<SteveG's numbers - ..>
Too busy for continued detailed discussion, but I will address some of your previous points:
First, in regards to our number playing - as you point out, in our meanderings, we are not taking into account other aspects (such as marketing and development costs, which last quarter cost $3MM.) Margin pressures are occuring, and seemingly will continue to occur. To confirm how serious this should be taken, search how many times the string "compet" (and it's CONTEXT - as in *pricing/margin pressures*) occurs in the WSTL Q2 report:
biz.yahoo.com
We'll know a little more next month, but I would bet margins in 98-99 to be in the lower 20s and pricing in the $400/line range. You obviously believe (and have "bet") otherwise. Fine that we agree to disagree here.
In relation to my previous shirtcuff projections, I actually overestimated my PE (and therefore, PEG target price) due to using an incorrect number of SO. Rather than the 15MM stated on Yahoo, WSTL (according to First Call) has 36.3MM shares. So we would cut my previous estimate approximately in half - this would give a PEG valuation of around $8/share in either 98 (optimistic and aggresive valuation using a "forward" PE) or in Apr 99 with a more conservative TTM PEG.
And of course we can argue this ad nauseum, so I will simply refer to the First Call consensus estimates of a FY98 (ending March) loss of <.43> and a FY99 loss of <.01>. Using their more thorough and careful analysis numbers, WSTL is a speculative story stock (ie., no positive earnings) until FY2000 for which PEG-type valuations are not yet applicable.
With regard to DLCs escaping the unbundling requirement, your reference supporting your contention ends by stating: "..It is not clear that an alternative carrier could ever get access to the DLC."
This is non-confirmatory for me.
First it doesn't make sense, since an RBOC could simply route ALL of their traffic (voice included) over a DLC, either in the field or in the office and NEVER have to unbundle, let alone rebundle - as per the pending Supreme Court consideration. I don't think this would wash with the FCC.
In addition, if you go to BA's website, they themselves reference the unbundling issue in relation to DLCs, as well as describe the FCC rule - "The requirement that the underlying network components be made available to competitors in order to permit them to offer service based on these elements in any manner they desire could permit competitors to offer the data channel separate and apart from the voice channel."
from bellatlantic.com
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(excerpt)
There are a number of issues, primarily related to deployment of the service and unbundling of its component parts that will affect ADSL's future. Among them are:
Technical Considerations: ADSL technology can be used to deliver services to customers whose copper loops are within 12 kilofeet (about 2.3 miles) of a central office, or are served by up-to-date digital loop carrier (DLC) systems. There will be cases where some customers may be "loop qualified" for ADSL, while others served by the same central office are not because they more than 12 kilofeet from the central office. Thus, while high-speed data services eventually will reach most of Bell Atlantic's customer base, there may be technological challenges to deploying ADSL services in some areas.
Market Considerations: Market penetration by personal computers and
location relative to ADSL-capable central offices will play a key role in determining Bell Atlantic's ADSL deployment plans. As a result, the service may not be deployed in areas where distance limitations and PC market concentrations make it infeasible.
Competitive Resale of Service: Physical unbundling, as required by the FCC Local Competition Order and the 1996 Telecommunications Act, could lead to inefficient use of existing communications facilities. The requirement that the underlying network components be made available to competitors in order to permit them to offer service based on these elements in any manner they desire could permit competitors to offer the data channel separate and apart from the voice channel. This would require additional facilities to offer traditional voice service, ultimately causing an increase in overall costs to end-user customers regardless of whether they are served by Bell Atlantic or a competitive local exchange carrier
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As far as "tariffs" being paid - did you see this MCIC challenge (which follows AT&T's) earlier this week?:
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MCI Claims Bell Atlantic Breaks Pricing Agreement
WASHINGTON (AP)--MCI Communications Corp. (MCIC) accused Bell Atlantic Corp. (BEL) on Monday of breaking a pledge to federal regulators to charge it reasonable fees for hooking into local phone networks.
In a complaint to the Federal Communications Commission, MCI accused Bell Atlantic of violating an agreement with the government which paved the way for Bell Atlantic's takeover of another regional Bell company, Nynex, in August.
MCI, the nation's second-largest long distance carrier, contends that Bell Atlantic wants to charge it and other potential rivals more than they should be paying under the FCC agreement. That agreement doesn't stipulate specific prices for network access, but does lay out general pricing standards.
The complaint is similar to one AT&T, the No. 1 long-distance company, filed earlier this year against Bell Atlantic. Just as it did with AT&T's, Bell Atlantic rejected MCI's allegations.
Bell Atlantic said it is complying with both the spirit and the letter of the commitments the company made to the FCC, and is using the agreed-upon pricing standards.
The company said that the FCC does not require it to use a specific formula - the one favored by MCI and AT&T - to set rates.
But MCI said Bell Atlantic wants to charge higher prices than it is supposed to under the FCC agreement for access to its local phone networks in Pennsylvania, New Jersey, Delaware, West Virginia, Maryland, Virginia and the District of Columbia. AT&T had cited the same locations.
MCI said it wants the FCC to force Bell Atlantic to amend state pricing agreements to lower the rates Bell Atlantic charges rivals to plug into its networks.
"Dow Jones News Service"
"Copyright(c) 1997, Dow Jones & Company, Inc."
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As far as cable making the headway I suggested from the Forward Concepts report (7MM in 2001) your OWN reference confirms this (from Forrester projection and others).
(I have also read that cable is near 20%, but I don't have access to a url right now,so you can take it or leave it. I am neither long nor short any ADSL stocks, and have no agenda for discussing other than presenting information.)
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"...All told, cable companies are offering cable modem-based data services in systems that are available to about 11 million homes, and they show no signs of slowing down deployment, said Cynthia Brumfield, senior analyst at research firm Paul Kagan Associates, Carmel, Calif.
The availability of cable data services should continue to grow, analysts said. About 7 million households are expected to subscribe to cable modem-based services by 2001, according to a recent study by Forrester Research.
"Every month, three or four new launches occur," Kagen's Ms. Brumfield said. "Cable modems are unstoppable at this point. It's just a steady, upwardly successful deployment of this technology...."
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from techweb.com
So we could go (and HAVE gone) on and on. Needless to say, there is and will be uncertainty in this market. I have pointed out where I see weakness for a variety of reasons, and you seem to disagree. I hope you make a lot of money on WSTL. I think ADSL may remain a "year-off" chimera for awhile to come.
Of course, I have always acknowledged that all of my opinions may well be wrong, but from what I am seeing, I still remain cautious on WSTL.
Happy holidays, Bill and all.
Steve
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