1/2OT> Opportunities in telecom markets, both in U.S. and internationally, remain attractive; of course they do, and more so in Telephony Companies.
October 8, 1998 COMMUNICATIONS DAILY via NewsEdge
Corporation : SAN ANTONIO -- Upheaval in
financial markets triggered by Asian worries
and other factors will end soon, Wall St.
analysts and telecom experts said at
CompTel conference here Tues. as they
urged competitive LECs (CLECs) and other
carriers to be patient and maintain business
plans. Opportunities in telecom markets, both
in U.S. and internationally, remain attractive
and experts were confounded by sharp drop
in share prices for many competitors, some
having fallen 60%-80% since summer highs.
"Investors will recognize the opportunity and
will return to the group," said James Henry,
assoc. dir., Bear, Stearns. At same time, Bell
companies have enjoyed market-bucking rise
in price, reflecting stronger balance sheet
and dividends. "It boggles my mind" that
CLEC shares have been hurt, said Jack
Grubman, managing dir., Salomon Smith
Barney Global Telecom Research unit.
Popularity of new entrants during bull market
drew 23 companies into capital and equity
markets, with at least 12 more now
considering entering market, analysts said.
Current market downturn, however, has
prompted several companies to withdraw or
postpone initial public offerings. "The capital
markets have been tough," Henry said, and
carriers shouldn't let such market activities
"get in the way of their growth." Riyad Said,
senior analyst, Friedman, Billings, Ramsey
(FBR), said "huge" institutional sell-off,
record redemptions of high-yield bond mutual
funds of nearly $1.3 billion in May-June, and
"flight to liquidity" are temporary, and
although economic uncertainty "has not yet
run its course, " he was optimistic of
rebound.
Current financial trends also could fuel new
round of consolidations, either to expand
customer base, improve geographic
clustering or add new products, panelists
said. Congress is likely to scrutinize intensely
each announced big merger -- SBC and
Ameritech, Bell Atlantic and GTE, AT&T and
TCI -- looking for potential anticompetitive
aspects, Grubman said. "That will be the
forum for Congress to express its views" on
level of competition in local market, he said.
Henry and Said agreed lawmakers are unlikely
to revisit or revise Telecom Act in any
substantial way. Grubman said: "There's zero
chance of the Telecom Act being rewritten."
Analysts said that even while public equity
markets have soured on some stocks,
especially highly leveraged CLECs, several
other funding channels through private
equity markets, vendor financing and even
credit markets all remain interested in sector,
experts said. Henry said InterMedia
Communications recently obtained $750
million line of credit that will provide financing
through 2000. said that Lucent, Nortel
Networks, Cisco Systems and other vendors
are willing to arrange attractive financial
terms, deferring payments until new entrants
are more established. Grubman said such
financial arrangements are causing new set
of worries for investors, who have depressed
equipment segment shares, such as Lucent.
Grubman, who also addressed small dinner
audience late Mon., said telecom market was
heading toward "stratified" model in which
6-7 "fully integrated" carriers will operate on
global basis, providing all services needed for
multinational companies. MCI WorldCom is
furthest toward achieving goal, he said,
adding that Salomon participated in
MCI-WorldCom deal. Company is only carrier
with end-to-end service, operating in
100-150 major world cities with its long
distance network, undersea cable facilities,
Internet backbone. Other potential
megacarriers, he said, are Deutsche
Telekom-France Telecom, Nippon Telegraph
& Telephone, SBC, Bell Atlantic. He said AT&
T has been "outflanked" by competitors and
its TCI purchase still lacked economic model
that would show return on investment.
Global telecom market is about $800 billion
business, Grubman said, with nearly 75% of
all traffic originating or terminating in 6
countries: France, Germany, Italy, Japan,
U.K., U.S. Just 20 nations account for 90%
of global traffic, and 40% of traffic "touches
the U.S.," with 20% reaching Europe and
15% hitting major hubs in Asia, he said.
Global strategy also makes sense, he said,
when 50,000-100,000 multinational
companies account for 25%-30% of all global
telecom traffic. He told CompTel audience
that many represented " strategic assets" for
global players, such as WorldCom. Rest of
industry will include some regional and local
carriers and niche players that provide
specialized services, perhaps even on resale
basis to global carriers, he said. |
