Hello Art and Everyone, Here's the crunched numbah's from Raleigh...
From: BRAD DRIESEN (YJPX88A)
Subject: DCIC/FTEL/FNET--WHAT IT ALL MEANS!!!!!!!
Sent On: 08/03 05:34 PM PM ET
Subject: DCIC/FTEL/FNET!!-WHAT IT ALL MEANS!!!!!!
Hi Everyone,
Raleigh Baughman has been up half the night and all day today working
on the following. It was a monumental task of research and his own expertise that came up with this entire report that I'm sure will please everyone. My most sincere thanks goes to Raleigh for giving me permission to reprint this verbatim.
His own newsletter crew has been very aware of the situation for
several months and thereby he felt it would be just fine to share this information with all of you. I can only caution everyone to please have a seat before reading this report.
"Grupo Brad de ScoopoMan"
From: Raleigh Baughman ()
Subject: WUCEH SPECIAL
Sent On: 08/03 04:28 PM PM ET
Date: Sat, 03 Aug 1996 16:25:49 -0400
From: Raleigh Baughman [phantom@imperium.net]
Subject: WUCEH SPECIAL
The Phantoms' Wake Up Call Email Hotlist" (tm)
August 3, 1996
By now, most of you have had the opportunity to read and digest the
news that was released by DCIC (Attached).
FNET signs a definitive agreement with Gridnet (division of WCOM
(Worldcom)).
I have received several inquiries as to what this all means, and how
it effects our investments in either DCIC, FTEL, or both. To answer this properly, you first must understand who Worldcom is , what it's about, and the importance to the proposed FNET long distance network.
WORLDCOM (WCOM)
I am very familiar with Worldcom (WCOM) because I have been invested
(offand on) for years. They are the fourth largest Long Distance carrier, right behind ATT, MCI, and Sprint. WCOM recently (last year) changed their name from LDDS Communications (LDDS) to Worldcom, after they had gone on an aggressive acquisition binge, that truly became International in scope. One of their core holdings, and premier acquisitions, was the purchase of WILTEL Communications a few years back.
WILTEL was one of only a few communications companies that actually
owned the hardwire (cables) infrastructure. In other words they physically had installed the national network of fiber optic cables, representing the backbone of a long distance carrier. WILTEL then leased LD time on these lines, to Long Distance service providers, such as LDDS.
LDDS, realizing long distance companies were springing up like weeds, seized the opportunity to defend their market share by acquiring Wiltel, (approx. $2 billion) thus ensuring their dominance and survival.
Wiltel, now is the largest re-seller of long distance time in the
world. What that means, is this. There are hundreds if not a thousand long distance companies, small and large, like LCI, EXCEL, NTC, etc. These smaller companies do not physically own their long distance cables, so they look to companies like Wiltel, ATT, Sprint, etc. to purchase bulk time at lower rates. For example, NTC may go to Wiltel and buy $3 million worth of long distance time, in bulk, at the rate of .03 per minute, then resell it to you, the consumer, for .10 per minute.
I know this seems to be off the track, but what I want you to understand is the importance of an alliance with Worldcom and the importance of Wiltel as having the physical infrastructure. This truly sets them apart from the rest of the crowd, because they own the equipment, and also provide the service that make them a reliable choice. The nucleus, in which to build an Internet phone company, like FNET.
This alliance with WCOM represents the glue, the backbone, the feasibility of FNET's proposed existence. This is a monumental step forward in the realization of Frank Peters' vision. In other words, we just went from a feasibility, to A reality with this contract.
Don't underestimate it's importance.
Here is what it means:
Gridnet (checkout WWW.GRIDNET.COM) is a division of WCOM, they are a
National Internet Service Provider (ISP). Although the news release
states 157 Points of Presence (POP's), they in fact have over 300. Gridnet, again is separated from the rest of the pack, due to it's state of the art equipment and of course the relationship with Wiltel via WCOM. They have access to some of the best (if not they best) fiber optic, high speed transmission, high audio quality, in the business. BAR NONE.
For those of you that are not familiar with some of the terminology let me put this all in laymen's terms.
Think of a National ISP as a major highway like Route 70, each exit
or entrance represents secondary highways (local ISP's) and they in turn may have their own access roads or POP's. FNET is like a secondary provider, leasing an entrance ramp to the national highway (Gridnet) thus giving you access to the entire country, each entrance point (local access) is represented by one of 157 POP's. Similar to the smaller long distance companies (above) leasing time on Wiltel's system.
In addition, I have also stated above, Gridnet has over 300 POP's, so
it may be that the 157 reported, are company owned, and the rest represent other secondary ISP's or local access (POP's).
So, don't rule out the possibility of these other POP's becoming
"business partners" and also trying to generate income by offering FNET services to their existing account bases.
