Nearly all the fourth quarter data is in now, so it’s time to take another look at some of the metrics for companies in the sector side by side. I have added fourth quarter data for two additional companies to the usual competitive mix: newly independent Lumos Networks (NASDAQ:LMOS, news, filings) and the increasingly hybridized ILEC/CLEC Windstream (NYSE:WIN, news, filings) (pro forma). Today let’s look at a plot of ebitda margin trends over time:
Adjusted EBITDA Margin for Competitive Network Operators
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Most trends continue with minor amounts of noise, although it is easy to see the initial drag on margins for Level 3 from the Global Crossing deal – integration will bring that back up over time. Zayo and Cogent continued to march upward, while AboveNet and tw telecom have simply maintained their existing levels for some time, and Sprint continues their slow slide. CBeyond’s preliminary results show a nice margin boost, not that they get much credit for it currently.
Lumos and Windstream both check in with quite high EBITDA margins, which derives in part from the RLEC sides of their businesses. PAETEC in particular had EBITDA margins in the teens, but the other side of Windstream offsets this in a big way. Lumos’s competitive EBITDA margins are actually quite, err, competitive, and their RLEC business is smaller in comparison. I’ve decided to draw the line at anything wireline, but not wireless (which is why Sprint’s numbers aren’t their overall results). Other companies may qualify for this list, but they take time to add so be patient.
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Categories: CLEC · Financials · Metro fiber
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Ron, where do you expect these numbers to go from here?
To compare EBITDA margins with Level 3, one needs to factor in, oops I mean leave out the T in EBITDA, because of the NOL’s.
level3, the “T” is already left out because of the “B” which stands for BEFORE. EBITDA is Earning BEFORE Interest, TAXES, Depreciation and Amortization.
I’m not a fan of EBITDA, especially for a company like Level3 which has such a huge “I”.
Twelve Month Trailing (TTM) Levered FCF is how all these companies should be measured.
anon,
you make the obvious point on ebitda but miss the subtle point l3 made, to get an apples-to-apples comparison you should tax the ebitda of the other companies lowering their ebitda or to keep the lingo the same we should be comparing EBIDA. It is not a small point but it is one Wall Street misses when putting together their comp tables.
SI
schmuckinsurance, so you’re suggesting we should pick and choose the relevant elements of EBITDA you want to add, subtract, overemphasize or under-emphasize?
Why not ding Level3 because they carry substantially more debt (thus bigger “I”) than any other carrier on the list.
Equally relevant, Level3 is hardly the only company on the above list with NOLs. Paetec, Cbeyond, Broadview, etc. all have NOLs.
The NOLs for these companies may not be as large, primarily because they’re significantly smaller companies than Level3; it’s not as if these companies have been rolling in earnings over the last several years.
Most relevant, of course, is that these other carriers also carry substantially less debt than Level3, suggesting that a greater percentage of every dollar of EBITDA is available to shareholders.
I come back to my original point, TTM Levered FCF is far more relevant than EBITDA. Much can be hidden under the proverbial “line” with EBITDA. One simple example, carriers not paying their vendors treat vendor late payment charges (LPCs) as a finance charge, inflating EBITDA by hiding the finance charge as part of the “I” in EBITDA as opposed to a COS.
Fcf is the right multiple now that we are there.
On ebitda, L3 does gave higher interest expense though the adavantage of not being a 40% tax payer for this decade is a larger benefit even today, than their higher interest expense which is high this year but will be in their 3-5x range by the time the merger synergies ramp. So, economically adjusting ebitda isn’t the conversation a shareholder wants to have but given, the difference btw the ‘ I’ and ‘ T’ are accelerating the discussion is moot bc we can start talking about fcf.
Anon, why not drop yourself a distinguishing name for accountability purposes – maybe “Anon NOL”
I firmly believe TTM Levered FCF is the right measure, even when the value is negative. Companies, of course, don’t like to be measured on a negative value — I suspect because they think investors prefer buying positive data points rather than negative ones — so they choose to report on EBITDA or adjusted EBITDA which turn positive well before FCF does.
But it’s very easy to hide relevant data below the line, inflating EBITDA reported numbers. Aggressive finance/accounting departments can get quite creative in their ability to bury needle moving expenses. It’s much harder to manipulate Levered FCF data.
Moreover, individual investors that don’t truly understand how EBITDA is calculated can be more easily shocked when positive EBITDA is accompanied by sliding stock performance.
I like being anonymous because for better or worse I prefer that my comments be evaluated on their own merits or demerits rather than on the name that accompanied them. 🙂
Anonymous, you keep looking in your rear view mirror with TTM, but you must look AHEAD, and not stop LOOKING AHEAD!
Let me be clear to tell you that Level 3’s “substantial debt” vs. other CLEC’s is reflective in their significant “F” or FOOTPRINT standing at almost $40B in “cost new” investments during a fourteen year period still counting.
It’s that F, which is going to lead us to HUGE FCF’s!
Regarding accounting, if you’re attempting to imply “dubious methods” are being undertaken by this management team, I recommend you call that BOZO on cnbc who knows that Level 3 has always, and will always, “do the right thing” when it comes to accounting with much HISTORY on its side including but NOT limited to Qwest SWAP accounting, and Joe Nacchio, “I am not a crook,” before they carted him off with CUFFS!
By the way, are you Anonymous 1 or 2, since Mr. Powell should make sure the same “handle” from CB DAYS isn’t being used by a different IP address. I seem to have gotten the feeling that this has been the case with “Anonymous” posters on this board!
BOOYAH Anonymous’!!!!!!!!!!!!!
Carl, you can have a forward looking 12 month Levered FCF. You just need to include four quarters of data because cash flows are lumpy. Capital expenditures are usually more aggressive in early quarters and often times non-existent in Q4. Higher interest payments may occur in Qs 2&4 rather than 1&3.
As for the quality of Level3’s EBITDA reporting, I’m not implying anything. I merely said there are very simple ways to become creative in moving numbers below the line to hide costs and inflate EBITDA. I don’t know if Level3 is engaging in them but I have been around companies that have which poisons the metric, as it calls into question all companies. (Btw, i’m not implying anything illegal just merely creative and perhaps a bit misleading.) My only point is that EBITDA can be fudged much more easily than Levered FCF.
Anonymous, as I have repeated on this board before, you are too intelligent to be ignored although redundant to a fault. I seem to have come in contact with you in the past, haven’t I? I know this pseudo on the Yahoo Finance board who calls himself LVLT ROBBER, is this you again?
Here’s what I don’t understand.
Why are you afraid to post your real name here, if you are not attempting to disparage certain companies you are betting against?
Wouldn’t you prefer to be respected by your peers in telecom, as opposed to hiding behind this ugly veil which is attributed to an internationally infamous HACKING OPERATION?
Be a stand up person, and stop hiding behind these lies you put up on this board. You are attempting to insult the collective intelligence of this board’s brain trust, and they will seek you out, if you’re going to keep this charade up. imo
Now I know why CarlK is the only regular poster on TR: he chases off everyone else, especially people who know what they’re talking about.
Conversation developing in an interesting way? CarlK will drop in and make them wish that they hadn’t bothered.
have not posted on Level 3’s Yahoo Finance board.
Although I’m not betting against Level3, I’ve expressed many times my reservations about their achieving the synergy numbers many believe are so certain.
Anyone who has worked in this industry knows how many circuits must be optimized, moved, disconnected, groomed to achieve 200m+ in annual savings. Anyone who has ever been engaged in due diligence for a horizontal merger knows how many basic assumptions are made to estimate synergy savings from the new company. And anyone who has ever been around long enough after a horizontal merger knows that many many estimates made during due diligence don’t materialize.
As I’ve said before, time will tell just how successful this merger is. Key metric for me will be gross margin % mixed with revenue growth. (For example, shedding low gross margin % carrier voice revenue may grow company gross margin % but if it’s not replaced with new high margin services revenue the levered FCF will not materialize as forecasted.)
I’m certainly not looking for any sort of validation by posting my comments on this or any board. So respect is not an outcome I’m seeking.
Like many I enjoy a good spirited exchange provided that it’s grounded in sound reasoning . I don’t suffer fools easily and, at the same time, am very comfortable being wrong.
You bring up a couple of excellent points in favor of the synergies which will be derived from this MNA vs. those in the metro space, which were more “vertical” in nature from (3)’s perspective, especially tied to the percentage “margin savings” in the form of labor, access costs, but most importantly, “growth” opportunities from the morphing or transitioning from off net 70 percent expenditures to on net 20 percent expenditures for making these seamless, end to end “circuit connections” that keep you awake at night.
I have already explained (3)’s successful prior, ease of integrating “horizontal models” including Wiltel and Broadwing in the past; therefore, when you take the size of the combined entities’ “wholesale voice” revenue products which will be methodically moved over to on net, by bundling “voice” which carries little in the way of “bandwidth bits” to an on net opportunity for ENTERPRISES to be more “creative” in accelerating video based features and services both internally and externally, there is great reason for bit use OPTIMISM at this snapshot in time.
