Zayo Bandwidth team:  Abovenet is a company that is very similar to Zayo Bandwidth.  Using their words, “AboveNet provides high bandwidth connectivity solutions primarily to large corporate enterprise clients and communication carriers, including Fortune 1000 and FTSE 500 companies, in the United States (“U.S.”) and the United Kingdom (“U.K.”)”.  Their strategy is “to become the preferred provider of high bandwidth connectivity solutions in our target markets”.

Since Abovenet is a public company, they file public documents that describe their business.  They recently published their 2007 annual report.  From their filing, I have extracted information about Abovenet’s business.  Zayo Bandwidth team, I encourage you to print this out and read through it carefully; it might help you better understand our business and it will help us fine-tune our go-to-market strategy.

2007 Financial Summary: Revenue = $254M.  Cost of Revenue = $108M (after backing out a $2.2M equipment impairment provision).  Selling, general and administrative (SG&A) = $81M.  EBITDA = $65M ($254M minus $108M minus $81M.

2008 Financial Outlook: Abovenet’s revenue is likely growing at a rapid pace, perhaps 15% to 20% a year.  Using 15%, their 2008 revenue would be $292M.  Their costs are likely growing at a slow pace, thereby resulting in a more rapid increase of EBITDA.  Assuming their costs are increasing by 10%, their 2008 EBITDA would be $84M.  Their EBITDA/revenue is 29%.

So Now What?

  Leave a response (0 so far)
  Subscribe via RSS
  Subscribe via by Email
Share

Related posts:

11.6X EBITDA
Fibernet doing quite well; Congrats Jon Duluca and team
Estimating your EBITDA Multiple
Value Creation Redux
Glenn Russo note to ZMS Team re: Downturn

Cogent Communications is one of the remaining players in the Telecom Texas Hold’em. In fact, they have a seat at the final table. Congrats. (For those unfamiliar with my Texas Hold’em Series, please review “I don’t get the Texas Hold’em Posts” for context.)

This week and next, I am using Cogent as a backdrop for a discussion about stock price management, Intrinsic Value, and the importance of accurate cash flow forecasting. I thought it would be helpful to talk a bit about Cogent in the meantime.

I could write a couple weeks’ of daily posts about how Cogent earned its spot at the final table. Perhaps at some point I will. For now, I will refer to a recently published Forbes article titled Telecom Knockdown. Telecom crowd–read this article! This is especially true for the Zayo crew. It provides insights that are valuable for the go-forward telecom industry. It also gives a good sense of the telecom meltdown dynamics.

What type of player is Cogent in the Telecom Texas Hold’em? Aggressive is an understatement. Unpredictable also comes to mind. They will definitely play their hand very differently than many others at the table.

A few quick facts. Cogent acquired 13 companies during the meltdown. The most significant were PSINet and Allied Riser. PSINet was one of the 4 original Internet backbones, and exploiting their peering infrastructure is at the heart of Cogent’s go-to-market strategy. Internet transit is its primary product. Though Cogent has invested only $500M directly, the companies it acquired had consumed at least 10 times this amount. In my running total as to how much has been spent by the Texas Hold’em players and their predecessors, I will put $5B next to Cogent.

Cogent has 41,000 fiber route miles, including quite a bit in Europe. Its run rate revenue is approximately $220M per year and annualized EBITDA is $66M (excluding $16M of non-cash stock options). Both revenue and EBITDA are growing rapidly. The enterprise value of Cogent is $550M—this has dropped a ton over the past year but it is still respectable in this difficult stock market. My guess is they will see a substantial lift in enterprise value when the stock market firms up.

Love ‘em or hate ‘em, you have to admire how Cogent took advantage of the meltdown of Telecom.

So Now What?

  Leave a response (0 so far)
  Subscribe via RSS
  Subscribe via by Email
Share

Related posts:

Telecom Texas Hold’em Tournament: The Final Table
Telecom Texas Hold’em Tournament: Format
Format for Fiber Texas Hold’em Tournament
Wireless pioneer Craig McCaw launches Nextlink; XO occupies seat at Final Table
I don’t get the Texas Hold’em Posts

(continuation from last week’s posts on US West)

Do you think a few people asked this question?

The answer lies at the core of what caused the dot-com and telecom boom. As with any crazy boom, the most outlandish actions occur as you get closer to the bust. And U S West agreeing to sell itself to the upstart Qwest was outlandish.

