Cash Burn Rate
David, my understanding is that Level 3 is burning
cash to the tune of $120 million per week. Since on
average there are 13 wks per quarter, 13 X $120 mil
is $1.56 Billion per quarter. If they were to
continue to burn cash at this rate, that is $6.24
Billion in one year. That is why analysts are
questioning whether the cash in the bank will see
this company through past 2001. If anyone can
confirm or correct my cash burn figure, I would be
happy to see it.
Level 3's, and telecomm industry rule of thumb is
that the ratio of cost of electronics to light the
fiber to the cost of putting in the fiber itself
is somewhere between 15 and/or 20 to one...ie for
each dollar spent on putting in the fiber, it'll
cost at minimum $15 for the equipment to light it.
I think my figures are low here. If this is indeed
the case, then it is hard to see Level 3's cash burn
decreasing, rather the higher probability is that it
would increase as they go about lighting their network
and adding staff to manage and maintain their network.
I note that when James Crowe talks about his network
being 96% completed, he is only referring to the fiber
and conduit portion of the buildout...at least that
is my understanding.
$6 Billion is a hell of a lot of money...but the
question remains, is it enough for what they are
trying to do? I know senior management and the
financial analysts are at odds on this issue, but
right now, the bondholders are siding with the
analysts. Level 3 convertible bonds are presently
yielding over 16.5%.
Regards, Peter. |