Okay, I’ve had it. Please, no more acronyms (although “EBITDA” is acceptable as it is so long). Also, you commenters, please imagine that the reader may not be financially expert. I and, I believe, many other readers consider telecom an exciting business sector and even understand the basic nature and strategies of the various types of businesses within the segment. My sense is that this website, of all websites, may contain the keenest analysis of the U.S. telecom business, especially in relation to facilities-based operations. However, the apparent assumption by many commenters (this includes you, CarlK) that readers know whatever you know about financial terms and analysis limits the opportunity for readers to learn from this site. I’m not asking that you dumb it down but that you consider possibly beginning your explications of your analyses one logical step earlier (lower) on occasion and mentioning the actual phrase or term for which an acronym stands when you first mention it in your initial posting for an article. Thanks!
Another way to examine this phenomenon by looking deep underneath Big (3)’s hood, would be to think about (3) swapping $1B or less than 1/6th of their revenue base now containing low gross margin voice at 30 percent, part of legacy copper days goneby, for $2B in new bit traffic commitments for video services at 80 percent gross margins.
Would you like VOIP with your NEW IP VIDEO CHANNELS?
$300M or $1.6B to the bottom line, which will be better and how fast?
The other thing to ponder across the globe is how gross margins will continue expanding inclusive of Global Crossing in addition to new acquisitions coming DOWN PIKE! Can we get to 90 percent?
Big (3)’s MASSIVE F or “FOOTPRINT” approaching $40B in cost new investment capital maintains the size, scope and scale to continue being “The Network Partner” businesses will “RELY ON!”
You can count on that because THE PUMP is ON, and the PIPES are being FILLED with VIDEO!
And Paul, in order to help you further with this hypothetical not far from ultimate reality, if I may, the post above should have read, which is better “towards” the bottom line? Because Gross Margin(GM) as defined by LVLT is the part of their factory that is owned and paid for in advance of ongoing annual maintenance capex, aka, capital expenditures, whereby they need not “outsource” to 3rd party telecoms/competitors in order to finish or complete those “circuit connections” be they pure Internet Protocol (IP) i.e. glass fiber or some hybrid mix that includes old copper in making connections for end users come true/through.
That was fantastic. Although I suspect you went further than you would willingly do normally and maybe further than I’m even asking you to do. But I very much appreciate the effort and the results.
Truth is Paul, and you’ll just have to believe me as being credible vs. others who might be phantoms hiding here, is that I was in the middle of expanding on the margin post, and posted it, right before seeing your plea for “simplicity.”
“It’s so simple.” Charles T. Munger 🙂
Carl, I think you need to re-read my comment. Unfortunately, I really don’t understand what you’re trying to say so I won’t try to respond to it.
Crowe and Storey have said the synergy savings are not based on new revenue but lowering network expense. Put simply, they are based on moving off-net circuits onto the Level3 network, plain and simple. Gross Margins on voice for both companies are quite thin so I don’t think there’s a ton of margin improvement on the variable (per minute) part of the cost structure. However, optimizing the infrastructure on which the voice traffic rides will yield savings but that falls under the “moving circuits” category.
I’m not sure you have any idea how many circuits have to be moved to generate 200m+ in annual savings, but I’ll try to explain. Believe it or not the bulk of the circuits that will generate the savings are at the DS1 & DS3 level although I’m sure there’s plenty of OC level circuits too.
Average cost for a DS1 is roughly $150/month or $1800/yr while average DS3 is around $750/month or $9000/year. Let’s make this exercise easy and assume all circuits are DS3. (DS3 is a higher capacity circuit than a DS1 so I’m giving Level3 the benefit here.) With average cost of a DS3 at $750/month or $9000/year, to get 200m+ in annual savings means you’ve got to move roughly 22k circuits or 1800 per month on top of your ordinary additions from new sales and disconnects from customer losses. (The number is probably higher than 22k as discussed below and because some of the savings come from lower cost DS1 moves.)
That 1800+ moves per month also includes the vendor disconnect orders that must be placed. That is quite a huge task that’s made even more daunting when coupled with new customer adds and old customer disconnects.
Keep in mind, also, that moving a circuit “on-net” — i.e., on to the Level3 network from a third party’s network — is not a 100% saving because there are card and equipment costs when you add a new circuit to your network. Therefore, as suggested above, to get the $200m in savings will probably require moving more circuits than the 22k proposed above.
Let’s also not forget that assumptions made during due diligence about which circuits can be moved may after deeper analysis not prove in without large capital expenditures or building out network. This will cut into the synergy number as well.
Finally, Level3 will have to be mindful of the term (duration) the circuits being terminated were ordered under. Carriers give steep discounts when a circuit is ordered for a five year term rather than a one year term. This means there can be early termination liability on many circuits if disconnected too early.
So what should analysts ask Level3 management?
(1) How many circuits do you have to move to achieve your 200m in network savings?
(2) How many moves can you do per month, including the adds and disconnects you do in the normal course of your business?
(3) How many moves did you make this quarter?
(4) What is the early termination liability to move the circuits?
(5) How many moves do you intend to make by Q3? Q4? 2013Q1 and Q2?
(6) Who is accountable for that success or failure?
On paper mergers are quite simple. Plug in a bunch of numbers on a spreadsheet and you get giant savings. However, bringing in those savings as planned without disrupting other parts of your business is quite another task. It can be done but Level3 has yet to demonstrate to investors that it can do both.
Anonymous,
I am watching this bantering by you going back and forth with Mr. Carlk here, and I can’t help but commenting on some of your assumptions.
“I’m not sure you have any idea how many circuits have to be moved to generate 200m+ in annual savings, but I’ll try to explain. Believe it or not the bulk of the circuits that will generate the savings are at the DS1 & DS3 level although I’m sure there’s plenty of OC level circuits too.”
You claim to know how many circuits there are to be moved. Throwing out numbers like 200m+, but your math doesn’t add up.
1) Where did you ever come up with 22K DS1/DS2 circuits from? Grab that from the air or can you back that up with some “real” industry stats since you claimed to be working in the industry and an industry veteran?
2) You kind of quickly glided through the numbers by saying “although I’m sure there’s plenty of OC level circuits too.” So, you don’t know how many OC level circuits there are? You seem to know the numbers for DS1 and DS3, how come you don’t know the exact numbers for OC level circuits, Mr. Industry Veteran?
If you claim to be an industry veteran, these numbers should be easy for you to come up with, right? Just let the facts speak for themselves because I don’t think it would do your credibility any justice if you just throw out numbers like that without facts.
Oh, BTW: DS1 and DS3 are 2000 technologies. I HIGHLY DOUBT if LVLT pays for GLBC to consolidate DS1 and DS3 circuits.
let’s be clear, I don’t know how many circuits they have to move. I’m merely backing into the number from the $200m network expense savings number that Storey and Crowe have provided. (You can find that 200m number sifting through Level3 presentations at the SEC’s site. SEC Reg-FD requires Level3 to disclose to the public what they’ve disclosed with analysts.)
The 22k is an estimate which I back into using real industry average prices for DS3 for a carrier Level3’s size.
As much as Level3 would love nothing more than to have 100% of their network and customers to be ethernet based, the reality is it’s not. DS1s, DS3s, OC-3s, etc. still make up the preponderance of the Level3 inventory. Same applies for Global Crossing. Sorry if you don’t believe me.
I’m very familiar with both Level3 and Global Crossing’s network.
Perhaps you can tell me how Level3 is going to achieve 200m in network savings?
DDM08, let me also add, that I’m not going to upload my resume to support my comments. Either you find my comments useful and informed or you don’t.
I’m very comfortable with you thinking I’m a quack. I would prefer, however, that you challenged me with a better set of facts rather than with the “I don’t believe you” attack.
“let’s be clear, I don’t know how many circuits they have to move. I’m merely backing into the number from the $200m network expense savings number that Storey and Crowe have provided. (You can find that 200m number sifting through Level3 presentations at the SEC’s site. SEC Reg-FD requires Level3 to disclose to the public what they’ve disclosed with analysts.)
The 22k is an estimate which I back into using real industry average prices for DS3 for a carrier Level3′s size.”
Anonymous, as others here have righfully pointed out, not registering here as a legit poster and posting as “Anonymous”, you have shown us your motives. Your motives here are not to inform and share with us, but your motives here are to hash up a bunch of unsubstantiated facts and ask us to go dig up the facts? Is this your strategy? I highly doubt if you have an economic interest in LVLT or not. Think about it. If you didn’t, you wouldn’t be so quick at responding to my inquiry. This leads me to conclude that you have ulterior motives here.
And based upon your comments above, it tells me that you just grab stats out of the sky or out of your @$$ and make go dig up the finer details.