During the past two weeks, I told the story of U S West’s break from Ma Bell because it is important to appreciate its mindset. Though 15 years passed since U S West broke from Ma Bell, it still felt like the disadvantaged sibling.

Bell Atlantic and Nynex joined to form Verizon. Verizon also acquired GTE Networking, including the BBN Internet backbone, and Genuity was a major thrust. SBC acquired PacTel and Ameritech. at&t acquired Media One and Teleport Communications Group. Bell South was independent but was highly coveted by both SBC and Verizon. Worldcom was buying everyone and was a Wall Street darling. Its acquisitions included MFS Communications, UUNET, and WilTel Network Services.

No one, though, wanted to combine with U S West.

Meanwhile, U S West watched the dot-com stocks souring. And it watched Level 3 Communications, Qwest, Broadwing, and Global Crossing going up and up and up.

Sol Trujillo was Chairman, President and Chief Executive Officer of Qwest. How many times do you think he answered the question “What is U S West’s Internet strategy?”.

U S West was still smarting over Media One. Wasn’t that supposed to be U S West’s answer instead of at&t’s?

So we get back to the reason that U S West agreed to be acquired by the upstart Qwest.

They panicked.

In a subsequent series of posts, we will look at classic Qwest, and its predecessor SP Telecom.

So Now What?

  Leave a response (0 so far)
  Subscribe via RSS
  Subscribe via by Email
Share

Related posts:

US West was the Unpopular Baby Bell Sibling
U S West circa 2000: Glorious Years Ahead?
Post AT&T Break-up, U S West shuns boring POTS: Part III—MediaOne and the mid-1990s
Seasick OnFiber docks with Qwest
Post AT&T Break-up, U S West shuns boring POTS: Part II–the early 1990s

The 1999 U S West annual report included the following graph:

For each of the then-prior several years, U.S. West was out performing the S&P 500, a telecom index, and even their peer group.

When the 1999 annual report was published in 2000, U S West authors knew little on what lurked ahead. Disaster of un-imaginable proportions was just around the corner. At the time though, they believed they were entering a new and glorious era as one of the leaders of the Internet and Telecom revolution.

U S West had entered a definitive agreement to be acquired by a much smaller company called Qwest. The combination proved to be one of the most disastrous in the history of M&A. But the question was why? That is, why did U S West, whose stock price had risen steadily over the past few years, agree to be bought out by an upstart telecom company?

So Now What?

  Leave a response (0 so far)
  Subscribe via RSS
  Subscribe via by Email
Share

Related posts:

Post AT&T Break-up, U S West shuns boring POTS: Part IV—International Investments?
Why would U S West consider selling to upstart Qwest?
US West was the Unpopular Baby Bell Sibling
Post AT&T Break-up, U S West shuns boring POTS: Part III—MediaOne and the mid-1990s
Post AT&T Break-up, U S West shuns boring POTS: Part I–the late 1980s

I scanned the 1999 U.S. West annual report, the last one they were to publish. I couldn’t find earlier reports in my quick Google search. I was looking for what transpired from all of U S West’s International forays.

I learned by 1999, International was not a division of U S West and there was no mention of International investments.

Readers—help me out here. What happened to all these foreign investments?

So Now What?

  Leave a response (3 so far)
  Subscribe via RSS
  Subscribe via by Email
Share

Related posts:

Post AT&T Break-up, U S West shuns boring POTS: Part II–the early 1990s
Post AT&T Break-up, U S West shuns boring POTS: Part III—MediaOne and the mid-1990s
Post AT&T Break-up, U S West shuns boring POTS: Part I–the late 1980s
U S West circa 2000: Glorious Years Ahead?
US West was the Unpopular Baby Bell Sibling

The Cable TV world was in a different universe than the Ma Bell galaxy that U S West came from. And this universe was not a friendly one.

Soon U S West was suing their Time Warner partners. It began when Time Warner venture decided to acquire Turner Broadcasting System, which U S West considered a violation of their partnership pact. It got ugly when Time Warner counter-sued, stating that U S West had engaged in “anti-competitive practices, deception,” which included the squelching of several deals with other telecommunications companies. U S West was even accused of secretly dealing with rival and former parent at&t.

Push came to shove, and a divorce took place. U S West ended up with outright control of certain cable properties, while Time Warner retained the media/content assets.

Now that the cable TV properties were controlled by U S West executives, conflict developed within the company. The Cable TV properties competed (at least for attention and capital) with the telecom properties. Both desired to win the race of converged services over the last mile.

