Telecom Ramblings

Finally, after a process that was much more difficult than it should have been, this blog has a new home!  The forwarding from itaoran is propagating around the internet, I hope I didn’t lose too many readers.  Regardless, if you have this site bookmarked you should edit it if needed.  If you use a reader, I hope this went ok already but since I’ve never done this before we’ll just have to wait and see.  Of course, there may still be bugs, so if anyone finds links that don’t work or anything else broken, please please do send me a note.

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How can one company (Level 3) state that broad patent coverage is necessary to even enter the business, and another to all the way through an IPO (Limelight) with almost none? The whole patent situation amongst CDNs makes it virtually impossible to pinpoint value, and it is a symptom of the breakdown in our patent system, especially as applied to software and the internet. Here’s a quick summary of some of the players in the CDN patent soap opera:

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Yesterday I discussed the benefits of owning the network in the CDN business.  I do realize that the issue is a disputed one, but for the sake of argument just suppose that owning the network does change the cost structure of the CDN business substantially.  What happens next?  Surely the pure CDN providers won’t just sit there, waiting for annihilation, so let’s look at some possible responses:

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With the entry of Level 3 and AT&T into the CDN space, a discussion of cost structure has arisen. Pure CDN’s say that owning the network is not necessary and too expensive. The network operators say that owning the pipes amounts to a huge advantage. Who is right?
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Today, two weeks since this blog went public, we hit a milestone of 10,000 pageviews (all-time).  Not bad at all, and far quicker than I ever expected.  Thank you all for bearing with me as I work out the kinks, I’m still new at this blogging thing.

On that note, I have secured the domain ‘www.telecomramblings.com’ and will be moving to it before long, hopefully this weekend.  No doubt many of you wondered what that URL was all about – well mainly I wasn’t sure it was going to work out, so I just used a URL I had handy.  But it has worked out, and so I went looking for a more appropriate domain.  I will keep itaoran.com pointed here though.  Hopefully everything will go smoothly (yeah right).

Another day, another win for Infinera?  Today Zayo Bandwidth became the latest in a long string of wins for the upstart DWDM vendor, Zayo has apparently already installed Infinera’s PICs to light fiber between Chicago, NYC, and Washington DC.  Now it should be noted that Zayo bought Citynet’s wholesale division which had already picked Infinera in 2005, so this new PR shouldn’t come as a huge shock.

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Today Ike Elliott suggested Level 3 may soon be on the prowl for more acquisitions.  I am not so sure, maybe in 6 months though.  However, there are others out there with money and a reason to buy, and there are many out there that look like prime buyout material.  And then there are those that need to be bought – well, maybe they don’t think so, but everyone else does.

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I have been asked to comment on the anti-dilution hedge I mentioned in my Virtuous Circle post last week. I’ll do my best, but your mileage may vary.

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Contributed by the_highwayman

Not all POPs are what the PR folks make them out to be.

A while back my company was integrating some acquired assets, and as part of the process I was assigned to turn down a circuit and recover the router and all equipment at a “MAJOR” POP site for the acquired network. This particular circuit was located in a very rural portion of Missouri. [Read more →]

Yesterday, the Times Online reported Global Crossing might be selling its UK operations, and I contended that this likely would mean that in fact the whole company is being sold – in pieces to maximize the value for their majority owner STT. But who would buy them? In the absence of a bona fide rumor, let’s just apply a bit of logic.

