Hi Tom,
The Streetsider Investor article is a nice cheerleading effort. But I think it falls short of distinguishing between a lust for bandwidth (which I concur is the true state of the market), and the problems with price, infrastructure and the nemesis of the last mile. Where there simply isn't enough revenue potential to justify the extravagant long haul networks. The author may view the 97+% of all installed cable as so much "junk mail", but I view it two ways. One, it is largely obsolete due to improving characteristics of single mode fiber types, and thus incompatible with today's termination equipment. And two) that termination equipment is actually the financial hurdle that has had the telecom SPs laying fiber like mad, while leaving the vastly more costly OADM, DWDM and switching equipment for another day. That day will never come.
Sure, more near-term pain ahead, but there will be a point when you want to buy these companies, especially since they are being priced for bankruptcy.
More than likely, you and I as retail equity investors won't be given a chance to buy into these companies because what is going to happen is that as they approach or go through bankruptcy, the equity holder will be wiped out. But, you say, not if they skirt BK.... In that instance, what will happen is massive dilution of the existing equity holders as vulture funds come in with "white knight" financing, offering operating cash for lucrative convertible preferred shares that will cause massive dilution over time. I'd be very careful about this and be sure to know what the financial structure of a company looks like before committing funds. They may look like bargains on the surface at extremely cheap prices. But they can still be over-priced due to the enthusiasms of the unwary, and a very risky capital structure.
JM2C, Ray |
