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Technology Stocks : Excel Communications -- Ignore unavailable to you. Want to Upgrade?

To: J. Brent Reeves who wrote (2416)	12/18/1997 3:23:00 PM
From: Rob S.	Read Replies (3) \| Respond to of 2806

Brent, I got that from IR and statements made during the conference calls. The latest press release said they purchased 2.8 million but didn't say specifically who from. If you remember how the Telco acquisition was structured it was part a cash and part a stock deal. The former directors and managers of Telco owned a considerable amount of the Telco shares so they now own a considerable amount of the shares used in the transaction. With the directors leaving, I expect them to cash out a significant percentage of their ECI shares. The company knows that if they let that increased float show up on the open market that it would push down the stock price. So they are purchasing the shares directly from the ex-Telco people who don't want to hang onto them. This is my understanding of the situation and is based on some guessing of what Excel's actions are likely to be. Excel says that they are being impacted by rapid growth in new customers and IRs. With the tripple bonuses on top of the usual costs, this costs them about $45 for each customer that signs up. That up front expense takes about three months of LD usage to start paying back. They said that Excel expects an increase of about 200,000 customers this quarter. This growth trend is expected to continue at least into next quarter. The commercial market push for the IR organization is expected to kick in around the end of December. Excel plans to double the number of commercial sales professionals to about 1,000 from the 500 Telco had. They have already hired a significant number of additional salespeople but I don't have an exact number. Commercial sales are still a relatively small percentage of overal sales but it is growing at a compounded rate of about 10% per quarter, making it hte highest growth segment of Excels business. That should help to continue or increase the growth. Another factor that is effecting earnings is the "Dime Deal" program. Over 60% of new customers and a significant number of exisiting ones have chosen to go with these lower rates. when Excel set up the program they said they expected to take a bit of a short-term hit to sales and earnings because it reduces overal sales and margins. The fed ruled that the local access providers will be required to lower their local connect charges by about 1.5c per connect. This will go into effect on January 1st and will have the effect of increasing Excel's margins by lowering costs. Excel is also considering a raise in intra-state calls in some areas where the local access telcos charge higher than average rates. As bad as the earnings revision looks, it appears to be caused primarily by the upfront impacts of growth and the conversion of customers to the "Dime Deal" program. This market does not treat earnings dissapointments with much sympathy. If Excel comes thru with earnings that meet the revised targets and provide a confirmation that solid growth has occured and is continuing, the stock will likely recover from its present level. If we get a further disappointment, the stock could head lower. Despite the fact that part of it will be likely be purchases of ex-Telco owners stock, the stock buy-back program is substantial enough to keep a floor under the price IMO.