You claim that you are backing into Crowe and Storey’s numbers. Really? When did Crowe and Storey ever presented the 22K circuit numbers as a point of reference? I would love to see a link of it. Furthermore, I have seen almost every LVLT presentation and read every LVLT filing, I have never seen such numbers being mentioned as a point of reference.
So, the “22K estimate” here seems to me like something you grab from you know what and ask us to believe it. Furthermore, I find it comical that you would have a cost associated with DS1 and DS3, but yet, you don’t dare to post a number on OC-3, OC-12, OC-48, OC-96, OC-192 etc… What’s matter? Can’t grab those numbers from somewhere as “estimates”?
Anonymous, you don’t need to upload your resume to prove anything. We all know who you are and what your motives are.
A “real professional veteran” would know his facts inside out… Plain and simple!
BTW: Anonymous, if you had a “real substantiated set of facts” to begin with, I would not question your credibility. Throwing out numbers and making others go search for the real facts is not something I would consider credible. If you claim to be an industry veteran and know your facts, you would not have any problem backing up any of your claims.
Just to insert a few facts here. Level 3 has projected a total of $340M in initial annual synergies, of which just 39% are expected to be network expense, or about $133M. (49% opex, 12% capex)
When I put together my ‘miss scenario’ a couple weeks back I actually assumed they would still be working on the last $50-100M of integration expenses after 18 months of integration, and it is also reasonable to believe that the netex synergies would make up a disproportionate part of that last piece because anonymous’s basic point that this stuff ain’t easy and moving lots of circuits takes time is valid.
In the end, we on the outside will never have the necessary granularity to do more than hand-wave our way through this. It comes down to whether you believe that the numbers put out by management are reasonable or you don’t. Only reality will prove that out over time.
DDM08, uncle. You win.
“anonymous’s basic point that this stuff ain’t easy and moving lots of circuits takes time is valid.”
Rob, I didn’t discount his comments about the moving circuits takes time. Been there and done that to understand these kind of system integration complexities. That’s not my beef with his comments. My argument is based on his stats of the 22k units of DS1 and DS3 circuits, and the OC circuits movements.
Anonymous, just a comment for you. You are not correct because someone else on here agree with you; you are correct because your facts and your reasoning are correct. At the end of the day, that’s what matters.
I wasn’t trying to side with either of you on this, just to add a bit of perspective. I have no idea how many circuits must be moved or how fast they can move them, as I am not an insider and the company isn’t giving out that data. I’m just saying that in my own model I assumed this to be difficult and still found that Level 3’s financials blossomed.
CarlK,
Put the foot to the floor and rev up the top line, then pop the Level (3) clutch to bring in the huge huge free cash flows with no taxes, that will pop all eyeballs around the globe!
Yes Carl please please keep it simple, so we all can better understand your brillant insight.
“It’s so simple.” Charles T. Munger
I’m not smarter than a third (3) grader – I’m a dumb pipe with QoS.
Please forgive me for not signing in and accidentally posting above as Anonymous. Carl knows me as Ben Graham.
I had trouble, because of the following poor U.S.A. quality of service that is provided by the dying legacy Bell & Cable guys, via throttling access.
For viewers annoyed with having to sit through frequent spinning buffer icons that delay programming, demand Level 3 end to end service for a flawless connection!
ddm08, You are a breathe of fresh air, I’ll inhale all your Kool aid.
Paul, I hope CarlK listens to your advice, because I too have difficulty understanding all of his complex thinking. So, Carl please hand my head to me without disrupting the flow of the all the content bits you have to offer us. We all need to rely on you big brother. It may as well be you that connects us to the truth.
http://bearonbusiness.com/methodology-for-measuring-equity-value-creation-2
EBITDA is a simple metric. Often, differences in percentages simply expose differences in business model instead of relative performance. The job of all these companies is to create equity value for their shareholders. Yet, calculating equity value created from actual results is elusive. Please take a look at the link for my thoughts as to how to MEASURE equity value creation.
LOL!
The mixing and melding of voice via voip with data plans, and satellite to fill the gaps bringing employees inside and outside the enterprise together as ONE!
http://finance.yahoo.com/news/brf-brasil-foods-optimizes-communications-130000026.html
CarlK, Your Level 3 Foot print in Latin America is huge!
Also, on the EBITDA topic of this thread, Dan Caruso pointed us to a link that said this:
* The true value of a company is its Intrinsic Value. A management team cannot become overly reliant on EBITDA multiple to estimate Intrinsic Value. Instead, the management team must be on a never-ending quest to improve its determination of Intrinsic Value based on ever-improving understanding of what its cash flows will really be.
* Intrinsic Value is based on forward looking cash flows, not past results. Therefore, judgment must be applied as to how prior importance will inform future results.
O. Mason Hawkins has said Level 3’s free cash flows will be HUGE, HUGE! So, stop looking in the rear view mirror – Think Ahead.
EBITDA works pretty well as a measure of Intrinsic Value if earnings derive largely from long-term contracts and there are significant barriers preventing other providers from entering the market. Metro-fiber providers typically have these characteristics.
As I was studying Dan Caruso’s well thought out value creating analysis, I couldn’t stop but thinking, is this not the reason for capital intense industries, especially ones being embarked upon to radically change the communications industry into perpetuity AHEAD of its time, to be PARTNERING with its government as part of a PUBLIC/PRIVATE enterprise for advancing society as a whole, instead of being left to fend for itself as a result of being connected to those short term DEN of VIPERS on Wall Street?
So far, although Big (3) would fail miserably at meeting the metrics that Dan proposes to his board routinely, the MASSIVE F towards the HUGE FCF’s in IV tomorrow that Level 3 has SUNK in the GROUND, has been with limited public assistance.
In order to catapult their people into the 21st Century, finally, The U.S. Govt. is going to need to kick their INTEREST in the Level 3 Network up a FEW NOTCHES!
Carl K…. pleasssssseeeee… let’s keep government out of the private sector
The government needs private lines of communication, which Level 3 was thinking a head when it buried 12 empty conduits for fiber, not white mice. Level 3 is ready to deliver all the Federal, State, and city services, just like what CarlK pointed out in the press release of Level 3 in Latin America. The USA is becoming (3) Third World Country. By that I mean America will become dependent on LVLT to deliver voice, data, and video over an all IP fiber optic network built for the future. Zayo And Level 3 would make great partners!
Dan, you have another very smart, telecom maven friend, one who I consider a friend, who agrees with you wholeheartedly.
My point was more to the fact confirmed by a Deutsche Bank Analyst during a Clearwire conference last week, that being, Wall Street can’t see beyond its nose more than three months.
It would be for this reason that they would gang up on a publicly held corporation with capital intense business operations, disaggregating along with disrupting prior telecom monopolies built on the wrong model, in the case, utility, for bringing about revolutionary communication systems in America, positioning its people in a way only imagined by cartoonists and futurists 40-50, maybe even 60 years ago.
I understand intuitively what you and your friend might disdain in having Big Brother sticking their noses into your business, although at least in your case, the venture capitalists are insulating you from this Wall Street Beast who aims to devour its prey, at least until such a point in time that they want their pound of flesh in the form of an “exit strategy,” including going public.
This being said, every once in one hundred years or so, rare exceptions where capital markets are more forgiving, or accommodating, must somehow be made because Adam Smith’s “Invisible Hand” would not exist otherwise, much to the chagrin of mankind’s development during the process.
I believe Level 3 has always been that “rare exception” with little help from Wall Street, and has managed to survive in spite of Wall Street.
For this they deserve many rewards beyond medals including but not limited to the ones my friend Ben Graham, level3, or is it “ANONYMOUS” has pointed out? 🙂
He’s also right that you and Big (3) would make great partners, again, but don’t you try to expand that last NOSE BLEEDING MULTIPLE you had once extracted from Jim Crowe! 🙂
Carl, can you translate this carl-bonics into english? i know the meaning of every word in your paragraph below yet I have no idea what the paragraph actually says.
“It would be for this reason that they would gang up on a publicly held corporation with capital intense business operations, disaggregating along with disrupting prior telecom monopolies built on the wrong model, in the case, utility, for bringing about revolutionary communication systems in America, positioning its people in a way only imagined by cartoonists and futurists 40-50, maybe even 60 years ago.”
#carlbonics should be in allcaps. #CARLBONICS!
In simplest terms, Wall Street was not, and is not, the right vehicle for bringing a company like Level 3 to market. A public/private partnership would have been better during the development stage. That’s fourteen years hindsight speaking.
The partnerships are coming in the shapes and sizes that level3/ben graham/anonymous/skibare has identified here, however.
On a similar note according to my thinking, Australia, by memory, may have embarked on a better strategic initiative for ensuring ubiquitous internet to to their citizens, although I have not followed how that plan has been going along recently.
Last night, from my rack, I had a video chat with my son mobile to mobile, with video and audio clarity/percision, i.e. telepresence, that would have made George Jettson’s family jealous. It was TMobile’s data plan, which significantly trumps their wireless voice, which has been degrading of late, comparatively.
