Here's some nice reading...MDTV
Buy recommendation
Wall Street Daily
MDU COMMUNICATIONS, INC.
BUY RECOMMENDATION ISSUED
May 14, 1999
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** Buy Recommendation Issued on MDU Communications, Inc. **
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This edition of WallStreetDaily focuses on a unique company,
MDU Communications, Inc. (OTC BB: MDTV). MDTV operates in a
niche market with extraordinary revenue opportunities derived
through providing satellite television to the multi-dwelling
unit (MDU) market throughout Canada.
MDTV has a strategic alliance with StarChoice (VSE: STC) one
of the two providers of satellite television within the
Canadian market. This strategic alliance authorizes MDTV to
offer satellite television programming to the 2.2 million
MDU's in Canada.
MDTV has a strong backlog of MDU's waiting to be "wired";
the backlog more than doubles the current subscriber base
for their services. And MDTV is adding MDU's at an average
rate of approximately 1,000 units per week.
The revenue stream to MDTV consists of a $5.95 digital
access fee plus a 30% share of the programming fees received
by StarChoice from MDTV's clients. Based on the average
billing rate, MDTV currently shows revenue of up to $14.95
per MDU with the current average approximately $10.00.
MDTV enjoys an impressive gross revenue margin of 75%.
This revenue stream only considers satellite revenue,
however the company intends to potentially provide distance
learning, home security and other profitable voice and data
services, including Internet access and local phone service
to the MDU subscriber.
A BUY RECOMMENDATION was just issued on MDU
Communications, Inc. and it is reprinted below for the
benefit of subscribers.
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QUALITY STOCK QUARTERLY
106-22343 La Palma
Yurba Linda, California 92887
MDU Communications, Inc. STRONG BUY High Risk
108-11951 Hammersmithway
Richmond, BC, Canada V7A 5H9
(OTC BB: MDTV)
Shares Outstanding 9,221,335
Restricted Shares 5,200,000
MDU COMMUNICATIONS INC. PROGRAMS ITSELF FOR A
SIGNIFICANT NICHE IN THE DIRECT-TO-HOME SATELLITE INDUSTRY.
THE COMPANY
MDU Communications Inc. (OTC BB:MDTV) is a federally incorporated
Canadian company formed in 1998 and is based in Richmond, B.C.,
Canada. The Company's mandate is to become a leader in providing
wireless home entertainment and information technology to the
multi-dwelling unit (termed MDU'S) marketplace in Canada. MDU
Communications intends to provide a primary alternative to
existing cable television services now provided by several de
facto monopoly situations to 90% of Canadian households.
Satellite television remains the, Company's primary focus, but
other possible services include home security systems,
high-speed Internet access and local telephone services are
all excellent supplementary value added revenue sources.
THE OPPORTUNITY
The Company has been successful in breaching the various cable
companies' monopolies within the Canadian marketplace with its
more comprehensive range of programming than cable offerings
at a more competitively set price. Currently, there are two
satellite broadcasters licensed to operate in Canada...
StarChoice (VSE:STC) which is 49% owned by Shaw Communications
(TSE:SCL.B) and ExpressVu, a wholly-owned subsidiary of BCE
(TSE:BCE). In less than two years, these two companies have
jointly built a subscriber base of more than 350,000
households, representing 3% of the 11,000,000 Canadian homes
with televisions. It is important to note that despite their
impressive market penetration in a relatively short period
of time, these two major players have focused solely on
single family dwellings, mainly because multi-dwelling units
pose several unique technical and marketing challenges.
MDU Communications has solved these challenges by mounting
a single master dish on the roofs of multi-dwelling
buildings and installing a new distribution system which
utilizes the existing cable systems to individual units,
thus solving the southern exposure and the space problems
associated with this particular market segment. In order
to enhance its product range, the Company has entered
into a strategic alliance with StarChoice, and has signed
a formal ten-year contract. This agreement authorizes MDU
to market StarChoice broadcasting systems to the
multi-dwelling market and gives MDU a 30% share of the
gross subscriber revenues received by StarChoice from
these customers. There are no other national StarChoice
system operators for this specific market anywhere in
Canada, so the Company enjoys a monopoly now of its own.
And, once any building has been wired for direct-to-home
satellite services, the infrastructure is in place to
provide other communications services, too. Home security
services and local telephone services are both impressive
revenue sources which could easily be leveraged off this
infrastructure utilizing the same cables to distribute the
signals to individual dwelling units. There is an
additional revenue opportunity with the offering of
high-speed Internet access to these multi-dwelling unit
residents.
MDU is presently building its revenue structure by
focusing on major markets including Vancouver and the
Lower Mainland of British Columbia, and the greater
metropolitan area Toronto area, which combine to
represent more than 50% of all Canadian multi-dwelling
units.
INDUSTRY TRENDS
The communications marketplace in North America has
recently been in a state of massive change and several
important trends have developed. Advances in both
digital and satellite communications technologies can
now provide up to 350 audio, video and data channels
can be broadcast via satellite to subscribers across
the continent at prices very competitive with traditional
analog cable. These digital signals interface readily
with other information systems such as the Internet, and
are expanding rapidly. Older analog systems are being
replaced with superior digital systems, offering all
consumers flexible, higher quality services with more
choices ... at no increased cost.
