Hmmm... I went back and took a look at your math and his and there seems to be a discrepancy as to the total debt.
According to your analysis, the total debt would be $1.125b ($575m Tempo debt + $550m non-Tempo debt). However, his analysis shows $1.7b in total debt. This debt difference of $575m is problematic for your analysis because of accurate would produce negative per share equity valuations for the company, and require the bondholders to make concessions.
Also the $500 conversion cost cited, after many re-readings, appears to refer to the costs per sub for P* to convert its subs to high power using the 119 slot. With 2.3m subs x $500 per each conversion cost, you are generating another $1.15b of costs to the company. Worse yet, the company's problems with their bondholders make it unlikely they could raise the funds to complete a conversion to high power with a debt offering. Current stock prices would preclude an additional equity offering.
Of course, you may say why not leave P* as a medium-power service? The reason is simple: churn. Any further attempt to cling to the original model is likely to accelerate the churn rate, which is already at ruinous levels. Consider that P*'s acquisition costs per sub are by one estimate almost $600, by far the highest in the industry. Without a conversion, the 33%+ churn rate would leave them 3 years per existing customer. By that math, it will cost them $517.5m per year just to tread water ($600 in acquisition costs plus the cost of removing the equipment at $75 per lost sub x 2.3m subs).
Again, P* has no realistic way of paying for those costs. And no realistic way of reaching a breakeven through sub growth, either, when you consider that the company must first replace nearly 64,000 subs per month before it gains 1 new net subscriber.
Now, if they were to sell, I believe that similar costs would apply for either DISH or DTV to convert the subs to their services. Those costs would be adjusted for in the purchase price, since whoever buys P* would have to switch the subs over to their platform.
Which leaves me wondering "where is the equity?"
Regards,
NOEL |
