Bob,
<notice that the table in the article projects a ($3.13) EPS, which is about a $3 bil loss. I wonder if that number has the CLEC sale included<
The EPS does include the sale of Citizens. EPS is not a useful number for a company like GX because of GAAP deferred revenue recognition and huge depreciation and amortization charges. Instead, monitor 3 key indicators (1) cash revenue (2) cash flow (from cash flow statement) and (3)debt servicing. The completion of the $3B sale (mid this year) to Citizens is also crucial.
An interesting point was mentioned by the CFO in the article
"The distinction I want to draw between voice and data is that in data — and especially in bandwidth products — the cost of providing the services is dropping very rapidly. The cost of delivering bandwidth on a network is dropping at approximately 50% per year because of the progress of technology — things like wave division multiplexing — and also in the design of IP networks. The networks become better utilized, and that means upgrades take place with newer technology, and the costs fall again. So, it's a very powerful cycle of decreasing costs and stimulating demand. Margins are being maintained and sometimes even expanding. The voice world is very different. You don't have that declining cost curve. You have declining pricing with margin compression."
Margin is maintained by declining cost of technology. Somewhat similar to Dell, maintaining margin by decreasing cost of components and internal efficiences, even though pc prices drop. So, the argument that bandwidth prices are dropping impacting margin, may not hold water.
In any case, I tend to be vigilant and avoid complacency in an investment of this nature. Contrary to how some may view the situation, it is not a conservative investment, but a right one, because the stock is cheap, and high growth prospects ahead. |
