PE, some poster comments and snips from the keynote speech by Hindery at a _CIBC_ luncheon, courtesy of Keith on the gilderboards. Is this what you were looking for? He dug up this post that was posted by Jay Omega in January:
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A keynote CIBC luncheon speech made by former Global Crossing CEO,
Leo Hindery , Jan 17, 2001. I have listed excerpts below. Find the
full audio at :
biz.yahoo.com
My own take after listening was that there is not a lot that would
shock GTR readers except the statement ( made twice in the speech)
that IP services aren't growing anywhere near the "doubling every 100
days" rate that has been promoted around here. That is a BIG Issue in
my book, though HIndery seems to suggest that it isn't about growth in
the industry as a whole which matters to investors, but rather who
can execute well and take the market that is there. Hindery blasts
Greenspan a bit and then predicts a "perfect storm" coming. An
industry shake-out and then consolidation. Companies will compete and
lower their rates to customers. He recommends two journalists articles
and gives Gx a little plug.
The following are some snippets from that audio This is a quick
transposition by moi. Apologies for any typos, etc.
Leo Hindery Speaks:
...One of the best public analysts of the telecom sector today is
today of Stephanie Mada of Fortune Magazine. ..Strongly, strongly
urge you to read and study at length her Nov 27th cover story.
Another superb industry analyst...is Todd Jacobs of J.P. Morgan ,
now Morgan Chase whose September 8th study is stunning,- simply
stunning in its thoroughness and similarly worthy of your careful
review....
..The drum beats are now loud. In general, Stephanie's, Todd's and my
own macro views can be summarized as follows:
First, while the cumulative growth over time in IP data will be every
bit as explosive as often predicted, positioning IP as by far the
dominant form of traffic on the long haul networks, it is neither as
additive as was once contemplated, nor will it occur at the almost
ridiculous per annum growth rates projected by some. While such
traffic is doubling about every year, it is certainly not, as some
suggest, doubling every three or four months.
Second, continued very high investment in new technologies by all
transport providers will be necessary to meet the competition and to
lower costs, with the somewhat perverse effect that carriers will be
almost compelled to further cut prices in order to compete.
Third, legacy voice and data services will struggle as share moves
over to key IP-based services resulting is slowing aggregate industry
revenue growth.
Fourth, turmoil will be everywhere, as challengers, well heeled and
otherwise, continue to go after incumbents and incumbents wrestle with
external and internal cannibalization and crushing, crushing
restructuring issues.
Fifth, underlying economic forces, both industry specific and general, will challenge returns on captial and strain overleverage How doesa sector, how does a sector which even after downward adjustments is still likely to have a 7 to 9 per cent per annum overall revenue growth over the next 5 years get painted with such heavy brush strokes. How does the Wall Street Journal come to write on October 19th, an article entitled " Operators of Fiber Optic Networks Face
Capacity Glut, Falling Prices." The answer in part is in the title Stephanie Mada chose for her very important November 27th Fortune article, which was " It is only when you look closely a the inner workings of this 70 billion dollar industry, that you begin to understand why telecom crashed." The answer in part is also in one of the questions posed to me by CIBC when they invited me to speak with you. Namely, "of the 30 to 50 players going after the metro market, how many do you think will be successful?"
Never in the history of industry-of any industry- has the shear
number of competitors and the form and extent of their competitive
responses been so underestimated and so misunderstood by investors ,
lenders and senior managers alike. In turn, never have the
implications of technology advancements been so underestimated and
again, so misunderstood. And all the time governments worldwide have
been deregulating and privatizing telecom services , often in the most
undisciplined ways with little or no sense of the numerical or
competitive consequences.
... there are the four RBOC's whose power of incumbency is proving
to be far greater than many of us ever imagined....
At the same time advancements , as we all know, in wave technologies
and in optical technology wave have become exponential allowing again,
as we have all seen first hand, ever-increasing amounts of data over a
single fiber strand.
...With these more than 1300 domestic industry participants, the
future is simply not about aggregate industry revenue growth. Rather,
it is about the inner workings of revenue, and margin and leverage.
And if you happen to be associated with a corporate participant in the
industry, whether as a manager, a lender or an investor, it is a
whole lot - a whole lot - about the revenue and the profitability of
that individual company.
As I have commented, IP-based services, while growing robustly, are
not nearly as additive as once thought. And they now appear set to
simply take -simply take significant share from legacy services. In
response, the incumbent legacy providers are going to use the full
power of their incumbency to come after the IP providers and at the
same time after any and all of the 300 encroaching CLEC's. All in
all, everyone will be going after everyone else, and the entire
telecom industry will face considerable turmoil as challengers seek
disruption and incumbents restructure. All this time, the capital
markets will simply stand-down until the turmoil abates and
importantly until the prospects for return - the prospects for return
on new invested capital - dramatically improve from the current
pressed pro-forma level of around 9 per cent. Which is as much as 5
per cent less-5 per cent less than the industry average cost of new
capital...
The number of telecom participants spawned by the 1996 Act and by the
ready capital of 1997 to 1999 is simply factors to many without nearly
the differentiation needed to separate the deserving wheat from the
undeserving chafe. ......
.....
Consolidation, when it comes and however it comes, will bring
substantial stability. Stability in turn will bring sustainable rather
than spot traffic and quality execution, coupled with thoughtful
efforts aimed at differentiation will restore the prospects for
acceptable returns on invested capital and the embrace, once again of
the capital markets. Especially the equity capital markets.
But, only with such consolidation and only with such quality execution
will the perfect storm which is building ahead abate. And become
again the perfect opportunity. And such perfect opportunity is still ,
in my opinion, richly deserved by this industry measured by a whole,
and it is even more richly deserved by certain select companies in
it. Which I believe my old company, Global Crossing may in fact and
certainly is one...
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