[investor] eye on fundamentals
Our points of view frequently address business and industry fundamentals of concern to private and public investors:
- innovations: an incremental feature, or a sustainable business?
- legacy businesses: source of long-term cash flow or a “pre-distressed” asset?
- competitive strategies: which is a likely winner or loser, and why?
- industry economics: what are the actual drivers of performance?
Articles
15 October 05
Scenario - Pax Telefonica
Pax Telefonica: Mega Telcos and the New Balance of Power imagines the strategic effects of a major collision between telcos and cable, resulting in widely divergent telco business strategies as they seek to overcome further unraveling of their connectivity businesses.
Download this article:: WotW - Scenarios PaxTelefonica.pdf [1.6mb]11 October 05
Wireless Outlook: Traveling the Back Roads to Carrier Growth
Like their wireline cousins fighting access line declines with bundled offers, wireless carriers are attempting to contain margin erosion of their core business. Their strategy? Modify existing mass market offers and price structures, explore incremental opportunities while hoping that the real solution will be growth in data services. The road to wireless growth in the near-term lies less in next-generation technology, and more in effectively levering existing assets to serve markets much closer at hand, at lower cost (especially distribution).
Download this article:: WirelessBackRoad.pdf [1.1mb]11 April 04
FCC Triennial Review - more of the same, good for ILECs
The FCC’s much vaunted “Triennial Review” of the 1996 Telecommunications Act left all parties publicly dissatisfied. But the combination of continued regulatory uncertainty, state-by-state review of competition, and prospective relief from resale requirements for new broadband networks is mildly positive for incumbent local exchange carriers (ILECs).
Download this article:: FCCTriennialOrder.pdf [284.8kb]15 February 03
Telecom Distressed Assets: How to Rescue Stranded Networks
Bankrupt carriers need business model transplants, not just balance sheet transfusions. In our report, Bondholder Beware , we identified what we believe to be three fundamental flaws in bankrupt carrier plans of reorganization which increase the ultimate probability of liquidation.
In this follow on piece, we identify why senior creditors are pursuing this path, and provide an alternative framework for investors, turnaround firms, and management to restructure service provider assets
- The Rich Get Richer: Two success models in the carrier marketplace
- Not Bold Enough: Far from being bold, distressed asset investors are being too timid in their reorganization plans. We identify Size, Access, Services, and Utilization as four, inter-related missing ingredients
- What’s the Upside: Quantified example of an operating carrier aggressively applying restructuring principles to create a sustainable niche competitor
1 September 02
Telecom Distressed Assets: Bondholder Beware
A number of backbone carriers and CLECs are now submitting Plans of Reorganization in bankruptcy court. While WorldCom burns, Leucadia and Warren Buffett’s Berkshire Hathaway are among the new telecom distressed asset investors. Are “smart money” plays in distressed broadband carriers leading to successful restructuring? We’ve examined a few plans of re-organization and unfortunately, so far, we believe the answer is “no”.
- By and large, creditors are being asked to approve the same business models as the ones that failed, trimmed by 20-25%
- In the proposed plans, operating expenses exceed core revenues (i.e. transport services) by as much as 30% coming out of Chapter 11
- Carrier success is entirely dependent on additional managed services revenues (which they have never obtained pre-bankruptcy), as much as 10x core transport revenues in 3-5 years
- Submitted plans are falling into one or more of five restructuring pitfalls we outline in our analysis
1 August 02
Transformation Interrupted - Beyond the 'Usual Suspects'
The “usual suspects” in the telecom bubble are regulation and excess capital, but we focus on a third, more important cause – flawed business models and strategies. “More important” because we do not believe a shrunken, recapitalized industry, following essentially the same playbook is the basis for restoring growth.
Using three telecom-based case study examples, we define a new model for potential services growth potentially involving not one or two “killer apps” but hundreds of modest growth, revenue-generating services, both voice, internet, and hybrid combinations. This model, “Telco as Marketplace” is defined as one in which transport and services business models are separated and complementary, and in which capital efficiency is at a premium.
Download this article:: TransformationInterrupted.pdf [4.1mb]11 July 02
Transformation Interrupted - Part I: Surveying the Wreckage
The incumbents, having successfully defended their local service monopolies from competitive incursion, now too appear dead in the water, drifting strategically and earning less than their cost capital. Investors who have seen a quarter of a trillion dollars of cash disappear in this sector can be expected to think long and hard before committing more.
Download this article:: TransformationInterrupted.pdf [4.1mb]11 July 02
Transformation Interrupted - Part II: What Went Wrong?
The two most common views are that the pre-Worldcom meltdown was caused by deeply-flawed market deregulation, and a capital markets bubble which paralleled the dotcom universe.
There is no question that some of the former (bad regulation), and a good deal of the latter (money like water) played large roles in getting us to where we are today. We will discuss each of them – regulation quite briefly – but also introduce what we believe to be a more important causal element: business strategies which made the problem much, much worse. More important because fixing business strategy is well within the control of surviving businesses
Download this article:: TransformationInterrupted.pdf [4.1mb]11 July 02
Transformation Interrupted - Part III: Restoring Growth
At the outset, we said the promise of industry transformation involved new networks, new services, and new business models. So far, we are still only one for three – more networks. It is only by separating transport networks and services (i.e. applications) that there is a genuine possibility of service innovation beyond “me too, but cheaper”, and hence the possibility of new business models as well.
Download this article:: TransformationInterrupted.pdf [4.1mb]11 July 02
Transformation Interrupted - Part IV: Sharing Value to Create Value
The goal of the Telco as Marketplace is to interconnect infrastructure owners and their network with service providers and their innovations in a new economic model. These services may range the spectrum from PSTN-centric, to hybrid internet and PSTN services, to highly internet-centric communications services.
Download this article:: TransformationInterrupted.pdf [4.1mb]11 July 02
Transformation Interrupted - Part V: Jump-Starting Alternative Business Models
The Telco as Marketplace model’s emphasis on low-cost services innovation is potentially part of a new round of more productive growth strategies which, when combined with greatly increased capital productivity and operating leverage from process efficiencies, can position communications service providers for growth.
Download this article:: TransformationInterrupted.pdf [4.1mb]11 July 02