”Going to synergies. In the fourth quarter of 2011, we achieved approximately $37 million of run rate adjusted EBITDA synergies with network expense synergies of roughly $10 million and operating expense synergies of roughly $27 million.”’
the comment above is from sunit in February. I hope that might help the discussion
toddforthree, very interesting. I just read the Q4 earnings call transcript where Sunit made that statement. Saying it and seeing it in the financials is the challenge. As i said above (on March 3):
“Key metric for me will be gross margin % mixed with revenue growth. (For example, shedding low gross margin % carrier voice revenue may grow company gross margin % but if it’s not replaced with new high margin services revenue the levered FCF will not materialize as forecasted.)”
Although I’ve been accused (by DDM08) as a poser, presumably because I didn’t provide OC-3, 12 & 48 costs which would have been irrelevant to the point I was making that most of the disconnected circuits would be at the DS3 level, I stand behind my quote above (and, for the record, my 22k+ DS3 disconnect scenario).
(DDM08, you are right about one thing, I don’t know off the top of my head the average price of OC-x circuits. I’m not quite sure how that makes me a fraud. In the first place OC-x circuits were not my point and in the second place I wasn’t going to WAG a number I wasn’t comfortable giving. It bears noting that I also couldn’t explain the physics behind dense wave division multiplexing other than to say that the equipment tunes multiple waves lengths onto single mode fiber and requires amplifiers and/or repeaters every so many miles to mitigate attenuation . Maybe you do, but I don’t know many telecom professionals that could tell you the local loop cost for a DS1/DS3/OC12/48/196/etc, an intra-state minute of termination in Iowa & Cuba, a gigE loop, an edge router, a core router, rack space at 111 8th, a cross-connect at Wilshire, an 800 intrastate dip charge, local termination cost in atlanta, the FCC’s current position on inter-carrier compensation or net neutrality, separations accounting rules, all the MFJ’s findings, dark & dim fiber costs in oregon, ILEC house and riser cable unbundling obligations, etc. This is a big and complex business and I don’t presume that anyone will be an expert on everything. Nor do I assume that because someone is not an expert on something that they’re not a telecom professional.)
But I digress, 🙂 main point here is that either consolidated GM% and Rev grow together or Level3 will have problems meeting the levered FCF numbers that will produce significant shareholder returns.
So going forward the three most important metrics will be:
(1) (levered) FCF
(2) GM%
(3) Rev
I’ve thought a bit about GM%, and wondered if it could grow while FCF doesn’t. The answer, I believe, is maybe. For example, I’m not sure if Level3 could somehow find a way to capitalize the disconnect costs to spread them out over multiple quarters thereby increasing GM% (by lowering quarterly cost of sales expenses tied to the disconnects). The cash expense, however, would be real and that would lower FCF. (I’m just not sure you could get away with capitalizing those expenses, including any early termination liability expense, but a creative accountant may have a different opinion.) Less creatively and more likely, I suppose you could and Level3 will treat some of those costs as running one-time merger related costs that will be reported separate from Cost of Sales. This too will inflate Gross margins but drag down FCF.
Anyway, I hope that Sunit and Level3 will continue reporting those numbers publicly and, if necessary, explain how they’re being reflected in the financial statements.
as a colleague just teased me, it should have been OC-192, not 196 — hah!! there you go, further proof positive that I’m not an expert on everything.
hence the term, ICB
Anonymous, I thought I heard someone said, “DDM08, uncle. You win.”
Yet, you want to continue this? Let me repeat myself again. You are not right because your coworkers there or anyone here agree with you; you are right because your data lead you to the correct conclusion.
So, let me reiterate my question one more time. Where in the bloody hell did you come up with 22K circuits? Up in the air or from somewhere the sun doesn’t shine?
Once again, ddm08, i NEVER said that Level3 executives provided that number. I challenge you to find in any of my comments where I said Level3 executives stated 22k circuits would be migrated.
What I did say is that I backed into that number from a (then) inflated 200m network expense number that according to Rob is actually 133m. So am I reducing my total by 37%? no, because Level3 will not get 100% savings on every move. There will be a reduction in expense but not a 100% elimination of expense.
My assumptions were made based on what I know about the Level3/Global Crossing circuit inventory. You obviously don’t believe me and as I said i’m fine with that.
But make no mistake about it, the bulk of the optimize-eligible circuit inventory is not made up of gigE and OC-48-192 circuits.
I don’t know if you’ve ever completed or even seen an Access Service Request (ASR) form, provisioned a local loop or off-net facility, migrated a set of circuits to a hubbed facility, schedule hot cuts, etc. but it’s a time-consuming pain in the ass activity complete with fat finger, scheduling and early termination liability mistakes.
You seem to be under the impression that all that’s necessary to get this 133m in network expense savings is migrating a few OC-192s (got it right this time) and gigEs, maybe even light some dark fiber here and there. Maybe that comes from a belief that level3 and global crossing’s network was all high capacity circuits. In the backbone, certainly. But when you get into metro markets while level3’s footprint is much larger than Global Crossing’s it’s not as high cap as you might think especially when you leave the Level 3 POPs which you eventually have to do if you want to turn up customers. Rationalizing two separate feature group networks is equally challenging. This is not just flip-a-switch type work.
Since you clearly think I have no idea what I’m talking about, I’m asking you, as I have above, where you think this network expense savings is coming from and how they’re going to achieve it. (I’m not asking you to do my thinking. I’ve done that already. I’m asking you how you think they’re going to achieve this.)
Anonymous, the beautiful the thing about the Internet is that once you post something, it just sticks. So, bubba, this is what you said the other night about LVLT management and the 22K numbers:
“Anonymous says:
March 4, 2012 at 11:38 pm
let’s be clear, I don’t know how many circuits they have to move. I’m merely backing into the number from the $200m network expense savings number that Storey and Crowe have provided. (You can find that 200m number sifting through Level3 presentations at the SEC’s site. SEC Reg-FD requires Level3 to disclose to the public what they’ve disclosed with analysts.)”
I have told you then, and I will tell you now. I have read all of LVLT’s presentations and almost every critical filing(i.e. 10Q, 10K, S-3 and Def-14). I have never seen such figures being thrown around. So, tell us, Mr. Industry Veteran, what “number” were you “backing into”?
You can fill this entire page with a lot of smoke with you want, but I just want to ask you a simple question on the 22K circuits number and your reference to “LVLT management” throwing those out. Really?
Your words implied that you got those numbers from LVLT management, but yet, you challenge me to find reference to it? I just debunked you!
Wow, you really can’t read. You are hysterical (and stupid).
You keep asking me about where I read that management said they’re disconnecting/moving 22k circuits and i, repeatedly, keep saying that I backed into that number — maybe you don’t understand the meaning of “I backed into that number” — doing my own analysis from a now, ADMITTEDLY, inflated 200m synergy saving number which is actually 133m, as per Rob’s comments and the presentation below from
http://sec.gov/Archives/edgar/data/1061322/000119312511093637/dex992.htm
Slides 5, 8, and 14.
My 200m number, as noted in an earlier comment, was incorrect. The correct number is 133m. That said, and hopefully to put this issue to rest once and for all, the 22k circuits comes from asking the question how many circuits would you have to move to get 133m in network expense savings.
To reach the 22k circuit number, you have to then make an assumption about what you are moving. My conclusion, which you can challenge with your own assumptions, which I’d love to hear, is that the preponderance of the moves will be at the DS3 level. Yes, I acknowledged there will be some OC-x circuit moves but there will also be many more DS1 moves as well and so I chose a simpler DS3 approach to get to a final circuit count.
It’s funny, I’ve asked you now several times to tell me how YOU think Level3 is going to save 133m in network expense and you’ve offered nothing, not a shred of information on the topic. Instead you’ve just come back to the same 22k circuit issue which has been explained now on no less than 3 occasions.
You don’t have to agree with my analysis. In fact, I’m dying to hear yours. Unfortunately, I seriously doubt you know the first thing about telecom; and you wouldn’t know a call pumping fraud scheme from a non-cash dark fiber swap scheme. You couldn’t explain the difference or derive from financial statements EBITDA, Adjusted EBITDA, OIBDA, Levered FCF, cash flow from operations and so on.
(It’s no wonder we have asset bubbles. People that pretend to understand things they don’t attack without offering any alternative explanation people that actually do understand it. And then when the bubble bursts, the same idiotic person who lost their money cries that he didn’t understand the risks.
You remind me of Robert Citron, the former 90s Orange County, CA Treasurer who bankrupted the wealthiest California county. Citron who was playing a dangerous yield curve game of borrowing short-term funds and then investing in higher yielding long term securities assumed that the yield curve would remain steep. When he was warned of the strategy risks by Goldman Sachs muni i-bankers that a flattening yield curve would have devastating impact on his strategy and orange county’s finances, Citron told them in writing that Goldman would no longer be welcome to bid on future Orange County municipal underwritings. Well, the yield curve flattened, orange county went bust, citron lost his job, and goldman looked like a champ. Citron, ultimately, told courts that Merrill Lynch bankers told him to do this and that he really didn’t understand the strategy as he was simply an accountant. Merrill did settle with Orange County, presumably to get future business from this wealthy county, but the Goldman letter was front and center in the case. Citron was a clown because he acted before the meltdown like an expert and then paraded out his ignorance as his defense.)
