Interesting reminder/letter from PGEX top brass:
Special Release-Letter to Editor of Barron's
Pacific Gateway Exchange, Inc. sent the following letter to the editor of Barrons:
September 7, 1999 Editor Barron's
Dear Editor:
Your September 6 story, "Pacific Overtures," misses several key points and misleads
your readers about Pacific Gateway and its cable industry competitors.
First, your belief that "the much expected explosion in broadband demand is not within
earshot" is contrary to our experience and to the opinions of some of the most respected
Telecom analysts. We have seen significant demand for our bandwidth services and
expect that demand to continue to grow exponentially as the global Internet, data and
video markets continue to expand. By the way, we have made our investment in these
undersea systems side-by-side with some of the largest telecom operators in the world.
Second, your statements about the prices at which we have recently sold submarine
capacity are wrong and seriously misleading. In each cable deal we do, we are able to
offer our customers a combination of domestic, submarine and backhaul capacity
between various points around the world. Naturally, the pricing of the deal varies
depending on what segment and combination of services the customer wants to buy, not
to mention other value components. No two deals are alike. As a result, it is highly
misleading to compare any two of our deals and conclude that our cable prices have
fallen because the pricing of the first appeared to be greater than the pricing of the
second. This is like saying that newspaper prices have fallen because a copy of Barron's
cost more in April than the Wall Street Journal cost three months later. Yet this is exactly
what your reporter did. Moreover, we have not experienced the price declines suggested
by your article.
Third, to the extent that prices do come down, lower prices for submarine capacity should
increase consumer demand and spur the innovation of new products and demand for raw
bandwidth. These developments will help Pacific Gateway by increasing international
traffic and demand for Pacific Gateway's services.
Fourth, Pacific Gateway will be a leader in reducing costs in the submarine cable
business. As we announced last week, we have agreed to form a joint venture in Japan
with KDD-SCS that will use advanced technology to reduce the cost of supplying
backhaul capacity between Japanese cities and the landing point of submarine cables. In
addition, advances in DWDM technology will dramatically reduce our costs of supplying
submarine capacity. These developments allow companies like Pacific Gateway to
provide lower prices and stimulate demand while maintain profitability.
Fifth, while accounting changes may have an effect on the industry, your reporter misses
the far more important point, namely, that accounting changes will have absolutely no
effect on our cash flow from the submarine cable sales, and thus have no real effect on
the fundamental strength of our business.
Sixth, your article implies that Pacific Gateway is primarily a broker of bandwidth
capacity. In fact, nothing could be further from the truth. Pacific Gateway will use a
significant portion of the capacity it buys for internal purposes, namely, to build a
state-of-the-art network that will serve its international and domestic telecommunications
businesses as well as its emerging Internet operations.
Finally, while we have in some cases sold capacity to the same company that we bought
other capacity from, each of these transactions has been highly strategic and beneficial
for our Company. These transactions expand our global reach and allow us to use our
capital more efficiently. As a result of the Williams deal, Pacific Gateway acquired a
major domestic fiber optic network that will be the foundation of our Internet business and
lower our terminating costs for voice traffic. In other cases, other transactions have given
us capacity that we have been able to sell for cash.
In short, because of the very cable transactions that your reporter criticizes, Pacific
Gateway is becoming a major player in the enormous economic potential of the Internet
and the convergence of voice, video and data traffic. Our submarine cable transactions
have set the stage for the development of the Internet business and will lower the costs of
our voice and data businesses. The accounting and pricing issues on which your article
focuses pale in comparison to these basic realities.
Very truly yours,
Howard Neckowitz
President and Chief Executive Officer
Pacific Gateway Exchange, Inc.
500 Airport Boulevard Suite 340
Burlingame, California 94010 |