Due to consumer demand, technological advances and
global market trends, there is a definitive move towards
increased competition. Deregulation in the
telecommunications industry has been supported by the
CRTC (Canadian Radio and Television Commission) with the
granting of two direct-to-home licenses to Star Choice
and ExpressVu, providing consumers with a competitive
alternative to the traditional cable providers. Within
the framework of existing legislation, MDU
Communications can now legally offer satellite home
entertainment and information technology services to the
multiple dwelling unit market. And more importantly,
the Company can provide these services with the support
of and without direct competition from the
direct-to-home service providers themselves. Hence the
alliance and the contract with Star Choice.
Although Canada represents a relatively new and
untested market, considerable success has been
experienced with the same structure in the more
mature U.S. market. Since its inception in 1994, the
U.S. direct-to-home market has already grown to over
7.5 million subscribers ... an 8% penetration rate.
And dovetailing perfectly into MDU's business model,
broadcasters such as DirecTV are now aggressively
targeting the multi-dwelling unit market through
alliances with distributors and satellite equipment
retailers.
THE SERVICE
MDU will provide each building with the hardware
required to receive the satellite signal. This
includes a satellite dish ( 1 meter in diameter )
and off-air antennae to be mounted on the building,
together with fibre or coaxial cable to link each
unit in the building with the rooftop equipment.
Many building systems using existing cables for
cable television service. Residents wishing to
subscribe to Star Choice programming pay a digital
access fee to MDU of $ 5.95 per month plus the
regular satellite programming fee. Those wishing
to keep their existing cable service will face no
interruption in service. Subscribers will be
given the full range of Star Choice programming ...
which allows customers to select and pay for only
the channels they wish to receive .... and will
be billed by Star Choice directly. MDU will incur
only the hardware costs associated with the
rooftop equipment and will not share in any of
the programming, billing or broadcasting costs
incurred by Star Choice. As new channels and
services (such as satellite Internet services),
distance learning and home security all become
available, they will be marketed to Company
subscribers along the existing network. This is
a unique marketing method because it allows MDU
the ultimate in providing choices of its
services to owners, managers and residents in
multi-dwelling units.
THE INCREASING WEAKNESSES OF CABLE COMPANIES.
Canada has historically been serviced by a
relatively small group of cable companies. For
years, these companies have protected themselves
from competition through government lobbying,
although the Canadian Radio-Television Commission
has recently implemented a number of sweeping reforms
to increase competition in the marketplace. The
Canadian government is presently proposing a ban of
negative option billing of new broadcast packages, a
common ploy to increase revenues. The cable
companies have also been accused by consumers of
poor packaging of products which have been structured
to maximize cable company profits. It is obvious
that there is currently a large number of cable
subscribers anxiously awaiting an alternative choice
for their broadcast access systems, thus
direct-to-home satellite system providers appear to
be in an excellent position to finally create a
valid element of competition within the industry.
THE COMPANY'S PROGRESS
MDU Communications Inc. began providing digital
communications to a subscriber base of 8,500
customers located in 55 multi-dwelling properties
across Canada. The Company has currently an additional
200 multi-dwelling sites and another potential 25,000
to come onstream shortly. To better serve the 2.2
million multi-units across Canada, the Company has
opened offices in Vancouver, Calgary, Winnipeg,
Saskatoon, Halifax, Toronto (2) and Ottawa. Recently,
MDU entered into an agreement with the new Hilton
Vancouver Airport Hotel to supply exclusively a
digital television system and a high speed Internet
system. This 237 suite facility will open in June,
1999.
KEY INVESTMENT CONSIDERATIONS.
MDU Communications Inc. is now positioned to accelerate
into a very profitable position in a very short period
of time with its contractual partner, StarChoice ...
one of the major contenders in the direct-to-home
satellite industry. With its focus on the relatively
untouched multi-dwelling unit market, the Company now
has the capability to "piggyback" on StarChoice's
marketing successes, without having to incur major
programming, billing and system setup costs.
The Company has an exceptional management team with
a cumulative 70 years experience in the
telecommunications field. With its 150 television
channels and its 60 music channels, MDU has a much
more comprehensive product mix than any other
provider. MDU has already established itself as the
dominant provider in the multi-dwelling market sector
... with virtually no competition in place. MDU is
presently ahead of its subscriber projections for
1999. Its revenue expectations for the years 2000
and 2001 respectively are $ 9,000,000 and $ 21,000,000
MDU's gross revenue margins are an impressive 75%.
Each MDU subscriber generates generous long-term
revenue streams, and the Company has demonstrated
some long-term planning with proposed value added
services such as high-speed Internet access, security
surveillance systems, information channels and other
profitable voice and data services including fiber
optics and the newly lucrative local telephone
system sales opportunity.
With its superior digital signal, an attractive,
competitive pricing structure for all consumers and
the Company's flexible choice system all combine to
make the Company a very competent suitor for a
market long since tired of monopolies which in the
past have provided out-moded, uncompetitive prices,
poor channel selections and overall generally negative
attitudes towards their captive consumer markets.
Presently, MDU is debt-free and is in the process
of completing the required funding in order to
implement the Company's very aggressive marketing
program across the country.
INVESTMENT RECOMMENDATION: A STRONG BUY.
Quality Stock Quarterly (hereinafter referred to as "QSQ")
is an independent research firm that produces investment
research reports. This report is based on QSQ's independent
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with respect to securities mentioned herein.
copyright Quality Stock Quarterly 1999. All rights
reserved. Additional information is available upon
request.
Quality Stock Quarterly
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