Fishing For LaPerch
May 28, 2009
Fishing for a real good Telecom services stock … fish for the La Perch.
After several years of heavy lifting and cleaning up someone else’s mess, it was nice to see AboveNet, via CEO Bill LaPerch, get listed on the NYSE. Bill is an outstanding individual of great character and integrity–that alone has me buying the stock.
If you recall, AboveNet was the old Metromedia Fiber Network or MFN of the late 1990’s and early millennium. They were darlings of Wall Street with a simple, focused model: metropolitan fiber connectivity to buildings in large metro markets delivering data and IP services.
What was it that brought MFN to its knees and billions of dollars flushed through bankruptcy? Two things: Wall Street and greed.
Back in the day, Wall Street analysts’ started to dampen on MFN’s prospects as a network-centric company as such things like web hosting and data centers were the next “big thing” – sort of like collocation. Not wanting to lose value, the then MFN management entered into a series of acquisitions in concert with the herd mentality and advice of Wall Street. The stock would be valued higher (greed) if they just followed those Real Smart Guys on Wall Street.
After many painful years since the collapse, AboveNet is putting up some impressive results.
Double digit revenue increases, EBITDA margins at 44% and strong cash flows. How did they do it? By going back to their roots and simplifying the business model. They are in an enviable position, and knowing Bill as I do, you will continue to see consistent growth. Owning local fiber optics, also gives them a low cost base of leverage for higher margins and returns. ILEC dependency … near zero.
But to be honest with my readers, Bill may just turn my life into a living hell. Up until this resurgence of AboveNet, we would benchmark our performance numbers for the Board/Investors against what we considered the gold standard of metropolitan fiber-owned Telecom, Time Warner Telecom (known today as TW Telecom). We have been doing quite well in comparison. Now, here comes along these numbers from Bill, and finally an apples-to-apples value proposition on a focused metro fiber connectivity model around data and IP. I just can’t wait for the next Board meeting … thanks Bill.
Bill, I am up for the challenge. Different markets, granted, but you are now our new standard of excellence to benchmark. I wish you well my friend on future prosperity and continued connectivity!
By the way, those of you that believe AboveNet is a quick flip, and up for sale since they have cleaned-up well and been listed on the NYSE, you need to read the 10-K filing. Bill just extended the corporate headquarters lease in White Plains for another ten years … it tells me they plan on being around for awhile.
What’s not to like about this business model? It has metropolitan fiber ownership and lots of it; data connectivity, IP peering, a focus on reliable service and a great Leader. Bandwidth demand and connectivity of 100 megabit plus circuits and waves are going through the roof driven by wireless and wire line data applications along with the ever increasing video distribution needs.
Yahtzee!
Whistle While You Work
May 26, 2009
Inside and outside Telecommunications, opportunity abounds!
Much to my surprise and delight, amidst the “stimulus recovery”, money floating around vis-à-vis the American Recovery and Reinvestment Act of 2009 (ARRA), our government has taken action to combat potential fraud!
Without sounding like a Sham-wow commercial, but if you are around or near any of this money, you could be a big winner. All you have to do is pucker up your lips and … whistle. (You thought I was going to say kiss some ass didn’t you?)
The Feds have issued, as a rule, broader (better) definitions of what constitutes fraud by those using stimulus funds. More importantly, especially if you are in the employ of a firm using said stimulus funds, even greater personal protections are afforded to the employee if you decide to blow that whistle.
Now, I’m not saying there are dishonest operators in America. I pretty much maintain that the ethics and integrity of most businesses and institutions are as good, if not better, than those found inside the Beltway. With over $700 billion in stimulus floating around, I am sure a few shekels may be “innocently” misplaced or used inappropriately. Mistakes happen, if you will…sort of like Presidential appointees or Congressional officials mistakenly not paying income taxes.
These new rules come from the Federal Acquisition Regulation (“FAR”) Counsel as the Enhanced Whistleblower Protections (FAR Case 2009-012). Just a few highlights:
The rules apply to all “Non-Federal employers” who receive grants or contracts, stimulus funds (“employers”), including state and local governments and public or private contractors and their subcontractors.
