IMPORTANT STORY FROM EXPORT TODAY
Thisweekend I spotted the following story from the March 1998
issue of EXPORT TODAY, "The Global Business and Technology
Magazine." You can read it at www.exporttoday.com
Even though it is a couple of months old, and is not about
Digitcom, it is very important because it confirms everything
we have been saying about the global telcom business, and
suports DGIV's business plan.
I have taken the liberty to bold-face items I consider important, and provide my own comments preceded
by RM:
GLOBAL TECH TELECOM RATES OF CHANGE
by Miles Maguire
You know you're in a tough business when your employer explains to you
that you are going to have to make a six- or seven-figure investment in the company simply if you want to keep your job. That's what top executives of AT&T were told in January when the
telecommunications giant unveiled a new competitive strategy.
RM: Remember what Macker said about the main AT&T exec bolting over to Global Link USA? And how the company we just bought in Indonesia owns 19.1% of Global Link USA?
Corporate officers were warned they would have to buy several
times the value of their salary in AT&T stock within five
years if they wanted to stay on the payroll. Similarly, members of
the board of directors were told they would have to pony up almost
half a million dollars to buy stock each if they wanted to keep
their seats.
RM: Mmmm.... wonder why? Forcing corporate loyalty? And how would they convince them to ante up that kind of money, unless they believed that there would be huge rewards in this market?
The goal is to "ensure that all AT&T employees and the AT&T board of
directors have more 'skin in the game' when it comes to AT&T's
financial success," the company's new chairman, C. Michael Armstrong,
said at the time.
RM: We don't have to put in millions, we are playing in the same
market for about $7.50 per share!!!!!
While such actions may seem extreme, these are in fact extreme
times in the $600 billion global telecommunications business. In one sense the industry is booming, with call volume growing at double-digit rates every year and with revenue "expected to... even triple within the next ten years," Federal Communications Commission's Gloria Tristani said in a recent speech.
RM: $600 Billion, with a "B." And yes, the industry is "booming."
Triple within ten years.. mmm remember the 50M contract for 10 years
that DGIV just got? Think there might be positive surprises?
Yet in an industry that Tristani said is growing at an astounding
"65% higher rate than the rest of the economy," carriers are
finding themselves anything but content. Instead, most are
struggling to find some balance between plummeting revenues for many mainstay products and the relentless need to round up huge sums of money to invest in new technologies, many of which may in turn further erode traditional pricing structures.
RM: Translation: the big boys are in trouble, because they are
having to retool for new technology such as VoIP
Disorienting? Sure, especially when some of the other challenges facing telecom executives are factored in, such as the pressing imperative to expand service offerings in numerous newly opened world markets, amid a constantly shifting array of regulations, even while fending off ever more aggressive foreign and domestic competitors trying to muscle into existing service areas.
RM: Translation: the big boys can't get in! Just what we've been
saying.
On the other hand, there probably has never been a better time than now to be a telecommunications customer, assuming the ability to somehow keep track of the rapid pace of change in the industry. The worldwide waves of deregulation, product innovation and financial restructuring sweeping through the industry almost every day are bringing new opportunities to international businesses, in the form of falling prices, expanding service options and an ever growing
range of tools and techniques for linking operations around the
globe.
RM: This is exactly what we have been saying, folks.
Falling Prices In the United States, the most important spur to growth
continues to come from the 15-year-old process of telecom deregulation.
The FCC estimates that in the last two years retail prices for
interstate long distance calls have fallen 5.3% while international
calling rates from the United States have dropped from an average of 84› per minute to less than 70› per minute.
The number of competitors in the industry jumped sharply in the
meantime, with the FCC saying that half of all Americans can choose from at least four wireless companies offering service in their region. In addition, new companies formed to provide local access in the United States under the 1996 telecommunications law tripled their customer base last year, and have raised $14 billion in capital over the last 24 months.
This process of deregulation has been slow to spread to other parts
of the world. With the exception of the British telecom market,
which has long been at least as open as the U.S. market, the rest of
Europe only really began to follow suit on Jan. 1 of this year [see ET, January 1998]. Across Latin America and Asia, moves towards full deregulation have been spotty at best.
RM: DGIV entered Europe first, then Russian, now Asia.
As of Feb. 5, however, the World Trade Organization's Agreement on
Basic Telecommunications Services has been in effect, covering 95% of
international telecommunications traffic. The agreement covers all
telecom technologies from submarine cables, to cell phone service, to
fixed wireless networks to satellite systems.