I will say this though, Mr. Citron, I mean DDM08, you are entertaining. Stupid people generally are. So, now it’s time, DDM08, to prove me wrong. Let’s here your brilliant bottom-up analysis. Let us hear from you a bottom-up analysis of how Level3 is going to back into 133m in savings. Either you’ve got one or you don’t. STEP UP
Anonymous, did I just touch a nerve with you by exposing you to be a liar and full of sh!t or something? Now, you come at me and calling me “stupid” by using FUZZY MATH to come up with 22K of DS3 circuits and pin that against management’s synergies saving.
Anonymous, you should read what’s btw the the lines of those numbers and know what they mean. Try not to infer what they mean, son!
“To reach the 22k circuit number, you have to then make an assumption about what you are moving. My conclusion, which you can challenge with your own assumptions, which I’d love to hear, is that the preponderance of the moves will be at the DS3 level. Yes, I acknowledged there will be some OC-x circuit moves but there will also be many more DS1 moves as well and so I chose a simpler DS3 approach to get to a final circuit count.”
Anonymous, I know you have a brain. So finish this sentence for me: Assumption is the MOTHER OF ALL…. I give you a hint on the new few letters. It starts in “F” and ends in “P”…. So, keep on assuming, Son.
“I acknowledged there will be some OC-x circuit moves but there will also be many more DS1 moves as well and so I chose a simpler DS3 approach to get to a final circuit count.”
Beautiful!!! So, let’s see. We go from moving “plenty of OC level circuits” to now “there will be some OC-x circuit moves”… Is this more of your beautiful “assumption” again, Mr. Industry Veteran?
“You don’t have to agree with my analysis. In fact, I’m dying to hear yours. Unfortunately, I seriously doubt you know the first thing about telecom; and you wouldn’t know a call pumping fraud scheme from a non-cash dark fiber swap scheme. You couldn’t explain the difference or derive from financial statements EBITDA, Adjusted EBITDA, OIBDA, Levered FCF, cash flow from operations and so on.”
Hey, Anonymous, if I agreed with analysis of 22K circuits analysis, would I be asking you for facts as to where you get those numbers? Think about it! You INFER them from 3 slides. Oh, wait. INFER is too big of a word for you since you seem to think you know more about financial statements than me. I am sorry, Anonymous. You are the Industry Veteran right? I have a question for you:
“DS1/DS3/OC12/48/196/etc”
Do you mind telling me what OC-196 is again? I am a little slow at getting these fiber optics network jargun. I used to design and integrate a lot of OC-48 networking switches at military bases to carry a lot of satellite imagery ingest. I don’t think my communications college professor ever taught me what OC-196 was. Can you tell me what bit rate that is again for OC-196? I know what is the bit rate of OC-192 is, but OC-196… Hmmm. Let’s see. I am lost here, Anonymous. A little help? LOL!!
Anonymous, NOW, that is comical! Seeing you stumbling all over yourself trying to justify to us how much you really know about the telecom space when you can’t even freaking tell the difference btw OC-192 and OC-196. To me, that’s just entertaining!!!
So, enlighten us, Anonymous. Are you driven by your ego to show us the facts, or are you driven by your ego to embarrass me and Mr. Carlk. Think about it, Son!!!
Get over yourself! Learn to have some humility and don’t think you are God’s gift to engineering or financial engineering for that matter. I have seen plenty like you in my lifetime. Go ask David Huber how that felt. He had grand plans and grand vision for the optical networking world. You have heard of David Huber, haven’t you, Mr. Industry Veteran? May Dr. Huber can teach a thing or two about OC-192 instead of OC-196, SON!!
My point has always been this, Anonymous, which you FAIL TO UNDERSTAND:
YOU ARE NEITHER RIGHT NOR WRONG BECAUSE SOMEONE ELSE AGREE WITH YOU; YOU ARE RIGHT BECAUSE THE FACTS AND REASONING LED YOU TO YOUR RIGHT CONCLUSION.
Plain and Simple!!! Think about that. This is my 3rd time explaining that little statement to you now. A bright person like you ought to inhale that concept by now.
Oh, BTW: Anonymous, just so you know. Because of my ability to learn how to figure out EBITDA. Unlevered and Levered FCF, I managed to make money off LVLT a few times now. So, I appreciate your condescending tone and insulting remarks, but the one who usually laugh last laughs the longest.
Now, remember, Anonymous. Make sure you aim for that bullseye now…okay?
Man, this is just too comical!!! Too funny!!!
#troll
Yes, Anonymous has now made perfectly clear while pandering for Goldman SUCKS, a criminally chartered investment bank to be sure, or are they a bank still, I forgot, who’s his DADDY!
Good catch!
“Can’t sell” he says! Mr. Market is open 250 trading days per year for 6.5 hours daily in order for him to FACILITATE whatever “SELLING” he chooses to do.
Maybe what he really meant was, he can’t buy enough to cover his “illegal” shorts?
Carlk, why do you randomly capitalize words and put others in quotes, like FACILITATE and “illegal”?
Why do you waste your time caring? Btw, I am waiting for this site to incorporate a bold feature as well as other complimentary writing tools in order to add to my creativity.
The key message in the comment was the ease of selling for any market participant on top of the “ILLEGAL” methods which are used for driving down share prices in companies certain masters of the universe feel compelled to attack!
Anonymous, rather than the fuzzy math you have now been proven to be using. Yes, you cried, “DDM08 UNCLE,” why don’t you tell us how much MRR “net of churn” that 1,000 LVLT SALES HUNTERS GLOBALLY–300 foreign and 700 domestic–at the same time excluding the System Integrators(SI’s) as part of the indirect sales channel, will be coming through our PIPES when pondering the $40B PP&E with its huge size, scope and scale for ENTERPRISE CUSTOMERS that is being maintained, as well as EXPANDED?
Have one of your smart ass friends show us a spreadsheet with The Rule of 78 being applied to the numbers, while they’re/you’re at it!
Carl, irrespective of the massive growth you are anticipating, the network expense savings is completely separate. You can read analyst call transcripts of Storey and Crowe making that point very clearly.
As for how much incremental MRR, net of churn, your juggernaut is going to produce, I have no idea (although I have my views on that as well), but that has absolutely nothing to do with the 133m in synergy savings.
Btw, i don’t think my math is fuzzy at all. You may disagree with my assumptions, but the methodology is solid. There’s no magic wand to generate these savings. It’s plain old blocking and tackling but magnitude of order or two larger than anything level3 has done before.
And, yes, I did cry Uncle 🙂 Quite frankly, at the time I was bothered more because I couldn’t readily provide OC-x level average costs and didn’t want to make one up because that’s not how I’ve participated on this board. But after thinking about it I realized that OC-x average costs weren’t even relevant to my point.
DDM08 seems to feel like he smoked me out as some sort of fraud because I didn’t provide an irrelevant data point. I didn’t provide it because I didn’t know it but it also had nothing to do with my estimates.
“And, yes, I did cry Uncle Quite frankly, at the time I was bothered more because I couldn’t readily provide OC-x level average costs and didn’t want to make one up because that’s not how I’ve participated on this board. But after thinking about it I realized that OC-x average costs weren’t even relevant to my point.”
You should really go back to your original post when I first got involved here and read what you wrote before you chase your own tail in circle, Anonymous. As a frame of reference, this was what you wrote which I got involved:
“Believe it or not the bulk of the circuits that will generate the savings are at the DS1 & DS3 level although I’m sure there’s plenty of OC level circuits too.”
With statement like that makes me question you on the finer details of your logic. Don’t forget now. The devil is in the details…
Smoke and mirrors, fuzzy math, checking with colleagues, quoting the wrong technologies, it’s all the same FUD intended to support a SELL SIDE POSITION while you’re hiding in your back offices using international hacking “monikers,” because, you might be an IDIOT?
The bottom line is this, Big (3)’s FACTORY has been PUT UP at $40B PP&E cost new, and is still growing/expanding, and all of its PIPES are going to be FILLED this century.
Todd, thanks for the Colombia, LatAm 3rd new data center news link that Level 3 is in the process of building due to excessive demand even while they continue to ponder building a landing station in that country as well!
The world is becoming a much smaller place to do business efficiently, thanks to Level 3.
You know, “ANONYMOUS,” I’ll give Sam Antar, the former “CRAZY EDDIE CFO, and convicted felon” who is attempting to CREATE a RUN on Dr. Patrick Byrne’s “Overstock.com” bank, a lot more credit than you and your ILK, although, it’s not impossible you’re part of similar ILK, in that, at least he doesn’t HIDE anonymously while he attempts to assist his MASTERS at their DIRTY POOL!