Employers cannot fire, demote or otherwise discriminate against an employee “as a reprisal for disclosing covered information.”
“Covered information” is any one of five offenses:
- Gross Mismanagement
- Gross Waste of Covered funds
- A substantial and specific danger to public health or safety
- An abuse of authority
- Violation of law, rule or regulation
- The Whistle Blower only needs to have “reasonable belief” that some hanky-panky is going on with the funds or use of funds
The covered rights cannot be waived by condition of employment, including pre-dispute arbitration agreements; unless it’s already included in a collective bargaining agreement.
The Kicker: Employers must post notices of these procedures, rights and remedies. So keep an eye on those bulletin boards!
Now, I put on my reality hat. I can only imagine the hell anyone will go through if he or she whistles and not necessarily the hell just from the employer. I am sure our Department of Justice will be most aggressive in pursuing such fraud on a “fast track” such as they do on qui tam complaints. (Cynicism)
So what am I saying? It’s good the Government wants to abate fraud, but expect years of your time to go by before anything, if anything, substantive happens. Whistle Blowers do receive some type of reward as a percent of the alleged fraud, so if I were a Whistle Blower, I wouldn’t spend the money until you have it!
Wake Up America!
May 21, 2009
If you are a regular reader of this blog, you know one of my pet peeves is the reluctance of our politicians to step up for what is good for America. Of course, my thoughts are purely from a Telecom perspective. Yes, I have thoughts on other things vis-à-vis our government but I don’t want to get “listed” by Homeland Security by sharing them.
I have been writing about how the rest of the world’s developed countries are basically kicking our ass in delivering bandwidth. With other countries delivering factors higher bandwidth than the US of A — we seem to think that a T1 link at 1.5 megabits is perfectly acceptable for America (per the Beltway Lobbyists and an unnamed Telecom Industry Association). A few crazy firms, in my opinion, think 10 megabits is a big home run!
Well, I think 100 megabits should be our minimum measure in America as we have the technologies to deliver it.
Today I read British Telecom will be bringing 100 megabits within reach to a million premises next year. Notice the word “premises” – not consumer, not business but premises. It seems to me the Brits have figured the importance of big bandwidth being needed much wider than an under-served sheep farmer in the Highlands.
In addition, BT also states they will be allocating 1.5 billion pounds sterling ($2.1 billion USA) by 2012 to hook-up an additional 40 million premises. BT is adding (aka “Job Creation”) over 500 engineers to accelerate the program.
Not to be outdone, Sir Richard Branson of Virgin fame, has announced the trial of a 200 megabit service in the United Kingdom. And here is the kicker – its wireless! For you critics, let us say it does one-half of what’s advertised what do you have? That’s right, at least 100 megabits of service!
I ask once again, especially with the $7.2 billion BTOP funding from the Obama Administration in play – What’s good for America? Is less than 10 megabits of bandwidth adequate because lobbyists and campaign donors from telecom companies that provides such a service and are incapable of expanding? And as a result, we play with definitions or measures of the words under-served, un-served, open access, non-discriminatory interconnection and broadband? God forbid we set a standard at 100 megabits and 1 gigabit within a decade for ALL premises and upset a few business models (and lobbyists) today.
Or, is it that America doesn’t need to be competitive with the rest of the world?
Meanwhile, as the definition debate goes on, the ILECs and Cable Companies keep winning as they leverage their market position, strength, and capacities by extending fiber and wireless placing even more distance and investment disincentive for real competition.
Am I a lone wolf howling in the wind?
TeleComSense
May 19, 2009
There is this website called TeleComSense. It’s written by Jonathan Lee. He writes from inside the beltway. He is also a lawyer.
Get this: TelecomStraightShooter is listed as 1 of 4 Blogs under his “Blogs I Like.”
Jonathan, it may be too late, but by liking my Blog you just might be on the Homeland Security list of people they are watching. Even if they water board me or put me in a dark box with caterpillars, I’ll deny everything.