"The agreement will end the long-held view [around the world]
that telecommunications must be a monopoly service, and instead
allow new competitors to deploy efficient, cost-effective
technologies to tap unserved and underserved markets," Tristani said in her speech, delivered last month to Camacol, the Latin Chamber of
Commerce of the United States.
For international businesses, the payoff is expected to be
dramatic. The office of the United States Trade Representative
has predicted that the price of international calls in North and South
America will fall by 80% over the next five years. But while the trend
toward deregulation is clear, progress has been uneven and is likely to remain so.
"The range of liberalizations under WTO varies widely," Tristani said,
"from Chile, which has a fully liberalized market, to many of the
nations of Central America, which are just initiating privatization and opening up to competition."
The WTO process, she added, does allow for "different models [to be]
followed. Mexico, for example, privatized its state-owned telecom
monopoly, Telmex, in 1990 and opened many of its sectors to private
competition. Brazil has made the headlines for opening up competition in its cellular services."
But common to all the markets covered by the WTO agreement is the
promise to allow U.S.-owned carriers to provide more locally-aimed
services.
RM: Mmm... such as DGIV buying an Indonesian telco?
"The agreement ensures that U.S. companies can acquire, establish or
hold a significant stake in telecom companies around the world,"
Tristani said. In addition, the agreement calls for individual nations
to review their regulatory structures to ensure that the theory of open access can become a reality.
"The agreement implicitly recognizes that a country's regulatory
structure serves as the gateway for the development of its telecom
markets. Open markets and national treatment are insufficient to spur
growth and development if regulatory practices are unknown,
invisible, or worse yet, disparately applied," Tristani said.
RM: Jimmy Chin seems to know regulatory structures , they are visible to him, and he is applying them :-)
Slow Pace. But assuring such stability and certainty in all the world's affected markets will be no small task. Even in Mexico, where telecom
services are covered by the NAFTA agreement as well as the WTO pledge,
providers report problems in implementing new services.
In early February, for instance, MCI said it was putting its investments in the country on hold because of its frustration with the pace of deregulation. "MCI is proud of its investment in Mexico," MCI Chairman Gerald Taylor said at the time. "But that investment cannot succeed if our expectations of a reasonably competitive environment, going in, remains no more than a distant hope on a fading horizon."
RM: Translation: the big boys can't get in!
Mexico is not alone in having barriers to competition that can
thwart the professed policy of open markets.
One of the key issues that most affects telecom customers in the near
term has been the setting of "settlement rates," which are fees that a
U.S. carrier must pay to a foreign carrier when connecting a call in a
foreign country.
"These rates currently exceed the foreign carriers' actual costs for
terminating the call, sometimes as high as 10 or 15 times cost,"
Tristani said. "The effect on U.S. consumers is that we pay on average
13› per minute for a domestic long distance call, and 88› per minute for an international call. But the actual difference in economic cost is only a few cents."
The FCC has already taken strong moves to end this practice, mainly by
unilaterally phasing in new limits as to the amount that U.S. carriers
can pay foreign carriers in settlement rates.
The major carriers are moving aggressively to take advantage of the new
opportunities in the marketplace, but the results so far look much
more favorable to their customers than to their shareholders.
RM: Unlike DGIV, which has been very favorable to its shareholders! Can anyone say "undervalued?"
Sprint's efforts to provide customers with an integrated international
service illustrate the costs for the carrier, even while they are
providing more and better tools to their clients.
In its year-end report for 1997, Sprint reported widening losses in several of its newer ventures, including its international service called Global One, which it operates in conjunction with Deutsche Telekom and France Telecom.
RM Translation: the big boys are having a hard time competing,
whereas companies like DGIV with their low-cost, efficient technology
are beating them to the punch.
Sprint characterized Global One as a success in terms of both serving
customers and in "achieving strong acceptance from multinational
companies, with revenues exceeding $1.1 billion in 1997."
In the wake of the collapse of the MCI-British Telcom alliance and the
troubles with AT&T's international efforts, Sprint was able to make a
case for Global One as being "firmly established as the leading
international telecommunications alliance."
RM: Translation: the big boys are in trouble
But costs have been higher than expected, the company reported, as the
three carriers have struggled to integrate their networks. Sprint's
losses on that effort more than doubled in 1997 from the 1996 level,
rising from 15› per share to 33› per share.
RM: Translation: we do not have losses; we have positive earnings.
That's because we have new technology, we have cheap technology, we have low overhead, and we are penetrating international markets
Bottom line: we own an extremely undervalued company that is giving even the AT&T's of the world a run for their money! At under $8 a share! |