In 1995, U S West formed MediaOne to hold the Cable TV properties, keeping them separate from the regulated telecom business. In 1998, it spun off MediaOne to its shareholders—meaning U S West would return to its roots as a telecom company. In 2000, MediaOne was acquired by at&t; and in 2002, it was acquired by Comcast.

So much for US West’s Internet and Video strategy…

So Now What?

  Leave a response (0 so far)
  Subscribe via RSS
  Subscribe via by Email
Share

Related posts:

Post AT&T Break-up, U S West shuns boring POTS: Part II–the early 1990s
Post AT&T Break-up, U S West shuns boring POTS: Part I–the late 1980s
Post AT&T Break-up, U S West shuns boring POTS: Part IV—International Investments?
U S West circa 2000: Glorious Years Ahead?
Why would U S West consider selling to upstart Qwest?

Darth Vadar was a bad guy. If you were a Baby Bell in the early 1990s, Judge Greene was badder. He was kinda like a trust fund administrator to the Baby Bells, constraining what they could spend money on. However, Judge Greene couldn’t stop them from spending money in areas outside his purview.

U S West, like most of its siblings, didn’t want to spend money in its region anyway. That was boring. All they could earn is monopoly regulated returns. Technology moved so slowly, constrained by those messy copper pairs. Phone calls were mundane. MTV, HBO and ESPN—now those were interesting.

International was a sexy area for U S West in the early 1990s. It was the first RBOC in Eastern Europe via a 49 percent stake in a Hungarian cellular telephone project. U S West had also become one of the largest cable-television competitors in the world, with franchises in Hong Kong, Britain, and France. It had, but later pulled out of, a 25 percent stake in the Hong Kong CATV franchise.

U S West had also planned on being involved in a $500 million plan to lay fiber-optic cable across the former Soviet Union, although the U.S. government rejected the plan, citing national security concerns. A few months later U S West announced plans to build the first cellular telephone networks in the Soviet Union in Moscow and Leningrad. It also revealed plans to build Czechoslovakia’s first cellular network in a joint venture with Bell Atlantic Corporation.

As I discussed in an earlier post, RBOCs convinced themselves that the Cable TV industry was superior to the RBOCs’ playground. The combination of the hybrid fiber/coax architecture and their direct involvement with sexy programming was too much for the twisted-pair Bell executives to resist. John Malone spun them up every chance he could—and they bit.

In 1993, U S West paid $2.55 billion for a 25.5 percent stake of Time Warner Entertainment. The thought was that this would secure their role in the converging world of entertainment and video. Content, the key to everything, came with the deal in the form of HBO and the Warner Brothers Studios.  This turned out to be a bad thought…stay tuned.

So Now What?

  Leave a response (0 so far)
  Subscribe via RSS
  Subscribe via by Email
Share

Related posts:

Post AT&T Break-up, U S West shuns boring POTS: Part III—MediaOne and the mid-1990s
Post AT&T Break-up, U S West shuns boring POTS: Part I–the late 1980s
Post AT&T Break-up, U S West shuns boring POTS: Part IV—International Investments?
US West was the Unpopular Baby Bell Sibling
Why would U S West consider selling to upstart Qwest?

American Fiber Systems, Inc. (AFS), is a provider of dark fiber and lit transport services in several geographies across the company.  A couple years back, AFS acquired Idacomm–a fiber-based telecom provider in Nevada and Idaho.  Along with the Idacomm’s fiber and transport business came Broadsoft’s hosted VoIP customers.

IPtimize (Pink Sheets: IPZI) is a a broadband voice and data service provider based in Denver, Colorado.  Both ICG and NGT do business with Iptimize.  Ron Pitcock, Clint Wilson, and Bob Flood (the Iptimize team)–best of luck on your expansion into Boise, Reno, Las Vegas and Salt Lake City.

So Now What?

  Leave a response (0 so far)
  Subscribe via RSS
  Subscribe via by Email
Share

Related posts:

AOL buys SocialThing!, a Boulder Company
Colorado Telecom Companies
Colorado: A Telecom Hub
Four Seats occupied at Telecom’s Final Table
Pontio Communications Company

Oh to be 17 again. Naïve. Spirited. Ignorant. Risk-taking. Not Knowing what you Don’t Know. Attitude. Bold. Knowing everything (while really knowing so little). Over-confident.

Oh to be 17 and inherit a huge trust fund.