Best of luck!
Back to the Future
May 15, 2009
It’s Back to the Future for me – just like the movie.
The big media buzz of Verizon selling select rural wire line (copper) facilities to Frontier Communications over 14 states for $5.6 billion in Frontier stock is the latest indicator that a consolidation cycle is starting and credit markets thawing. Though this deal won’t see Free Cash Flow positive for Frontier Communications for two years, it is the right strategic move for both companies. For an RLEC transaction, the EBITDA multiple is very good.
Verizon is focusing on the higher growth population centers and gains from the divestment of rural facilities that no longer accommodate Verizon. This also lessens any argument that Verizon is a menacing monopoly by way of this divestment.
Frontier Communications benefits from scale as they specialize in more rural areas to the extent they gain more proficiencies by integration. Frontier Communications does not serve the most rural of rural locations, so don’t expect any effort to deliver broadband to the barn, Green Acres or Petticoat Junction. It’s a great consolidating play for Frontier Communications, especially using stock as a currency, leaving the ability to lever debt off of EBITDA flows as a viable option/hedge.
Why is it back to the future for me? Well, way back in the early 1990’s, I was the first President of Frontier Communications well before the Communications Act of 1996. Once again, I will find myself holding Frontier stock as a result of this transaction since I hold Verizon stock. I am more confident this time that my stock quality will sustain itself, as the last time I held Frontier stock, the bandits from Global Crossing bought Frontier Communications, and in very short order destroyed shareowner value, the wealth and pensions of thousands of people. And no one went to prison.
I would like to share with you, my gracious readers, a funny story as an aside to this transaction (at least for me). If you go back to the 1990’s, the really big thing back then was long distance carriers. Hundreds, if not thousands of them existed. In the mid-1990’s, a consolidating cycle amongst these carriers had commenced as there was an over supply of carriers (capacity) that drove long distance prices so low, that you either merged for cost synergy or went bankrupt.
During this time of long distance consolidation, I participated in the Frontier Corporation M&A meetings discussing various targets or strategies. My invite was eventually lost in the mail.
If you have read the blog for sometime now, you know I don’t buy into the lemming model of business (move as a group to mitigate risk in the eyes of Wall Street…after all, if everyone is doing the same thing, it must be the right/safe thing to be doing. And, Wall Street, of course, being the fee-based vultures they are, happily endorses such paradigms.) Myself, I prefer contrarian moves and innovation.
Back to the M&A meetings: My first meeting, I went and listened. After all I was the new guy from “outside” the phone company and I wanted to take in the ambience. The second meeting, I raised my hand and made a suggestion. That suggestion was not to focus on buying into the over-supply of long haul carriers which drove prices into the ground, but instead to focus on acquiring local operating companies that already own infrastructure who are a gateway to the multitudes of long distance operators. My simple mind theory on this approach was that once prices go down, they usually don’t go up – integration synergies will keep the price wars going as things consolidate. I was told: “Dave that’s an interesting idea.” And the discussion continued on acquiring long haul carrier interests.
The third meeting I attended, I listened attentively again. Once again, I suggested a contrarian focus on acquiring local operators, this time my logic was that it had been my experience that those whom are closest to the customer have a better relationship and competitive advantage over those that are more distant – like in long distance. I was told: “Dave–that’s an interesting idea.” And the discussion continued on acquiring long haul carrier interests.
The fourth meeting…well there was no fourth meeting for me. Somehow my name fell off the e-mail invitation list. Several months later, Frontier merged (acquired) a major long distance carrier.
Today, as we know, long distance is near free with services such a Vonage, VOIP, Skype and MagicJack rapidly driving all-you-can-eat long distance services at flat rates across the globe. Flat rate all-distance is not far behind.
Since waking up with Back to the Future, my biggest worry now is waking up in Ground Hog Day – just like the movie. There is nothing brewing, but the Ground Hog irony of this adventure would be if Frontier Communications were ever to acquire American Fiber Systems because of our local presence, unique fiber assets, lucrative ARPU’s and our focus on being closest to the customer!
