Telecom Ramblings

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 →]

[TheJuice blogs about his financial models and projections for telecom companies, most frequently about Level 3 Communications.  If you have something to share on Telecom Ramblings, contact the webmaster]

Hello All. Attached are my updated models for Level 3 Communications (NYSE:LVLT, news, filings).

The first is my sense as to the numbers for the 2009.   Nothing special here, I’ve modeled a dip in Q1 and then we dig our way out [Read more →]

Tonight, the current contract between AT&T (NYSE:T, news, filings) and the Communications Workers of America expires, and I don’t think anyone really expects the two sides to agree to a new one before it does.  After all, that’s what deadlines are for right? (Just ask the FCC.)  Yep, we all get to watch yet another game of union chicken, and yet doesn’t it feel a bit scripted?  We get to watch them posture over tired old issues, then blame each other for not playing nice both before and after the inevitable short strike of a few days or hours, and finally [Read more →]

Wow!  I now hereby take the possible sale of the q longhaul network seriously.  Why?  Well, unlike all other such M&A rumors over the last year, this time the buzz generated was incredible – Telecom Ramblings had its biggest traffic day ever, and the audience came largely from within the industry itself.  That doesn’t mean it is true obviously, but it does mean that a heck of a lot of people who may know things are taking it seriously, so I will too.  So today let’s look at a few other details. [Read more →]

Level 3 alumni and blogging neighbor Brady Rafuse has a new gig lined up.  He will be taking over as CEO at euNetworks.  Brady of course headed Level 3’s European operations for years, a move into a CEO position in the same market is a natural step forward.  Good luck Brady!  No word yet on whether his blog will continue in its present form, but perhaps he will take a page from former colleague Dan Caruso amongst others and make his blog into a valuable communication tool, the voice of euNetworks? [Read more →]

According to several sources, q is actively seeking a buyer for its longhaul network.  I’ve lost track of how many times this has been rumored over the last 5 years, is it an even dozen yet?  But anyway, the rumored price is in the $2-3B range, and although it isn’t clear just how much of Qwest would be part of such a deal it surely isn’t doing over $2B in revenues, nor is that part likely to have EBITDA above the 10-20% range.  Hence, the EV/EBITDA ratio for such a sale would probably be well above current market valuations.  Let’s take a look at the potential suitors in some detail: [Read more →]

In an interesting announcement this morning, Open Range Communication will be leveraging the extended on-net services of Level 3 Communications (NYSE:LVLT, news, filings) to provide WiMAX to rural communities.  Open Range has a bundle of funding ready to go, $100M from JP Morgan and another $267M in subsidized government loans.  Level 3 will be providing the networking infrastructure for their effort to hook up 500 communities in 17 states.  WiMAX has always seemed to me to have the clearest potential where its wide range comes into play, in other words for rural areas it seems like a [Read more →]

As almost anyone might have expected, Internap Network Services (NASDAQ:INAP, news, filings) last night announced that 10% of its workforce will be looking for work. These days, new management nearly always means layoffs, and with Eric Cooney taking over from Jim Deblasio as CEO two weeks ago it was just a matter of time. In this case, it is mainly back office staff positions and apparently several senior management positions. Those management guys were probably leaving anyway, but the positions won’t be re-filled I guess. The cost savings will be approximately $5M annually, and the company will take a $1.2M charge in the 2nd quarter for severance and such. [Read more →]

Kathmandu, Nepal: Sources within Level 3 indicate that CEO James Crowe has moved his office to an undisclosed monastery somewhere deep in the Himalayas, and has become a Buddhist monk.  This news finally lays to rest the simmering speculation regarding his trips to Asia over the past few years, where it is now clear he has been seeking both spiritual and technological enlightenment.  His duties at Level 3 remain unchanged and he will be melding his own new inner Qi with telepresence equipment from Cisco in order to conduct business in Broomfield remotely.  He can now walk anywhere on the Level 3 corporate campus as a fully independent and lifelike hologram. [Read more →]

Limelight Networks (NASDAQ:LLNW, news, filings) has entered the small object delivery and website acceleration market with a new product called LimelightSITE. Dan Rayburn has a great summary of the new product and where it fits.  Basically this is a well defended bastion of Akamai (NASDAQ:AKAM, news, filings) – the cash machine on which its margins really hinge.  To challenge Akamai here implies that Limelight is feeling increasingly confident, and it seems as if Akamai can do little more than play defense.  That’s the price of being king of the hill, there is nowhere new to climb but there are plenty of ways to go down.  On the other hand, it’s not exactly a bad problem to have. [Read more →]

In part 1 of this profile, we looked at Hibernia Atlantic from the outside.  Here we get to hear from the company directly.  I had the opportunity to talk with Eric Gutshall, Executive Vice President of Sales and Marketing.  Eric has been with Hibernia Atlantic since its early days when it was little more than a mostly empty cable and a business plan, and has been an integral part of its development.

