Vogels comments thanks to SteveG
We are adjusting our third and fourth quarter 1998 model updated for lower average revenue per line projections. We believe that our projections were overly optimistic and were impacted by two factors:
-Summer Seasonality. It looks like $59 rather than $67 is a more realistic level for average revenue per line. This is the first full summer of activity for WinStar. Therefore, establishing a benchmark has been very difficult to forecast due to lack of experience. Importantly, revenue per month is marginally higher than the $58 observed in the second quarter.
-RBOC Strike Impacts. We believe that WinStar's line growth was held back by workforce strikes at U S WEST and Bell Atlantic. Together, the latter factors of summer seasonality and strike impacts slowed growth in revenue to 220% from 250% previously. Our revenue estimates of $65 million and $85 million for 3Q98 and 4Q98, respectively, correspond to full-year 1998 revenues of $254 million.
We are reconfirming our EBITDA loss estimates of $48 million and $47.5 million for third and fourth quarter 1998, respectively. We believe that WinStar is on track to grow access lines by 60,000 in 3Q98 and by 70,000 in 4Q98. For 1999, our new average revenue per line assumption of $68 corresponds to 109% growth of revenue at $531 million, as compared to 170% growth of $751 million previously. Our revised EBITDA loss estimate of ($120) million compares to ($98) million previously. Our new 1999 revenue estimate of $531 million assumes $68 average monthly revenue per line and our unchanged estimate of 435,000 access line additions.
Sharp Ramp in Access Line Additions. WinStar is executing a sharp ramp in building out markets that continues to drive growth in access lines and revenue. WinStar is building aggressively a nationwide CLEC that in just three years will boast over 300,000 access lines, in our opinion. After 12 years of operation, Teleport had just 282,700 access lines at year-end 1997.
Superior Capital Efficiency and Time-to-Market. We believe that WinStar, with its Wireless Fiber and multipoint technology, is on track to drop the incremental capital cost from $20,000 to $4,000
per on-net building connected. For fiber-based competitive local exchange carriers, capital cost per building is over $100,000 due to the need to permit, engineer and trench their networks from building to building. The latter differential gives WinStar a sustainable and superior long-term competitive advantage in reaching customers.
We reiterate our BUY recommendation on WinStar shares and our target price of $97.
WinStar Communications, Inc., is a national local communications company, serving customers with its Wireless Fiber sm
service utilizing its preeminent 38 GHz spectrum licenses. The company plans to penetrate the local markets with a “building
centric” strategy that swiftly leverages the firm's superior ability to deliver service at lower capital and operating costs faster
than their fiber-based peers. With just two years of operation, WinStar has amassed the third largest array of direct building
connections behind MFS/WorldCom and Teleport and the largest footprint of wireless local service capability in the country
with over 1 billion channel POPs in the top 50 markets.
PS The full report with tables is available in PDF format. PM me with e-mail address if anyone is interested. |
