Lafayette needed diverse connectivity, preferably to New York to the east rather than over its existing routes to Philadelphia to the south.  RCN’s regional fiber through the area via utility rights of way rather to the east where everyone else has assets; I believe the fiber in question came from its Neon acquisition a few years ago. [Read more →]

Every quarter I like to take a look at where the sector stands in terms of its valuation of fiber assets.  One of the major metrics used to compare valuation amongst competitive telecoms is the ratio between Enterprise Value and EBITDA, or EV/EBITDA, which incorporates the company’s debt and ignores depreciation and amortization.  The latter are of course real costs, but they tend to be hard to compare against each other due to the distortions introduced over the last 10 years in the sector.  The economic environment of course has become so toxic, that the market value of the corporate debt in the sector is generally below par, and for accurate comparison that discount must be applied to its EV.  I have compiled the following list, which seeks to calculate (or estimate where necessary) the current EV/EBITDA ratios for publicly traded, competitive, fiber-based telecoms.  With no futher ado, here is the current spreadsheet: [Read more →]

In yet another financial transaction that few thought possible in this environment, Level 3 Communications (NYSE:LVLT, news, filings) has waved its magic wand and added $214M to its coffers.  The money comes via a second tranche for its senior secured credit facility, the balance of which previously stood at $1.4B and will now be $1.62B.  The interest will be at LIBOR+8.5% with a floor of 11.5%.  When interest rates go up, as they surely will, this rate will of course not look so cheap.  However, the money will help to further reduce the pressure on the company from debt maturities over the next few years.  [Read more →]