Talk about crazy!
Have You Driven a Metro Fiber Network…Lately?
May 12, 2009
If those of you who read this blog believe in fair play, integrity, determination, self-reliance and rewarding success – you have to root for the Ford Motor Company.
In one definite way, the automobile industry meltdown in America is similar to the Telecom meltdown circa 2001-2003: there is an unfair pattern. It appears that Ford Motor Company will make it out of the meltdown on its own – not using bankruptcy as a financial strategy and no government welfare (bailout) checks. Ford is doing it the old-fashioned way – by leadership, management, employee trust, sacrifice, consistent strategy and focus upon the customer.
Speaking from experience, Ford will eventually find itself at a disadvantage over rivals. The punishment for carrying your own weight will be government enabled (subsidized) competition with a lower cost structure paid for by US taxpayers, including Ford Motor Company employees themselves.
The Federal government, to a certain extent, did not mettle in the Telecom meltdown outside of a few Federal prosecutions for accounting fraud. The government pretty much left the industry to itself to sort out matters in an open market. There has always been corporate welfare money in Telecom available on a local, state and Federal level to those that claimed they needed it or by a Lobbyist stacking the deck. I would often laugh to myself while listening to a CLEC CEO (who was taking in government welfare checks) carry on about how wonderful the business is under his leadership. Hey–if you are really that good, then why tap the taxpayers? Oh sure, it is good for share-owners – free money – but in my reality you don’t take money you don’t need– especially when one plays the “relocation-of-jobs” threat card.
The Telecom industry today is stronger and more viable as the result of no government bailouts artificially propping up the inevitable. However, for the handful of a few companies who did not use bankruptcy as a financial strategy, there is no just reward for truly demonstrating great business leadership. My hat goes off to those companies that grew throughout the Telecom meltdown and did it by way of leadership, persistence and focus.
However, you won’t even get a Gold Star!
Paramount to those that know how to run a business and those who don’t, I still remain amazed when a CEO or CFO from a Chapter 11 or Chapter 22 company emerges yet again somewhere else with all the glory and accolades as a new leader. What are these Boards or investors thinking? Why hire proven failure? Oh, I forgot–in America everyone is a victim. These CEO’s and CFO’s were forced to drive their companies into a hole and are just innocent victims of the economy, lack of demand, a bad business plan, poor execution, regulation, competition, bad assumptions, etc…
To the Ford Motor Company and its employees: as you move out of the auto industry turndown based upon your own initiative and true grit, welcome to the very small club of companies that survive and thrive after such a horrendous downturn. This accomplishment should be greatly valued as you protected your investor and creditor interests.
Should be valued, but won’t.
Wall Street will be back to the next 90-days and marginalizing history, grit, determination, great management and dedicated employees. Even your shareholders, who could have lost everything, will soon forget your great accomplishment based upon some Wall Street spreadsheet and analyst view of the next 90-days.
For what it’s worth, I am giving the Ford Motor Company a Gold Star.
Friday’s Reader Response
May 8, 2009
Dave
I am curious, is Long Distance Access costs such a big deal since the RBOCs own the major IXCs? I know for years the IXCs have been asking for Access reform but I haven’t heard much of late. I guess the last was maybe the Missoula plan that AT&T promoted. What do you think?
-Loyd
Loyd,
Thanks for reading, Loyd, and for asking this question.
Given the growth of wireless access, it is a matter of when, not if, that “bill and keep” will be implemented. I predict within the next year it will be in the cross hairs of the FCC and finalized.
Getting “bill and keep” in place does two things: (1) It simplifies things while uprooting an artificial industry of having to analyze access charges constantly which should lower costs; and, (2) it is a viable step to enable flat rate data and Internet services. Usage based services are so old school in this era of routers, packets and alternative access methods. The last folks who do not want to see “bill and keep” implemented are the RLECs and the arbitrage asset-light carriers who rely on terminating access revenues. The arbitrage game is going to become more difficult as further IP penetration occurs as IP networks are agnostic.
-Dave
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