More on the "Bandwidth Problem"
From NY Times Sunday January 17, 1999
At Last, a New Strategy for AT&T
By SETH SCHIESEL
Excerpts:
... Both AT&T and the regional Bells know that whatever competitor is first to offer customers an integrated package of local and long-distance service in a given market stands a good chance of holding on to that customer for the foreseeable future.
.... The problem for the Bells is that none has yet convinced the FCC that, as required by the Telecommunications Act of 1996, it has opened its local phone networks to competition enough to win entry to the long-distance market. Even as AT&T introduces local service over TCI's cables, the Bells will still have to face that test.
.. Bell Atlantic, the regional Bell serving 13 states from New England to Virginia, thinks it can put together a winning application sometime before the middle of this year. That would be later than originally anticipated but could still give Bell Atlantic a head start on AT&T in the lucrative Northeast.
Even then, the technology that Bell Atlantic would have to use -- providing high-speed Internet access over standard copper telephone wires -- appears to some analysts as less developed than the cable technology that AT&T plans to employ. (Bell Atlantic was one of the first companies to have the vision of delivering a full array of communications services over cable lines. But its proposed merger with TCI fell apart in 1993, the victim of regulatory uncertainties and concerns over the costs of upgrading TCI's systems.)
.. The flip side of Bell Atlantic's problem, though, is that AT&T's most cost-efficient technology for delivering phone calls over cable wires -- one that uses Internet systems -- is itself at least a year away. In Fremont and its other initial markets, AT&T plans to start out delivering phone calls using an older technology that could cost as much as $900 a house (though the company is counting on that figure being $550). The Internet option, however, could cost as little as $350 a house.
... The costs of delivering local services to all of TCI's 10 million customers could total as much as $6 billion, and those costs will be absorbed by AT&T's shareholders. Most analysts expect the TCI acquisition to dilute AT&T's earnings for at least three years.
... "The AT&T-TCI merger holds pro-competitive promise because it's a long-distance company joined with a cable company to compete against the local phone companies," Kennard said. "That's what all the hoopla is all about. But we need to make sure there's a commitment to deploy these networks to all residential consumers -- not only the affluent but to everybody, not only in the suburbs but also in the inner city."
... Nonetheless, the consensus -- both in the industry and on Wall Street -- is that by moving boldly to deliver his basket of services, Armstrong has given AT&T a new lease on market leadership. Investors have bid up the company's shares 73 percent since his hiring was announced, including a 29 percent increase since the announcement of the TCI deal in June.
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What stands out to me is both the willingness of AT&T to absorb the infrastructure cost and yet the Market evaluation from the bid up in AT&T share price. The Big Money is betting on the future viability of Armstrong's initiative.
The more I think about it, I am becoming of the opinion that the next replay of Ampex will be as an "Internet backbone company" or a supplier of Internet related equipment and hardware - as the component supplier of proven true top of the line storage and caching with "digital video know how."
This is exclusively high margin per unit top end equipment stuff and plays into Ampex's niche market selling style. Frankly, I don't think Ampex could handle a larger middle market operation. Hence, their "correct" close-out of the high volume low end MicroNet product lines. Also, IMO, a good reason why such things as the above posted CompUSA style business would be of no interest to Ampex.
Thus, I see the relevancy and immediacy of the MicroNet acquisition, and hopefully others like it, over and above the immediate need to start up a web hosting service. In fact, while the web hosting may induce a temporary stock market price pop, it could also result in an immediate source of ongoing cash drain. One must remember the Bramson's primary directive is the survival of Ampex as an ongoing corporate entity.
The model of valuation of equipment supplier to a "frontline" business is a common one in the investment community especially among the mutual fund set. For example, while a high profile company like Boeing must absorb all the political, currency and economic cycle risk, their suppliers can, with good timing, leverage up and ride the low cost high revenue stream for the duration of a Boeing bull business cycle. This gives the supplier a faster valuation rise.
If I am correct in these observations, then Ampex could get quite a ride from the sponsorship of Mutual Fund investment movements. Here, while fund managers are smart enough to spot a good price to value , they also suffer from "group think" and tend to rush all in the same direction.
While the high end DST is like an icon, way ahead of anything that any competitor can possible offer, the MicroNet product line is another. It will bear close watching to see the product market response to the new MicroNet products. I am very glad that Mike Cooper is in the driver's seat in this one. I am beginning to think that Cooper's selection had more forethought than happenstance to it.
As far as Bramson selling out, I don't think so. While I can not find it, there is a posting which quoted Bramson in a much earlier statement to shareholder's where, to paraphrase, he "..viewed Ampex as a means to make a mark going forward."
Ed Perry
PS: TA looks very good at this point, minor pull back with no follow through in volume. Translated, while new buyers, for the moment, are sitting on the sidelines, there are no real sellers of any consequence.
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