What in the hell is up with all of these conspiracy theoriists? Some of you actually believe that the people on this board are actively manipulating the stock price of a publicly traded $7B market cap company? This, from the people pretending to be the smartest people on the site? I should really get another hobby besides watching you chase off well-intentioned commenters.
For God’s Sake, thank you, I think. Here’s the funny thing, believe it or not, I’m actually long, cynically long perhaps but long.
I obviously have serious doubts about this company and its management.
Whether or not Carl or DDM08 have any telecom background under their belt, I couldn’t tell you because the former appears as a girlish cheerleader and the latter as an attack dog who hasn’t offered a single telecom factoid in his comments to prove he knows the first thing about this business.
So Carl and DDM08, once and for all, tell me in detail without high level generalizations, your base assumptions as to how level 3 achieves 133m in synergy savings.
I’ve offered mine. Could my assumptions be wrong, you bet. But at least I’m not merely drinking the company’s kool-aid and trying to force feed it on others.
Whenever I have doubted any of the claims, I’ve provided my reasoning for the doubt. If you don’t like my reasoning, fix it. Explain what assumptions I’ve made that are wrong and replace them with a set you believe to be the correct ones.
There is NO CONSPIRACY. There NEVER is when Wall Street is talking about itself. For God’s sake, talk to the hand because they’re all Loony’s Mr. Sims!
You should also check your market caps while you’re talking to your hand, because you’re off by more than $2B of your $7B suggestion.
http://thewallstreetconspiracy.com/
If you’re long while not “trusting the management team,” then you should be selling your stock. Warren E. Buffett would command you to do so.
Otherwise, all the on and off circuit counting along with the timing behind terminating access contracts from AT&T and VZ won’t help you, because that’s what the management team is paid handsomely to do, while they measure and cut on the side of caution because they have already learned dearly from their past mistakes.
Crowe has already explained a number of times now, the ease of integrating “LONG HAUL” traffic vs. the more complex metro market which is significantly more labor intense including but not limited to “TRUCK ROLLS.”
I don’t speak for DDMO8 on this board, but I have been observing your back and forth commentaries, and he SMOKED your lengthy diatribes OUT for the garbage that it was, and remains.
maybe I can’t sell? did you ever think of that?
when i read your comments, i’m always amazed just how certain you are about the outcome. I’ve been an insider in public companies and been less sure about 6 month performance than you are about 3 year performance.
As an investor shouldn’t you wake up every day, look at your portfolio and ask would i buy these stocks again today? As an investor shouldn’t you question and challenge management’s assumptions instead of drinking them up? Shouldn’t you ask each day if the same set of assumptions that led to the purchase still apply?
In regards to when Level 3 achieves 133m in synergy savings.
In the whole scheme of things, this is chump change, why bother to sweat the little suff.
level3, that’s the funniest thing i’ve read on this board in a long time — priceless.
Of course, the question wasn’t “when” will they achieve the synergy savings you humorously describe as “chump change”, it was how will they achieve it.
Anon,
Your math makes sense. I’m long LVLT and your comments don’t bother me at all.
CarlK and DD,
please relax. Anon has laid out his comments in a way you can validate for yourself. I find his comments very helpful and would like to seem his continued posts.
for example, how did he get 22K circuits. Easy.
Network exp savings: $200M
Saving per DC3 circuit: $9000/year
$200,000,000 / $9,000 = 22,222 circuits
i.e. you have to move 22K circuits to achieve a $200M/yr savings.
I think LVLT still looks like a satisfactory investment even if the integration took 3 years instead of the 18 months forecast.
On the other hand, while trying to extend the timeline for value creation, they won’t explain how the synergies from a combined global sales force will play out for a starving factory. Any optimism there, is conveniently missing.
The optimism for sales; however, must be reserved for “little” companies like Cogent, whose largest customer, Megaupload, was just busted by the Feds internationally.
Yup, Wall Street enacted, supported and cheered upon CRIMES will always be rewarded.
Gut these bastards, they perform NO GOOD for their EVIL knows NO BOUNDARIES!
http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/ostk-overstock-com-(short)/80/
I would, the math on switching 22K circuits doesn’t seem that daunting.
I have no idea how hard it is to switch a circuit, but here’s the obvious math.
You want to switch 22K circuits over 18 months, that’s a 1,222 circuit / month pace, which is that same as 40 circuits / day pace.
If LVLT has 40 engineers working on switching circuits, each engineer needs to switch 1 circuit every day. If LVLT has 80 engineers, each engineer needs to switch 1 circuit every 2 days. etc. etc.
valmont, even though I’ve found myself fighting like crazy with a few here to make a reasonably simple point, i don’t necessarily disagree with you. (Having said that, I have no doubt that I will now see an email quoting me out of context from DDM08. But, what can you do.)
It’s really not engineers doing the work, but fairly well-trained techs who, for the most part, are college educated. It’s a factory like process. (not a factory like setting.)
The ASRs (referenced in an earlier comment of mine) require techs to complete the information which includes numerous fields of data — technical data, disconnect information, a-end & b-end address information, information that tells the LEC or local exchange carrier if the circuits is muxed (multiplexed), associated with another piece of equipment like a leased hubbed facility (where a bunch of circuits may be connected), and a bunch of detail. Obviously, a clean inventory is critical here.
I can go into much more detail about an ASR but it is really not required other than to say that there is a lot. Also, these disconnect orders are going to multiple carriers, not just one. There is also a critical timing issue because these are live facilities with voice and/or data traffic running over them either from one, but most likely many customers. To the extent that you can cut the facilities over without the need for LEC coordination — meaning you move the voice and data traffic entirely onto your network without having to go through another 3rd party or having to move the traffic onto another facility with the same LEC — coordination isn’t necessary. I suspect a good portion — don’t know the percent — will require coordination.
Last couple points on the topic. All this work is being done in concert with the ordinary flow of new customer adds and customer disconnects which is performed by the same factory that could be strained by the all this work and this could delay the timing of the synergy savings.
Finally, it’s possible that to bring some of this off-net traffic on-net, capital investments like extending fiber through metro streets may be necessary. This type of activity could further delay the timing of savings because it could require getting “rights-of-way” and permits from municipalities, then construction work to dig trenches, drop in the conduit, pull or blow the fiber through the conduit, etc.
Success will be gauged on how quickly Level3 can do all this. Right now they have probably retained a larger number of techs from the merger than they intend to keep on the payroll in the long term. The goal for Level3 will be to try and do this migration work quickly so they can then scale the factory down to a more normal level. The risk here is keeping the factory over-employed because of delays in migration. Remember while 133m is in Network Expense savings, (I believe) there is roughly 175m tied to headcount reduction and other opex. So, the sooner they can migrate and cut bodies to rightsize the workforce — i know that sounds harsh — the sooner they can start generating cash from the synergies.
“Having said that, I have no doubt that I will now see an email quoting me out of context from DDM08. But, what can you do.)”
Quoting you out of context? Saying it ain’t so! The facts are all up there, Son. Go start reading from the top of your own creative writing…
“Remember while 133m is in Network Expense savings, (I believe) there is roughly 175m tied to headcount reduction and other opex.”
Sounds exactly like a typical myopic bean counter who thinks he’s an engineer and who as Carlk puts it, “pandering for Goldman SUCKS”…
This is like watching a fish trying to walk on land… Classic!
it’s funny, DDM08, you have not actually contributed anything to this discussion. All you’ve done is criticize. You’ve offered no other explanation for anything, no alternative view on how these savings could be achieved, nothing. All of your posts consist of quoting me, telling me it’s all out there and then saying “son”. And then when I offer an explanation or clarification you come back with the “i must have hit a nerve” defense. I don’t mind the criticism but your true colors and ignorance are shining brightly here. And you’re probably tiring all but Carl.
There has not been a single constructive comment added by you to this discussion. Not a single contribution.
Instead you were strangely and wildly obsessed by the fact that i incorrectly wrote OC-196 instead of OC-192 which i corrected 6 minutes after writing it, as if that became proof positive I was some sort of fraud. This is a blog, not pre-filed testimony. There’s bound to be an error in my comments from time to time. When I see the error, I correct it. When others correct me with facts, I concede it as I did on the 200m number.
Why don’t you spend a little more time sharing your vast store of telecom knowledge and a little less time as a pedant.
Anonymous, go back and read my original post. I simply asked you a question about your facts. You have failed to provide one. You made a lot of “assumptions” and tried to pin them against management. You came out calling me stupid.
Do you know why I quote you, anonymous? It’s because I want you to see what you have written and not glossed over the finer details. Like I said, you need to finish that statement, “Assumption is the mother of all…”
First you came out as claiming to be an “industry veteran”. Let me assured you that an industry veteran would know the difference btw OC-196 and OC-192 in LESS THAN 6 minutes, fool!
