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Technology Stocks : The *NEW* Frank Coluccio Technology Forum -- Ignore unavailable to you. Want to Upgrade?

To: Frank A. Coluccio who wrote (4114)	10/21/2001 12:48:16 AM
From: Peter Ecclesine	Read Replies (1) \| Respond to of 46821

Hi Frank, My notes from Leo Hinderey's January 18 OFC keynote speech: US has 14 national network providers About 30-50 metro players 300 CLECs of which 75-80 are material 1300 ILECs of which 36 are material 18 regional network providers 18 leased network operators Now everyone is going after everyone else Tod Jacobs (Sept 8, 2000 report) of JP Morgan, now Morgan Chase, calculated that to cover the cost of new capital (14%): The Tod Jacobs JP Morgan/ Peter Ewens McKinsey Sept 8, 2000 Report on Long-haul telecom services ($10,000 price) Long Haul Return On Invested Capital (ROIC) = 1 [( (COGS + SG&A)/Sales) 70% + (Depreciation / Sales) 13.6% ] [Operating Margin(%) 16.4% X (Sales / Invested Capital) 1.2x ] [Pre-tax ROIC (%) 19.9% X Cash tax on EBIT(%) 1-35% ] = ROIC 12.9% barely covering 13% capital Table 12 2005E ROIC Change in 2005E Revenue EBITDA margin -10% 0 10% 20% 25% 7% 9% 11% 13% 30% 11% 13% 15% 18% 35% 14% 17% 20% 22% Analysis assumes normalized leverage ratios and ignores tax-loss carry forwards Scale and network utilization drive transport cost You need 30% EBITDA plus normal industry annual revenue growth to cover 13% capital And 25% EBITDA plus 20% annual growth above industry average covers 13% money But telecoms currently has 7% to 9% per annum revenue growth [You need $4 a month in free cashflow for each $100 of capex] <- rule of thumb Need to understand the inner workings of revenue, margin and leverage to know the business case We are entering a world of total mobility == At Fortune archives, search for Stephanie Mehta, esp 11/27/2000 Why Telecom Crashed == Then get the April 2001 Tod Jacobs followup report on IP networking == petere