If that isn't enough to chew on, then consider this. WCOM is a multi-national, multi-billion dollar company, with a huge Wall Street following, and a gigantic holding of institutional buyers. On Monday, analysts will first hear the names FTEL and DCIC. They will then talk to WCOM and find out what this is all about. I give it three days, till it really reflects the true appreciation in stock valuation.
FTEL EQUIPMENT SALES:
Besides legitimizing FNET, this also provides a secondary benefit to FTEL, equipment sales. I do not know the final selling price of the voice server, but my guess is, it's not going to be cheap. Franklin stands to benefit huge rewards in sales of not only the Voice Server, but also MARK_D channelbank/modems($5k), routers($3.5k), etc. Conservatively, Franklin could exceed revenues in excess of $5 million, just off this contract. Keep this in mind, because there are several other ISP's and POP's to be added to make this a worldwide LD Internet phone company. Franklin is already backlogged in sales for existing equipment, so this represents all new business on top of existing sales.
OVERVIEW
FTEL/DCIC just went from obscurity to the limelight, they are now in contractual agreement with one of the mainstream leaders of the communications industry. One other significant statement made in the press release is regarding the voice server and it's online testing this week. I don't feel most of you realize the enormity of this undertaking. This is like Alexander Graham Bell having the first phone conversation with Watson. Franklin is literally re-inventing the phone system, as we know it.
If all goes well, my guess is that the Underwriters have been awaiting this event, to be assured it all works. If so, I would expect an Underwriting sooner than later.
Speaking of which, the numbers of the IPO.
If this all comes together as proposed, I see an IPO price of $14 minimum. If that is the case, then DCIC has already committed to 3:1 for every share you own of DCIC, that would be equal to $42.00 plus the stake out in FTEL equal to a half share, which could be considerable considering the following.
Franklin is the really tough one to place a valuation. My guess it that to make this a truly international LD phone company, FNET would have to have at least 1,000 POP's worldwide. Whether these are through alliances like WCOM or via "Business Partners" and wholly owned ISP's is uncertain. One thing for sure, they will all need equipment. Using a conservative figure of $50k per POP x 1,000 that equals $50,000,000 in equipment. That doesn't even take into consideration selling equipment to competitors. So based on that, divided by number of shares outstanding (14 mill) equals $3.50 per share revenues, at a profit margin of 50% minimum, equals $1.75 EPS conservative estimate. Multiply times 20 P/E equals $35.00 per share, + 20 million shares of FNET held in treasury (20 mill divided by 14 mill outstanding is equal to 1,42 shares of FNET) equal to 19.88 in value, equals $54.88 per share value, not counting the 15% stakeout in DCIC that is worth $42 per share, which would be worth $6.30, bringing the total to around $61.00 per share. This is why I have always contended that DCIC is worth 2/3 the value of FTEL or FTEL is worth approximately 50% more than DCIC, which ever way you want to look at it.
All the above is based on everything coming together, optimum IPO pricing, net profits, etc., which by the way is still far from being a reality.
Mondays announcement just marks one more hurdle cleared, and that
much closer to realizing the completion of this project. Nothing more,
nothing less, it is still to be considered a speculative play and caution is advised.
There are still two more crucial events, each one will lessen the
risk, just as each step so far has. As that happens, the street will continue to value these two stocks higher and higher. Remember, the more the risk, the more the reward. I feel that those that got in early, risked the most, therefore deserve the most reward. But as you can see, FTEL/DCIC have been moving rapidly, and the missing pieces are predictable. As I see it, the two missing links are the voice server, coming Aug 9th, and the subscribing of the IPO by a lead underwriter. Both of which are crucial. Once these fall into place, I think you will see a steady stream of ISP's, and further alliances beat a path to FNET's door.
Look for Franklin to take out the old high of 2.38 then climb to mid 3's. I expect some volatility Monday, spike, drift, spike action. The real play will be in a few days, once the street deciphers the ramifications and the press starts to pick up on the possibilities, that's when you will see the real distancing come in. So if you do not have the tools to trade, I would highly suggest not trying to flip and fly, you may find yourself grounded with less shares.
In closing I want to leave you with one more possibility that relates the opening of this letter. I mentioned that Worldcom has a history of
aggressive acquisitions. It would not surprise me to find out that
WCOM has more than an idle interest in acquiring FNET. Think about it.
Worldcom's core business is long distance. FNET infringes on that core business, by eroding the very essence of their sole existence. An acquisition would not only add to their existing business, but also give them a foothold in the Internet Telephony market, which is sure to be challenged in the near future by several others.
Consider all the above scenarios, and then ask yourself if FTEL @ 1.62 or DCIC @ 2.50, sounds like fair value. Look for much more to come in the next few weeks, this story is just beginning to unfold.
Raleigh
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