So, exactly who is the one doing the ad hominem attacks again? Your inability to control your personal anger shows that you are a juvenile, wet-behind-the-ears prima donna. You are not even worth once ounce of my knowledge on fiber optics or CDN for me to even bother respond to.
DDM08, so one of your main points is that I’m clearly not an industry veteran because I wrote a 6 instead of a 2?
Seriously??? This is the comment section of a blog not the launch code for nuclear warheads at NORAD.
I think a missed, then corrected, number is mild compared to this priceless gem of a logic fart from you:
“Anonymous, you should read what’s btw the the lines of those numbers and know what they mean. Try not to infer what they mean, son!”
I’m pretty sure an “inference” is reading between the lines of information that is not expressly stated. Otherwise it’s a fact. When you tell someone to read between the lines, as you do above, to know what they mean, you’re asking someone to draw an inference from the data that’s not expressly provided. Yet in the very next sentence you tell me not to “infer” what they mean. Am I to assume you’re actually retarded because you hastily drafted a completely illogical statement? Should I dismiss every single statement you make hereafter because you made a comment that a fourth grader could see makes no sense? But this is the comment section of a blog, not the BASEL II accords.
On a separate issue, unless you have 100% of the inputs you must make assumptions to figure out how an output was derived. So your obsession with this “Assumption is the Mother of All” whatever…is just plain ridiculous. If you’re driving home from work and you suddenly find yourself in traffic as far as the eye can see in a place where there’s never been traffic before you will need to make assumptions to draw an inference about what’s going on. Perhaps there’s a big accident ahead (Assumption 1), perhaps the traffic lights are out (Assumption 2), perhaps a martian landed on the highway (Assumption 3). I suspect the inference you may draw will be based on the assumptions with the highest probability of success. A Gaussian distribution would probably load accident and traffic light outages in the sweet spot of the curve with the martian landing at the tail.
You are funny and I enjoy a good laugh. When you have something constructive to say about this merger other than they have 6.3b in revenue, let me know. If revenue was the most relevant datapoint in valuation I’m pretty sure Worldcom wouldn’t have gone belly-up because they had 28b in 2004. What was Lehman’s revenue? Of all the publicly available financial data points, revenue would hardly be where I stopped my financial analysis and it would hardly be what i called “the big picture” of a company as you do below.
“This is the comment section of a blog not the launch code for nuclear warheads at NORAD.”
Really? You should go back and look at your post when you began calling people names, son! I asked a very simple question, and you couldn’t back it up. Then, you went on an personal attack. Now, you are turning that against me as the one going on a personal attacks?
When did I ever call you names or insulted you?
Now, this completely incoherent diatrite about traffic blah blah and tying that up with “Worldcom wouldn’t have gone belly up because they had 28b in 2004.” Ask yourself if you “thoroughly” understand the business model of LVLT before you start going down this path of comparing it to Worldcom and Lehman by just comparing revenue like you did. I brought it up in the context of your little fuzzy math in relation to revenue. Get the memo yet? If you don’t, I highly suggest you continue to bet the farm against LVLT and short it to the hilt until you can’t leverage anymore. Then, in a few years, check back with this board and see who is making money, ok?
Anonymous, I am the only one here who is having a good laugh at your angry and prima donna ways. Have you ever considered anger management?
so, in your “diatrite” (whatever that is), which preceded my Worldcom comment, you brought up a completely incomprehensible analysis to counter my fuzzy math???
“Question I have for you two is: Is LVLT going to be out of business this FY? How are these [the 300m in synergy savings] compared to $6.3BIL in revenue? Look at the big picture!”
Let’s parse this.
“Is LVLT going to be out of business this FY?”
Where have I ever said anything about LVLT going BK? Every comment I’ve made has been about questioning how LVLT is going to achieve the very aggressive FCF targets bandied about here. LVLT should easily stay solvent, which I unequivocally expect they will, and miss those FCF targets by a huge amount. But investors don’t buy stocks because they think the company is going to stay solvent, that’s a given. They buy stocks because they expect them to appreciate.
“How are these compared to $6.3BIL in revenue?”
Here’s how: if LVLT doesn’t achieve those 300m in savings along with the 40m in capex reduction proffered by Crowe, Storey and Patel, they will not generate sufficient FCF to warrant an inflated valuation and equity investors, with the exception of you, will sell their shares.
“Look at the Big picture!”
I’m pretty sure that is the big picture. The value prop of the deal is, among other things, synergy savings. I’m certain you’re not going to hear Crowe, Storey or Patel say that 340m is meaningless.
I have sneaky suspicion you must have taken the little equity you had left from the CDOs you bought at par in 2005 to buy LVLT this fall at its inflated 12 month high of around 35 (post split number).
No Anonymous, you can’t sell your shares, remember?
You have an undying desire for others to sell theirs, however.
We know why, and we know your ILK so this conversation which Rob has been gracious enough to allow to go this far and horribly off topic, is over from my perspective.
We are living in HELL together, Anonymous, and you’re an integral part of the CAUSE stealing the PUBLIC’s GOOD WILL which should never be ENTRUSTED into the hands of men like you, something I will fight and expose every day until the day I die, or you and yours do!
why don’t you stop with the ad hominem attacks.
add hominems attacks mean one thing: you don’t have an argument of substance.
“Remember while 133m is in Network Expense savings, (I believe) there is roughly 175m tied to headcount reduction and other opex”
How is this ‘myopic bean’ counter?
LVLT has said the synergies are $300M roughly 50/50 (i.e. $150M network, $150M headcount reductions … we don’t need to quibble over whether it’s $133M / $175M).
Anon is simply stating the obvious. If the integration drags then it will take longer for the headcount reductions to be realized.
Stop attacking people for writing 2+2 = 4.
It lowers the quality of the discussion.
Valmont,
“How is this ‘myopic bean’ counter?” Think about it. The network saving would not just be a one-time event. It’s a synergy that realized over time.
Management at LVLT said that synergies are $300M roughly 50/50. Your prima donna ther now turns that into $133M/175M. Question I have for you two is: Is LVLT going to be out of business this FY? How are these compared to $6.3BIL in revenue? Look at the big picture! These are the kind of questions I hear from those young MBA analysts on the CC questioning LVLT’s management on their own math. It’s like a young kid asking his dad how to do 3rd grade math. Anonymous reminds me of those young analysts on the CC poking at LVLT’s management to make sure the answers fit into their own equation of $133M + $175 = $300. Duh!!!
“Stop attacking people for writing 2+2 = 4.” Really?
Go back and add up what management said and what your prima donna said. Is that 2+2 = 4 to you?
btw, its very valuable to have Anon lay out everywhere a LVLT investor could be wrong.
http://articles.businessinsider.com/2011-09-19/wall_street/30174718_1_beta-portfolio-balance-sheet
this is Ray Dalio … probably the world’s most successful investor right now …
“The main reason I write the daily observations is because I want to know where I’m wrong. So lots of times if somebody points something out it helps me”
valmont, thanks. You have perfectly nailed it!!!
I clearly have a bias and that bias is based on my assumptions — a four letter word for DDM08 — which, admittedly, could be wrong. I’ve offered up my assumptions, not because they’re rock solid, but because I’d like to hear why they’re not.
Unfortunately, the ad hominem (love that term) attacks move the discussion sideways not forward.
As investors we can never be certain about management promises. No management says, “here’s our forecast, but we’re going to miss it by a mile.” At the same time, managements miss their forecasts all the time. Obviously, those misses arise because there were flaws in management’s original forecast assumptions. (The SEC frowns on outright lying so I’ll give managements the benefit of the doubt that they’re not engaging in fabrications.)
So investors must question management’s assumptions which can be challenging because smart investors diversify their choices outside of a single industry they may know well. It’s hard to back into a number when you’re not certain how the business operates or don’t understand the component parts of how services are delivered.
The value prop of this site is that there are readers who do understand the business very well. Many don’t write comments here because their managements have express prohibitions about doing so. But, fortunately, some do. (Just look at stories here about XO on this site.)
Part of the problem of this industry is that it carries it’s own language and that language is always expanding. Just pick up a Newton’s Telecom Dictionary for confirmation — 26th edition is over 1300 pages and has over 25k definitions. (I have 5th, 11th, 13th and 24th editions. The 5th is like 500 pages.)
Many readers on this site can add a ton of value by sharing and explaining how telecom products and services are actually delivered, priced, accounted for, regulated, used, etc. The goal here should be to stimulate that dialog to flesh out why some product, service, technology, merger, management, and so on is good, bad, right, wrong…
I don’t mind being told I’m wrong because there is a flaw in my assumption; provided that an alternative explanation is given. Attacks are easy.
“I clearly have a bias and that bias is based on my assumptions — a four letter word for DDM08 — which, admittedly, could be wrong.”
