I listened to MSPG's conference call about the Netcom purchase last night, and here are my notes from it. I typed them up while I was on hold on E*Trade for 45 minutes. I never got through. Waited another 90 minutes tonight, didn't get through then either. Tsk tsk tsk...
Please be aware that these are just my notes, not necessarily the salient points of the CC as they might be reported by a professional stock analyst. I didn't take notes on things I felt I couldn't explain, understood very well already, or didn't understand at all.
In attendance were CB, Mike Misikoff (SP?) the CFO, and a passel of other muckety-mucks whose names I didn't write down.
- Netcom has 400k dialup customers, avg. revenue/customer about $22/month (slightly higher than MSPG). Netcom's lowest-priced plan is $19.95/month, with several more expensive premium offerings.
- Netcom has 18k Web hosting customers (effectively doubles MSPG # of web hosting customers), avg. revenue about $58/customer/month.
- 3k dedicated access customers, a new business line for MSPG, about avg. revenue $520/customer/month. (Dedicated access = T1-3 lines & fractional T1)
- Estimate Netcom's 1998 revenue "for these businesses" to be $140m.
- Netcom's business has historically been unprofitable or barely so; MSPG expects margins to be bought in line with MSPG's historical margins.
- MSPG is very excited about Netcom employees they will absorb, emphasized quality of these individuals repeatedly, more often than basic politeness calls for.
- Netcom's # of dialup subs has been stable for several Qs. Stable, as in not shrinking but not growing either. MSPG acknowledged both good & bad aspects of this.
- ICG forming a new company called PST Inc (PST=Packet Switched Technologies I think) to wholesale network access. MSPG has a 1 year deal to buy network services from this company incl POPs. In the event that PST's service turns sour, MSPG appears to be well insulated with service level agreements. (They learned from their experience w/PSINet!) MSPG stated that margins for these network services are pretty close to in house network cost.
- New POPs will establish a presence in "about 80 to 100 new cities" that they didn't have access to.
- Not sure about continued existence of Netcom as brand name.
- No significant impact on cap. ex. for building POPs.
- CB says web hosting business is "probably" higher margin than dialup
- MSPG resisting analysts' attempts to put per subscriber valuation on deal; emphasize whole value.
- Netcom's back end software, net structure, etc. closer to MSPG's existing structure than any previous acquisition which will ease integration. Paraphrase from a MSPG rep -- 'we would not have embarked on an acquisition of this magnitude if the Sprynet transition wasn't going extremely well'. The phrase "extremely well" is a direct quote. Later another MSPG rep said basically the same thing but used a less emphatic phrase that I can't remember.
- Only 50% of Netcom's network upgraded from 28.8 to 56k modems (ouch)
- Netcom churn is about 5% (2-3% higher than MSPG's), MSPG of course seeks to reduce this number. I think the MSPG rep phrased it as "At first an area of concern, but later an opportunity". In other words, this is a way MSPG can cut fat from the business it just purchased.
- Netcom customer support is currently done by a 3rd party; MSPG will probably move this in house.
_ CB refused to be pinned down on "what's next". Open to more acquisitions (as if that was in doubt?)
- Larger customer base gives MSPG more leverage in negotiation about bband access.
- 4Q earnings "right about where expectations are", will be announced after 1/27 bell.
Peace,
Mr Bones |