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The Times Online is reporting that Global Crossing is considering a sale of its UK operations. A sale of GCUK cannot exist in a vacuum, it sounds like a strategy to maximize the sale value for Singapore Technologies Telemedia (STT) by breaking it up into pieces. GCUK is the most valuable piece of GLBC and its financial lynchpin, [Read more →]

Ok, here goes. first, thanks to Rob for allowing me to post information to his blog. Second, in terms of disclosure I’m long LVLT and I don’t get anything for posting. This is something I do to help me keep tabs on my expectations vs. actual results. Also, I don’t work in the telco industry nor am I holding myself out there as some sort of expert in anyway. I make mistakes all the time, am not embarrassed about it and appreciate feedback to help make corrections and improve the end product. Think of this work as “open source spreadsheeting” where you feel free to improve my work in anyway you see fit, including ignoring it if you think this pos is going to zero. [side bar – there’s a new book out by Clay Shirky that talks about how people are organizing around new media channels like this blog as a way to reduce failure, called Here Comes Everybody.] As my initial contribution to this blog

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The other day, something remarkable happened: Abovenet filed an annual report (10-K) with the SEC. I know, who cares, right? But this day marks the end of an era, the final curtain has come down on the telecom nuclear winter that began in 2001 in which hundreds of telecom companies went under – from Worldcom on down. All those assets filtered through bankruptcy court into new ownership, occasionally more than once, but one case always stood out. You see, Abovenet used to be known as Metromedia Fiber Networks, or MFN, and the depth of their collapse is legendary, involving a 5 year SEC investigation.

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In Cogent Communication’s latest earnings release and conference call lies an indication that their multi-year bandwidth honeymoon may be in danger. Specifically, they reported that traffic growth in Q1 was only 7% above that of Q4, and nearly all of that was in January, with February and March almost flat. They then mentioned that April’s sequential traffic growth was also about 1%, although they expect traffic to continue to grow through the year.

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Perhaps the most puzzling situation amongst carriers right now is the behavior of XO, which BearOnBusiness described recently as ‘reckless’. XO has great assets – an IRU for 18 fibers on the original LVLT network, substantial metro assets connecting 3000 on-net buildings, and piles of LMDS and microwave spectrum. And yet, their stock is off 90% in the past year. That’s worse than Level 3, which had a simply horrible year as integration blunders decimated revenue growth, it may be the worst in the sector. And yet, XO is basically in the same position today that they were in last year, at least from a competitive standpoint – weak but holding steady. But XO’s common stock, it turns out, moves almost completely independently from its fundamental performance. What drives it? Carl Icahn. [Read more →]

In the past three days, Dan Caruso’s BearOnBusiness, Ike Elliott’s Telecosm, and Nyquist Capital’s blog have not only linked to this blog, but have posted about it. I must say, the welcome wagon isn’t sleeping on the job, this page has only been around for a few days now! Let me say that I read Telecosm and BearOnBusiness religiously and I have found them to be fantastic commentary on the telecom sector, in fact their presence is part of what inspired me to toss my own hat into the ring. I have run into Nyquist Capital many times as well, and have now added them to my daily reading list. Thanks guys! I’ll do my best to live up to the billing.

This is another in a series of modeling and compiled information posts, which I intend to update over time and refer to in posts.

Because LVLT’s debt is a major (if not all-encompassing) feature of its balance sheet, and because so many financial moves the company makes relate to its structure, it is worth keeping track of in some detail.

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The media tends to portray the CLEC strategy as monolithic, each player has a certain amount of fiber and leases the rest via special access from the ILEC. But it is quite interesting just how wide ranging the various strategies out there are.

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The virtuous circle awaits Level 3, if they can only stop tripping over their own feet and get there. A virtuous circle is a pattern that reinforces itself in a feedback loop. If Level 3 can generate positive cashflow, then their stock will go above the strike price of some of their convertible debt and they can force or induce an early conversion. The interest saved then increases their cashflow, raises the stock further, and more converts can be eliminated, and so on up the ladder. So where are the rungs on this ladder? They are spaced out over the next 27 months. [Read more →]

As my inaugural post, I am providing my detailed model of LVLT revenues, costs, earnings, and cashflow. It is a multi-page spreadsheet, and is more comprehensive than anything I find in analyst reports etc. I don’t claim perfection, if you find an error or have a suggestion for improvement please let me know.

My model allows the study of each business unit independently, calculating the total gross margin from the individual components. For historical data, I work backwards from the actual results using various assumptions in order to give a consistent context to the same numbers going forward. [Read more →]