What did U S West do with their newly inherited trust fund in 1985? They acted like a 17 year old. POTS was boring. The Mountain States were not happening. They took their trust fund and started to one-up their baby bell siblings.

• U S West began investing millions of dollars in commercial real estate. By 1996, they owned a $70-million portfolio. US West formed a commercial real estate subsidiary named BetaWest Properties. In 1990, it announced it would sell $1.4-billion in commercial real estate owned by BetaWest Properties, setting expectations that the properties would be sold over the next five-to-seven years as market conditions permitted. I don’t know outcome but I suspect it wasn’t all that positive.
• They moved into financial services, buying a commercial funding company for $10 million and the Kansas City operations of Control Data Corporation’s Commercial Credit Company for $65 million. U S West Financial Services was formed and over time it began to buy and and then leased out expensive items like airplanes and medical equipment. It also engaged in mortgage banking and leveraged buyouts. Financial Security Assurance Inc. was bought in 1989 for $345 million.
• U S West began investing in cellular networks, buying the San Diego cellular operations from Communications Industries Inc.  It formed New Vector Group to manage its cellular operations. By mid-1988 U S West had invested $192 million in New Vector. New Vector had entered 22 cellular markets but it was losing money. No worries. It would go public and recoup its investment, or so they thought. In 1988, U S West sold 17 percent of New Vector. The stock promptly began falling, losing 28 percent of its value in just two months.
• They bought Applied Communications, Inc., which was involved in software and/or processing related to automated teller machine (ATM) transactions and other electronic-funds movements, for $120 million.
• They formed two equipment-marketing subsidiaries, FirstTel Information Systems and Interline Communication Services. A year or so later, they merged the two into a single new subsidiary, U S West Information Systems, taking a $52 million loan to pay for the restructuring and dismissed more than 1,000 employees.

So the first few years on its own did not go all that well. I suspect U S West found competition is not as much fun as it sounds. Instead of getting discouraged, though, they pressed on to bigger, better, and more risky investments.

(More tomorrow.)

So Now What?

  Leave a response (0 so far)
  Subscribe via RSS
  Subscribe via by Email
Share

Related posts:

Post AT&T Break-up, U S West shuns boring POTS: Part III—MediaOne and the mid-1990s
Post AT&T Break-up, U S West shuns boring POTS: Part II–the early 1990s
Post AT&T Break-up, U S West shuns boring POTS: Part IV—International Investments?
US West was the Unpopular Baby Bell Sibling
U S West circa 2000: Glorious Years Ahead?

For the first time in its existence, U S West circa 1985 was an independent public company. It’s monopoly mountain-states telecom properties were spitting out cash. What to do?

Picture yourself at the age of 17, the youngest of seven kids. You lived with your parents your entire life. Your family was loving and very protective. On your 18th birthday, your parents pull you and your six siblings aside.

“We have some good news to share with you,” your mom begins, “Years ago, we inherited countless millions of dollars from our great great grandfather Alexander. We invested this money and over the years the value grew and grew.”

Your dad chimes in, “We divided it into eight trust funds, one for Ma Bell (the affectionate nickname your dad calls your mom), and one for each of you.”

“However,” Ma Bell continues, “though we love each of you, Pa and I decided we want a life of our own. We are taking ours and heading for glory. Since we are the parents, we picked what we liked the best. No worries though, all eight are good and we tried our best to make each one equally as interesting.”

Your older sister Nancy Nicole, who you always thought was the favorite, asked “How do we decide who gets the others?”

Your parents each glance your direction, with looks of chagrin on their faces. “Well, all seven trusts are equally as valuable, more or less. We decided to let each sibling pick the one they want, starting with Nynex (which was Nancy Nicole’s nickname, though no one could recall how Nancy Nicole was shortened to Nynex).

So Nynex and the other five pick through, and you are left with the last one. You can’t help but feel short changed. “Why couldn’t we have picked from youngest to oldest,” you think bitterly. Years later, you can’t recall if you ever thanked your parents for sharing the rich inheritance with you. All you can remember is how you wanted to prove yourself better than Ma Bell and your six siblings.

So Now What?

  Leave a response (0 so far)
  Subscribe via RSS
  Subscribe via by Email
Share

Related posts:

US West was the Unpopular Baby Bell Sibling
Why would U S West consider selling to upstart Qwest?
Post AT&T Break-up, U S West shuns boring POTS: Part II–the early 1990s
Post AT&T Break-up, U S West shuns boring POTS: Part I–the late 1980s
It Almost Worked