Discussion of Other Business Lines in the Model
WinStar's CLEC business is the real driver of growth, despite the company's ownership of other business lines. The residential long distance business is being slowly eliminated and the wholesale business is sitting patiently
on the banks of the stream, waiting to catch the big fish. This leaves CLEC operations and New Media as the only material contributors to growth. As the CLEC is still in a fairly early stage of development, New Media
remains a large contributor to total revenue. Of our estimated 1997 total revenues of $77.1 million, we expect New Media to be responsible for approximately 52% and the CLEC to contribute only 29%. However, by years
ending 1998 and 1999 we anticipate a significant roll reversal with New Media responsible for only 21% of total revenue in 1998 and 14% in 1999. The CLEC's contribution should grow to 73% in 1998 and 80% in 1999. In
1998 we expect the contribution from residential long distance will decline to $1.5 million from $8 million in 1997. By 1999, we expect this business will be gone.
WinStar's wholesale division is in a sort of holding period while the company focuses on building out its CLEC operations. In other words, WinStar is not actively marketing its wholesale services to a number of small players, but is rather waiting to win a single, significant client (like an AT&T). Because we cannot predict that this will happen, we maintain fairly steady and flat growth in this segment. But, we must note, that were WinStar to capture a large wholesale client, we believe there is significant potential for earnings upside. In 1999, we target the wholesale division will hit EBITDA break-even, as a result of the slow-down in spending to expand this segment.
WinStar New Media aggregates and develops information content and delivers it through broadband systems to businesses and educational facilities. We are targeting revenue growth for WinStar New Media of about 53% in 1998, at which point we believe the business will hit its stride and growth will begin a gradual slow-down to about 7% per year and a consistent operating margin of just a little over break-even. Because we don't have good insight into this business and its growth strategies, and we do not know whether or not it will permanently continue to be considered necessary by management, we are maintaining these conservative estimates. We should note that in 1997, New Media consistently beat our revenue estimates and it is not inconceivable that we could be surprised on the upside again. |
