Sorry Level 3–You’re Damned if You Do…and Damned if You Don’t…(Part 2)
February 19, 2009
After explaining the response to Level 3’s recent financial reports, Dave expressed his sympathy in the previous post, “Sorry, Level 3—You’re Damned If You Do…and Damned If You Don’t…” Here’s some more on the topic:
Level 3 CEO, Jim Crowe is either lucky, psychic, or both. Way back, when Level 3 was formed, Crowe intentionally loaded up on all the possible debt he could find to fund his business plan. It was in the multiples of billions of dollars. As a result of this strategy, Level 3 never ran out of cash during the Telecom meltdown of 2001-03.
Well, the “hindsight analysts”, didn’t like this notion and highly criticized Level 3 over the years for having too high a debt load. As a result, they ended up beating the stock down pretty good to show their disdain.
Yet, it appears that having all that cash proved to be a good thing, didn’t it? Jim Crowe appeared to be right. And in their mighty logic, Wall Street then punished him for it.
Sorry Level 3–You’re Damned if you do…and damned if you don’t…
Now some of the more foolhardy have a difficult time understanding the capital expense requirements of real Telecom companies. These are the same folks who are
drinking the Kool-Aid being handed out by “light-asset” telecom companies (read: those that own little to no fiber optic infrastructure or pass off two-strand IRU’s as “fiber route miles.”)
Here’s the cold, hard truth: Level 3 is absolutely making the right call.
Their intent to cut capital spending in order to drive faster to free cash flow positive status is being done so that they can readily finance their 2010 debt obligations.
Really think about it for a minute–if you were CEO of Level 3, would you do it any differently?
If any genius out there sees a different way to play this out, I am all Obama…I mean all ears.
So, here’s the moral of this whole story: Wall Street moves as a herd of cattle or group of lemmings over a cliff (you choose). Don’t rely on Wall Street to differentiate real players from the pretenders.
Think you can handle the truth? Here it is. The value of a company will go up as all boats rise in the eyes of Wall Street.
Trading at 4x EBITDA today? Well, just run a tight ship, then sit back and patiently wait until EBITDA ratio’s are in fashion again. Then, you will suddenly be the Golden Boys of Wall Street. Brilliant!
When the herd moves, all boats rise or fall. It’s no more sophisticated than that.
I am confidant that, in our little niche, eventually the underlying organic demand for bandwidth will separate the real players from those who can’t get in the game.
But in the eyes of Wall Street, I am certain of one thing: we’ll be damned if we do and damned if we don’t…
Written by Dave Rusin - Telecom Executive
Posted by wbrache | Filed Under American telecom, Telecom expense management, Telecom news, Telecommunications companies
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