OK, although you can't argue with the numbers and growth, here's my bear story. I've had these fears for awhile and was hoping they'd put them to rest yesterday, but they didn't.
I'm not real sure I liked the on-net numbers. To recap;
In their "mature markets", which they defined as switched with at least 4 hubs, which included NY, LA, Boston, DC, and Dallas, they had 30% of the customers on-net. Nationwide, including cities without the infrastructure, they were 15% on-net (which probably means if you take out these 5 cities, they're probably about zero percent on-net in the rest of the nation).
(Side info; LA and Boston went on-line 2Q last year, meaning they've been up a year, DC and Dallas went on line 3Q '97)
We know NY has to be the largest, and we know it was greater than 50% on-net after one year and is currently at 50%. They've been in the other four mature markets for at least one year on average. If we assumed all markets to be the same size and take out NY at 50%, that leaves the other four currently at only 25% on-net after about one year. If you assume NY to be larger than the others, the on-net for the other four falls below 25%. In the same time period that NY got to 50%. Yet they tell us they are duplicating New Yorks numbers thru the rest of their markets. Doesn't seem to add up to me. Also, it seems that since NY was their first trial, they ought to be speeding up the migration to on-net, if anything.
Also a little odd, Chicago was one of the first switches installed during the 2Q '97, yet it is not included as one of their "mature markets" and nothing is ever said of it. It is also, as I understand it, the city Reagan was going to raise issues about a few months back before he was silenced. So whats up in Chicago???
I know revenues and EBITDA are performing as expected, but what is the trouble getting customers on-net? It appears the markets after NY are migrating on-net at less than 50% of the rate that NY did. But they keep telling us that all other markets are progressing just as NY did. There has to be an answer, but I haven't found or heard it.
I also get nervous when I hear about troubles like Paul's old company when WinStar tried to put them on-net. (Although I guess it didn't get Paul nervous, although the company did run Paul off :-))
(Other info for others; for the 70% of customers not fully on net, WinStar is only realizing a 5-15% margin for those on resold lines or 25-30% margin for those partially on-net (thru WinStar's switch but resold lines). But when a customer is put fully on net, these margins increase to 60-65%. So it seems important to get these customers on-net ASAP. Equally important, once a customer is on-net, WinStar can be responsible 100% for their customer service, and not be jerked around at the whims of the RBOC's.)
So there you have it. Any thoughts anyone? |
