The Phantoms' Wake Up Call Email Hotlist" (tm)
January 14, 1997
This is a special update that is going out to all subscribers and is approved for rebroadcast. NO EMBARGO
The importance of the following note is in seeing how the industry places a valuation or price tag on national ISP's that cater to the business customer. Note, Teleport is paying approximately 7 x revenues for Cerfnet. What was Teleport paying for, customers, or infrastructure or both. What do you think FNET, with proprietary equipment and a 800# niche is worth?
This represents the first clue as to providing a reference point from which to place a valuation on FNET.
With FNET presently having on site potential capacity to service 166,000 customers at an average monthly revenue of $22 that equals close to 44 million dollars annual revenues x7, would give FNET a valuation of close to $300 million dollars at full capacity. Granted they are not near that capacity, but based on the 21,000 customers they are ramping up for by sometime February, that in itself is worth $5.5 mill in revenues x 7 would equal $37.5 million at present day valuations.
If you take look at the spread from low to high, that means FNET is worth between $2.00 and $15 per share based on what the industry wants to pay (market value). Assuming FNET continues to add business customers, and the infrastructure is upgraded by new technologies coming on line, FNET can only appreciate from here. This doesn't even take into consideration what FTEL and the equipment side of the equation would add to the value, but it is easy to quickly realize the present under valuation of Franklin shares. I have always maintained that Franklin is presently worth a conservative $3.50 to $5.00 per share and I think this serves as a testament.
When the full impact of what separates FNET from just another ISP is realized, 7x revenues may be considered cheap.
Study the following press release and see if you can see the correlation's between FNET and CerfNet, their target markets, etc. With consolidation of the primo ISP's underway, FNET is a tasty morsel in the eyes of
the communication industry, and the more uniqueness and proprietary technologies that are employed, the more it is going to show up on the radar screen of any acquisition minded company. With both GTE and WCOM closely linked, I don't think you have to look far to see who might be in FNET's future.
Here's the CerfNet story:
(TCG/CERFNET)(TCGI) TCG to acquire CERFnet Services: creates
new nationwide leader in premier Internet and telecommunications
services for businesses
Business Editors
NEW YORK--(BUSINESS WIRE)--Jan. 13, 1997--Teleport
Communications Group Inc. (TCG), the nation's leading competitive
local telephone company, announced today that it will acquire CERFnet
Services Inc., a recognized leader in advanced business Internet and
Web services, creating a new, nationwide leader in advanced
telecommunications and sophisticated Internet services.
TCG will acquire CERFnet from General Atomics and its affiliates
in exchange for 2.1 million shares of TCG Class A common stock.
"This will be a powerful combination with compelling synergies,"
said Bob Annunziata, TCG's Chairman, President and CEO. "TCG will
provide CERFnet's customer base with sophisticated telecommunications
services, while CERFnet will provide TCG's customer base with equally
high-quality Internet services. With CERFnet, TCG acquires one of
the most technically advanced and financially sound companies in the
Internet industry."
San Diego, CA-based CERFnet, one of the nation's oldest Internet
Providers, serves more than 6,000 sophisticated corporate and
professional customers, including leading financial services
companies, academic institutions, health care and entertainment
companies, government services, defense contractors, utilities, major
computer and software companies. Since TCG serves similar users in
57 major markets across the country, CERFnet will accelerate its
nationwide business as its superior Internet services are packaged
with TCG's complimentary telecommunications services.
Both companies also share a tradition of innovation and
entrepreneurship, said Mr. Annunziata. "CERFnet's history, customer
focus, corporate culture and successful financial performance closely
parallel TCG's: Both companies are founders of their respective
industries, both provide superior, innovative services to the same
types of corporate users, both have grown quickly but prudently, and,
perhaps uniquely, both are producing positive operating cash flows."
CERFnet is expected to generate preliminary operating results of $1.8
million of EBITDA (earnings before ynterest, taxes, depreciation, and
amortization) on revenues of approximately $9.3 million for fiscal
1996, according to Pushpendra Mohta, CERFnet's Executive Vice
President.
"The Internet business model has changed dramatically since we
first participated in setting up the Internet in 1989," said Mr.
Mohta. "The business of Internet access is moving closer to the
wire. Demand for bandwidth continues to accelerate and
facilities-based ISPs like CERFnet will have a distinct advantage in
cost and reliability."
Mr. Mohta will assume the position of Vice President of Internet
Service with TCG after the acquisition is completed.
"The people at CERFnet have been pioneers in developing, refining
and perfecting Internet and Web technologies and services, " said
Mr. Annunziata. "Pushpendra Mohta has been one of the significant
players in each evolutionary phase of the Internet since 1989 and
will be a valuable addition to TCG's management team."
CERFnet was formed in 1989 by General Atomics as a founding
participant in the National Science Foundation Network (NSFnet) that
has evolved into the Internet. Today, CERFnet provides a full range
of Internet-related services for corporate clients, including dial-up
and dedicated Internet access, Web hosting and co-location services
and Internet training. CERFnet is one of only a few Internet Service
Providers classified as a "Tier 1" ISP. (Tier 1 ISPs are the major
ISPs which interconnect with each other as peers and provide access
to the Internet for all other ISPs.)
CERFnet's nationwide backbone network, which uses redundant,
high-speed DS3 (45 mbps) links to accommodate high-volume traffic and
ensure reliability, is scheduled to be upgraded to 155 mbps in the
first quarter of 1997. Currently, CERFnet provides customers with
Internet access speeds ranging from 28.8 kbps to 45 mbps over
dedicated high-speed digital lines as well as through leading edge
technologies such as Asynchronous Transfer Mode (ATM) and Integrated
Services Digital Network (ISDN).
Mr. Annunziata noted that TCG's high quality fiber optic local
networks, which have ISDN and ATM capabilities, are ideal for
CERFnet's high speed dedicated access and switched links, and that
these types of applications are examples of the strongly synergistic
cross-marketing he expects between TCG and CERFnet after the merger.
TCG is the nation's largest and most experienced provider of
competitive local exchange services for information intensive
businesses. Through its fiber optic based networks, TCG currently
serves 57 major markets, offering the most advanced private line,
switched and data services. TCG recently announced plans to build
eight new fiber optic networks in 1997 that when completed will raise
the number of markets served to 65. TCG is traded on the NASDAQ
National Market and is traded under the symbol: TCGI.
Additional information about TCG is available on the Internet at:
tcg.com CERFnet is one of the largest and oldest
commercial Internet service providers for business in the nation. In
addition to providing cost-effective, high-speed access to the
Internet, CERFnet offers a complete range of Web hosting and related
services to business.
More information about CERFnet is available on the Internet at:
cerf.net
General Atomics was founded in 1955 and is engaged in diversified
research and development of advanced technologies in energy and
defense.
--30--ss/ny*
CONTACT: TCG
Roger Cawley (media), 718/355 2122
Nancy Huson (investors), 908/392 2154
KEYWORD: NEW YORK CALIFORNIA
INDUSTRY KEYWORD: TELECOMMUNICATIONS
INTERACTIVE/MULTIMEDIA/INTERNET MERGERS/ACQ
REPEATS: New York 212-752-9600 or 800-221-2462; Boston 617-236-4266 or
800-225-2030; SF 415-986-4422 or 800-227-0845; LA 310-820-9473
Today's News On The Net - Business Wire's full file on the Internet
with Hyperlinks to your home page.
URL: businesswire.com
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