6. Executives Zero In Issue #29 The Telecom Analyst.
Teligent
Alex J. Mandl, Chairman and Chief Executive Officer
Interviewed by George S. Mack
There's more than one way to wire a building for telephones and the Internet. Sometimes the last mile is actually wireless. TELIGENT (TGNT) is a facilities-based, broadband fixed-wireless company currently operating in 40 of the 74 markets in which it has spectrum licenses. The Vienna, Va.-based company offers bundled local- and long-distance service, as well as dedicated Internet access with data speeds up to 45 Mbps to the small- and medium-sized companies.
TELIGENT's investors include companies like LIBERTY MEDIA GROUP (LMGA) with about 31% ownership, TelCom Ventures with 23%, NIPPON TELEGRAPH & TELEPHONE (NTT) with 8%, MICROSOFT (MSFT) with 5% and Hicks, Muse, Tate & Furst with about 5%. Even though second-quarter revenue was up more than eightfold from the year earlier, TELIGENT's stock, which closed at $9.44 on Oct. 11, is down 85% in the year to date. The company is headed by Alex J. Mandl, former president and chief operating officer at AT&T.
[THE TELECOMM ANALYST — GEORGE S. MACK] When will you be in all of the 74 markets where you're licensed?
[ALEX J. MANDL] It's hard to say. Some of those include fairly small markets, so that's at least a couple of years out. We have them when we need them, and we have them when they make sense. But when you start with the top 74 markets, you're getting into some pretty small places.
[GSM] Why are you targeting the small- and medium-sized business?
[AJM] Because we think our offerings are most needed by that particular market segment, which by the way is two-thirds of the business market. It's not a niche market — it's a pretty good slice.
[GSM] Why wireless?
[AJM] For a large percentage of the 750,000 office buildings in the United States, the fixed wireless solution is the most efficient way of getting there. It also has the kind of reliability required by customers — making it affordable on one hand along with a reliability factor of four-nines [99.99%]. Eventually, a combination of fiber and fixed wireless will be the prevalent means of access for the medium- and small-business markets.
[GSM] When fiber ultimately moves into these outer lying buildings, will you suffer from that?
[AJM] No. Fiber today reaches about 5% of buildings. It's been that way now for four or five years, and it may go up to 6% or 7%. The problem with fiber is that roughly two thirds or three quarters of cost deployment is labor. Roughly a quarter or a third is the electronics. For fixed wireless, it's roughly the inverse — roughly two thirds of the costs of fixed wireless is electronics, and roughly a third is labor. So you can see, as the electronics costs continue to decline at a very fast rate, wireless will continue to move in the direction of having the cost advantage versus fiber. There are about 700,000 or more buildings where the fiber economics simply don't make sense.
[GSM] You've got an impressive group of investors. Considering your stock price performance, should that give investors' solace?
[AJM] Having the right investors and shareholders is obviously always helpful — especially when the capital markets are tighter than they used to be. We're very pleased and proud to have that investor group.
[GSM] What I'm getting at is this: You're sufficiently funded into mid-2001. With the way the markets have treated the CLECs and your stock in particular, do you feel good about getting the necessary funding to achieve profitability?
[AJM] Yes, we do. Some additional funding is an important part of continuing to build and grow the business. This issue is being addressed as we speak, and yes, we do have access to [sufficient] capital to carry us to a basically fully funded plan.
[GSM] With regard to additional funding, do you feel potential investors are afraid of being diluted out too much or being burdened with too much high-yield debt?
[AJM] No, I don't think so. I guess you asked two separate questions. I think the dilution issue is always something people have to pay attention to. And certainly one doesn't want to be overly diluted. On the other hand, having access to capital and taking on additional capital is an important part of building a new business. Don't forget, we only started operations some 20 months ago. On the other aspect, our debt load is relatively small compared to other CLECs. If you compare our debt load to companies like WINSTAR COMMUNICATIONS (WCII)< or others, I think you'll find that our debt burden is actually quite light.
Vital Statistics
Teligent
(TGNT)
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Market Cap $580.6 million
Shares Outstanding 61.52 million
Recent Stock Price $9.44 (10/11/00)
52-Week Range $100 — $8.13
Price to Est. 2000 Revenue 4.0-times
Price to Est. 2001 Revenue 1.5-times
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Years end
in December
EPS Revenue
(millions)
1999A ($9.94) $31.3
2000E ($11.47) $146.4
2001E ($9.29) $377.6
2002E ($7.46) $767.5
Source: Ferris Baker Watts
[GSM] Alex, you've done everything in this business. When you were at AT&T, for example, you planned and executed the multi-billion dollar acquisition of McCaw Cellular, and you managed its assimilation into the company. With that background, I'm curious to know if you have any idea why investors seem to have hung up on telecom stocks.
[AJM] [Laughing] You tell me. I think people are concerned that there are too many CLECs, which I believe is a terribly wrong assumption. Today 90%-plus of local service is still being served by the ILECs [incumbent local-exchange carriers], the Baby Bell companies. Eventually a good 20%, 30%, 40% to 50% of that market will be captured by someone else. There is a lot of room for other players to enter the scene. People who say there are too many players just haven't understood or haven't focused on it. I don't know all the answers for sure, and I'm puzzled as to why there has been such an overreaction on the negative. I also know, at least from my point of view, that the industry segment itself is going to be very robust.
[GSM] When will you become cash flow positive?
[AJM] We have said we are going to be EBITDA positive roughly in mid-year 2002. We're on track with that, and we're going to make it happen. That's certainly one thing investors ought to keep their eye on. I think our revenue continues to grow at phenomenal rates. Next year we'll continue to grow at rates that are pretty extraordinary.
[GSM] Who are your competitors?
[AJM] Our real competitors are the Bells. That's where we have the cost advantage and the price advantage and that's where we have the bandwidth advantage in many of the buildings we target.
[GSM] How big can you get as a single company?
[AJM] In a matter of five, six or seven years, some of the more respected analysts have us as a multi-billion company. |
