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Any opinions on how this company will ever get off the ground.?
Just some back of the envelope calculations show a company in trouble and I don't know who would lend them any $$ (except for vendor capital financing for switches, base stations, etc. which is contingent on finding more financing)
Look at a simple business case (using standard wireless industry averages)- assuming GSMI has 1) 1.5 million potential customers 2) spends $30 per Pop to build the network, 3) can finance their junk debt at 10% (not!!), 4) spends $300 acquisition cost per customer, 5) spends $30 per month in cash costs (Customer Svc, Admin, etc), 6) pays the FCC back the $18 million it owes, 7) has a 2.5% per month churn rate, 8) has a average revenue per customer per month of $45, and 9) is able to secure 25% (one of three or four competitors) in the market immediately and keep 25% forever (not likely competing against strong brands like CellularOne, Sprint, Bell Atlantic, etc.).
My calculations show a company that will drown in interest payments and cannot be free cash flow positive (in five years still -20 million in free cash). I am roughly defining free cash flow as operating cash flow minus capital and interest expense. In wireless, scale and scope is critical. Building-out a rural network is more expensive (per POP) than in large cities. Acquisition costs rise because of the increased cost of handsets compared to competition who can buy in bulk Everything costs more. When you have the interest expense that GSMI will have, controlling costs is critical. Even when I make my assumptions more optimisitic than outlined here, I show a company that cannot generate any free cash in the future (looking out five years) even if they can add 150,000 customers over that time!! (free cash flow is important Wall St measure of wireless company profitability). Furthermore, the management team is primarily a 30 something team with accounting experience and no wireless operator experience. Not a slam-just a fact.
The only hope is the Omnipoint like strategy and get bought-out by whoever will try to build and operate the future, nationwide GSM network (WorldCom?, BT?, Vodafone?, SBC?, etc.) Fortunately for Omnipoint, they have George Schmitt as President (launched largest GSM network in world in Germany and "legend" in the industry with huge connections) and are in major cities with strategic value to a large Telcom provider, I think Waterville Maine, Hornell NY, and Burlington, VT are not in that class of importance. But even Omnipoint will turn Operating Cash Flow positive next year and free cash flow positive the following year. Omnipoint has also had to go for multiple rounds of obtaining difficult and unfavorable financing- and it is much easier for Omnipoint since they have George Schmitt, NYC, Boston, Phily, etc. as assets and also 300,000+ customers.
If someone can show me how GSMI can show a return to shareholders (i.e., no more reverse splits), I am listening. I apoligize if this sounds harsh, but I think this is objective and reality. I think the bottom line is that they overpaid for the licenses, do not have the scope and scale of larger carriers to offset that FCC auction price tag, and do not have a management team capable of operating and competing in wireless. If they do find some magic and secure financing, this stock would be a great short after the jump on the financing news!! IMO
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