TR: Where does Hibernia Atlantic see demand coming from in 2009? [Read more →]

For the third profile in this series, Telecom Ramblings looks at Hibernia Atlantic.  The company opened its doors under the wing of Columbia Ventures six years ago with one asset: a shiny new transatlantic cable completed by 360Networks before its implosion.  That cable had a uniquely diverse northern route, but was still practically empty at the time and the transatlantic bandwidth market was in shambles.  For many, they fell off the radar screen or were just never on it.  Now as we close the decade, they have driven revenues toward the range of [Read more →]

According to a report in the Financial Times, Pacific Crossing is about to be gobbled up.  The company, which runs the PC-1 cable between California and Japan, was once a part of the empire of glbc back in the bubble days.  After the crash, Pivotal Private Equity was poised to take control of the company out of BK court.  But that deal fell apart and then the assets spent an inordinate amount of time in BK court due to disputes over ownership of landing stations and compensation from its prior owners and such – it looked like they might stay in limbo for eternity.  But emerge they did, and after a few years on their own it now appears that PC-1 will now find a real home. [Read more →]

Previously I looked at on-net building density as a way to classify metro fiber providers.  One of the major features that classification showed was that often smaller metro fiber providers tend to hook up more buildings per mile of fiber.  Now size isn’t everything, but it does matter.  And to get a feel for the sector it is important to keep a feel for relative size of the participants.  Once again, this is not a race, just kind of a weigh-in.  I looked at two obvious metrics: [Read more →]

In response to my post on the merits of a TWTC buyout of XO, reader BBS astutely commented:

“They have the integration expertise” this is a very subjective assumption. Xspedius may have gone well, but that, as they say is no indicator of future results. XO has integration experience too… remember Allegiance? How about LVLT’s integration experience, which by any measure historically has been abominably bad. Circuit Engineering, switch (hard or soft) and OSS platforms in the telecom industry are much harder to integrate than traditional operating systems such as CRM, HR, and others. As a MFSWorldCom vet, you can understand why I remain very skeptical of any claims of easy integration among telecoms/ fiber network providers.

Indeed it is a subjective assumption, and it is quite [Read more →]

The other day I mentioned that TW Telecom (NASDAQ:TWTC, news, filings) seems like it should be ready to make a big move.  In 2009 the company became profitable at last, and entered this recession in a position of stability and with continued growth in mind.  Such difficult times as these can be opportunities for those with the means, and the lack of easy access to capital makes this a buyers market if there ever was one.  And there is one M&A possibility that stands out from the rest for TW Telecom, one that is both game-changing and entirely feasible:  XO Holdings (news, filings).  No, I have nobody whispering in my ear, in fact it is too quiet – as I have said.  I’ll make the case as follows: [Read more →]

Level 3 Communications (NYSE:LVLT, news, filings) announced today that it has been selected to provide wavelengths on a national scale for the international wholesale arm of European telecom giant Telefonica (NYSE:TEF, news, filings).  The contract, which expands on an existing relationship, is for 10 years and represents the single largest capacity commitment in Level 3’s history.  They will provide triverse routes between major PoPs, diverse routes elsewhere, and have dedicated capacity available for expansion on each route.  Essentially, Telefonica has chosen to outsource the bulk of its US transport network for the long term. [Read more →]

On Seeking Alpha yesterday, Alex Salkever posted an interesting article discussing how efficient cloud computing may change the sector.  It almost certainly will, and I’d like to add my two cents on the subject.  Specifically pertaining to datacenters, he said:

“Data center operators like Equinix (EQIX) could also feel the pinch. They all expected massive demand for custom designed homes that featured servers and other critically important hardware used to run networks and businesses. But if there is less need for servers, there is less need for data centers.”

While there is certainly a kernel of truth in that, there are several misconceptions [Read more →]