Vogels report released today;
(PS Typing is mine, so any errors, typos, etc, will be my fault)
Hiking Price Target From $80 to $97 on Sharp Reduction in Technology Risk
Risk to WinStar's business plan has been sharply lowered with the successful commercial trial of point to multi point technology. As a result we are lowering our discount rate for WinStar from 20% to 18% resulting in a corresponding increase in our target from $80 to $97.
This is the most significant single risk reducing event for WinStar since the FCC's November 1997 report and order that sharply reduced regulatory risk to WinStar's vast specrum holdings.
What a successful commercial trial in April of 1998 means:
1) Concrete evidence that capital per building added will drop from $20,000 to $4,000.
2) The deployment of point to multi-point will likely be ahead of the original 4Q 98 schedule.
3) Point to multi-point is completely compatible with WinStar's existing customer care, provisioning, and billing systems.
4) The first true ATM network carrying streaming video, voice, CLASS services, and high speed data transfer can all coexist.
5) Our model for WinStar's ramp in customers, revenues and cash flows appear very conservative.
Decription of the Trial
On March 27, WinStar turned on two sectorized hubs in the Washington, D.C. metro area. Each hub has one 45 degree sector installed. Four target buildings are being supported with two on each hub site. Both hubs are interconnected through WinStar's switch at Tyson's Corner.
WinStar's Newbridge 36170 ATM switches at both hub sites are simultaneously supporting both voice and data traffic.
Applications include voice, LD voice, CLASS services, and desktop video conferencing supported at (?)320. However MPEG-2 will be supported with a soon to be delivered software upgrade.
Sector A on Hub #1 connects to Sector A on Hub #2. Data transfers over the air interface. Video, streaming applications; Video is on a server in one building sending to another.
T-1 data lines can be virtually configured for high speed data transfers on demand.
Internet E-mail is up and is supporting the transfer of J-PEG pictures of the development team.
High speed internet access has been enabled.
Voice quality is crystal clear, and all SS& CLASS features such as Caller ID, Call Forwarding, and *69 Call Return are all supported.
Why a Washington trial?
Intentionally done in Washington because roofs are all the same height. WinStar has proven that a point to multi-point 38 GHz broadband network can overlay an existing point to point system without minimal variation in roof height between hubs and target buildings.
Having proven that WinStar's point to multi-point technology can be deployed in an operating environment with a flat topology, we believe that the risk that point to multi-point would be limited in its application to cities with varied topology has been virtually eliminated.
Network performance was not affected by the heavy rains during the first two weeks of April.
Point to Multi-point Poised to Deliver Accelerated Deployment
Importantly, Hubs one and two are both using the existing WinStar customer care and billing systems. The compatibility of the systems assures that a new time consuming series of software interfaces will not need to be developed before full commercial deployment commenses.
Software Driven Service Provisioning Promises New Levels of Provisioning
WinStar's software driven command and control system emanates from a central control point once the basic physical network has been deployed. We estimate that after approvals, the physical antenna can be deployed on a target building and connected to the customer PBX and network servers in four days.
After the physical antenna is in place, WinStar's engineers can configure any service for the customer on demand. This includes voice grade equivalent lines, custom calling features. In addition, temporary enhancements to bandwidth to support a video conference call can be readily accommodated on an ad hoc basis.
Vendor Teams Bring Best in Class Skills in System Integration, Technology, and Manufacturing
Siemans is playing a key role as the systems integrator, assuring that the Newbridge ATM switches, Lucent 5ESS, and point to multi-point systems.
BNI, a Canadian firm recently purchased by Siemens, is providing the breakthrough Point to Multi-point technology.
Nortel brings depth in large scale manufacturing and testing capability for the BNI hardware.
Conclusion: Hiking our price target from $80 to $97 could prove conservative.
We believe that the success of WinStar's point to multi-point trial materially reduces the technology risk component of the firm's business plan. With the visibility of capital cost dropping from $20,000 to $4,000 per building connected on a nationwide basis, we believe that reducing our discount factor by 2% is conservative.
We believe that the magnitude of this announcement parallels the importance of the November FCC report, an order that materially reduced the regulatory risk associated with WinStar's national portfolio of broadband licenses. |