Right back at you, SON! Go and read what I wrote to Valmont about young MBA analysts on CC with LVLT management. You come across exactly like those analysts I refer which I would refrain from using the four letter word to describe you…
I read what you wrote and even commented above about it. Your contribution to financial analysis was hysterical, think even graham and dodd are rolling in laughter from the other side. Apparently, your “big picture” financial metric is revenue. So, by that standard, Enron, Lehman, Worldcom, MF Global, WAMU, Bear Stearns were all great buys because they had a big top line number.
Yes, we snarky MBAs can be a bit prickly about understanding the quality of a company’s guidance beyond revenue.
Anonymous, if you are not Goldman by names of Scott or Jason Armstrong, maybe you’re STEVIE COHEN of that SAC hedge fund company in Stamford, CT.?
He never liked Big (3) either, but he did like RED BOXES which I had liked before him, but changed my shares as soon as I heard of his involvement.
This being said, in the case of Big (3), this levered factory is all about the TOP LINE driving THE BOTTOM LINE so much to the extent that Graham and Dodd wouldn’t know what to do with all of their excitement once it began kicking in, and assuming they were alive today!
You keep pulling CIRCUITS out of your BEHIND, however.
What do you know? I smoked you out, Anonymous. I was right about you. You are exactly a prima donna like I thought you were. Just know a few industry jargons and then throw those words around as if you know the industry. Tell us, Anonymous. Have you been inside a manhole or a handhole to know what it’s like for your so-called, “college educated technicians”? Have you put your hands on any DWDM equipment or network switches and configured them?
Of course NOT! You are a “snarky MBAs” prima donna who thinks engineering are for highly educated but poorly paid fools, right? And running a few spread sheets will spit you out an “intrinsic value” of LVLT, right?
Oh oh, I just used those mythical words “intrinsic value” from the school of Graham and Dodd.
Son, did your MBA professor teach you to value a business, or did he teach where to look for cost cutting and financial engineering to prop stock prices up?
You are the type of analysts that ADD NO VALUE TO SOCIETY. No matter how much money you make on Wall St. and no matter how much bonus you suck up to your boss you earn, you should ask yourself what have you done to help this economy growing other than to be a leech! What have you produced other than a bunch of regurgitated gibberish on glossy papers which I would use as my toilet papers for my dogs? What kind of a real man sits behind a veil of secrecy and try to pump out lies on a company in order to shake down the shares of its shareholders? It’s funny that you brought Lehman, MF Global, WAMU, and Bear Stearns. Hey, fool, you will become like the former employees of those companies real soon with your so called, “snarky MBAs being bit prickly” and not knowing the business of the company…
Think about that, son!
Pricing Facebook at $100B out of the gate, purely designed for perfect perfection in order to pinch the pockets of the PUBLIC’s GOOD WILL for the exclusive benefit of Goldman Sachs.
GUT THE BASTARDS, and do a Dutch Auction like Google did in order to position the company on the strongest ground moving forward!
http://marginalrevolution.com/marginalrevolution/2004/08/dutch_auction_i.html
So Anonymous wearing The Goldman Hat, what do you think about Netflix going to bed with The Cables news? Confine your answer to one paragraph or less, please!
i think it’s smart. Cable companies are rolling out their own competing streaming product which, if successful, could leave Netflix in trouble.
Also, if net neutrality dies and transport companies have to pay a gatekeeper/access fee to dump their content onto comcast/att/vz/etc. networks, netflix could be in trouble because IP Transit rates will go up making their streaming service less competitive vis a vis the cable companies streaming service. Or, in the alternative, Netflix will have to use the CDNs resident on those carrier’s networks.
Net-net, logical move although it may not be great news for LVLT who, coincidentally enough, provides the IP Transit to Netflix.
Also like the Netflix-Apple deal announced. Apple’s got deep pockets, great distribution and tons of cash on that balance sheet, the latter netflix may need to beg for if the cable deal doesn’t go through and net neutrality fight breaks out in earnest.
sorry, not one paragraph
carl, while were way off topic here, I might add to my comment above, that I also love the VZ-Coinstar deal.
Redbox (owned by coinstar) has been very successful with their supermarket DVD program. That model goes on steroids if VZ sends the content directly to the in-store Redbox units which users could then load onto a special Redbox flash-drive, take home, and watch through their computers, WIIs, PS2s, TVs etc.
Changing and increasing the number of available movies on the in-store redbox unit becomes a breeze right from the redbox servers hosted on VZ’s network and the need for redbox truck rolls to change movies goes away.
It’s an amazing value creator if they go down that path.
Wouldn’t the greatest value creating path be the conversion from physical Red Boxes in brick and mortar stores on a leased basis, to Red Boxes on internet devices in a virtual world for their customers to access?
Aren’t you tired of standing in the cold depending upon your venue as well as the Red Box position, waiting for the person in front of you to go through their sometimes laborious task of choosing their entertainment on an evening you are already tired from a long day’s work?
Aren’t you tired of exposing your person, and/or your loved ones to the vagaries of being robbed waiting in the bad part of town, or during the wrong time when accessing those Red Boxes?
yes, I agree with you. I’ve never used redbox and am actually surprised there is a market for it, but apparently there is and it’s quite successful.
Furthermore, I don’t think it’s going to go away anytime soon and if redbox can lower the cost by not sending out trucks and can increase the variety by remotely changing a redbox’s catalog, that’s pretty powerful.
But, no, personally, i don’t get the attraction to redbox from a user’s perspective.
Spoken like a Goldman Tongue with bitterness and angst for their competing CDN provider, Level 3 Communications.
The key for delivering best of breed quality streams resides in the CDN, mind us. Verizon pimping Coinstar’s Redbox better be using a high quality CDN for fear of losing eyeballs, otherwise.
Contrary to your viewpoints, this is very good news for Level 3, although citizens at large in the U.S.A. will not be served best by Reed cow towing to these Cable Monopolists inside the last mile. However, the quality of ALL their STREAMS may just get better!
http://www.engadget.com/2012/03/06/netflix-cable-bundled-services/#disqus_thread
Carl, not so sure i agree a cable/netflix joint venture is good thing for LVLT/Netflix relationship. I’m just not sure I see LVLT holding onto Netflix’s IP Transit in that scenario. Instead, I can see Netflix putting equipment on cable partner’s network and using the cable company for transport across cable footprint.
If you’re implying that Netflix will default to that dirty little secret embedded inside cable and rboc homes called Akamai for their cdn even sharing ad revenues, then you should short Netflix immediately, and make your GOLDMAN friends and bosses richer for such foresight. Stick a fork in it, and Reed Hastings if they become so stupid.
Akamai sucks, and the Superbowl over the internet they were allowed to deliver vs. The Cables encroaching upon their own catv models for viewership options, is PROOF POSITIVE of such horrific streams coming from Akamai without the necessary “intelligently” allocated bandwidth and compression technologies Level 3 is the master of.
don’t have an opinion on akamai. CDN is not an area I have any hands on experience with. I understand it conceptually and understand the network architecture of a CDN but couldn’t tell you much about differentiators between CDN providers. maybe DDM08 can shed some of his brilliance here. We’re all dying to hear it.
LOS ANGELES, March 8, 2012 /PRNewswire/ —
IBM (NYSE: IBM) scientists today will report on a prototype optical chipset, dubbed “Holey Optochip”, that is the first parallel optical transceiver to transfer one trillion bits – one terabit – of information per second, the equivalent of downloading 500 high definition movies.
With the ability to move information at blazing speeds – eight times faster than parallel optical components available today – the breakthrough could transform how data is accessed, shared and used for a new era of communications, computing and entertainment. The raw speed of one transceiver is equivalent to the bandwidth consumed by 100,000 users at today’s typical 10 Mb/s high-speed internet access. Or, it would take just around an hour to transfer the entire U.S. Library of Congress web archive through the transceiver.
Level 3 Communications and IBM have a cross license sharing agreement.
http://finance.yahoo.com/news/made-ibm-labs-holey-optochip-051200551.html
If my holding period is forever in order to see a wonderful business flourish according to the “trends,” counting 22,000 circuits to predict some very short term, “time value” miss, a count which is being taken from backside, mind you, for a report I am writing for my MASTERS, then I might as well use that report as a WIPING TOOL, nothing more, nothing less.
Anonymous is still a Goldman Hat who doesn’t show up on CC’s anymore, even if he says he doesn’t understand CDN’s like LIMELIGHT.
Goldman? My children and grandchildren will know these PEOPLE at GOLDMAN, and they’re filthy DIRTY no longer to be HIDDEN from the PUBLIC’s own SCRUTINY!
GOD is GOOD; GOLDMAN is NOT!
http://www.bloomberg.com/news/2012-03-08/goldman-sachs-bank-of-america-documents-on-overstock-ordered-unsealed.html
This filthy BEAST who threatens to CRASH our MARKETS while conspiring with ruling banking dynasties across the globe, those intent on robbing our children of their heritage including but not limited to the INTEREST and TAX BURDEN yokes representing an albatross around their necks into PERPETUITY.
It is this GOLDMAN that must PURGED from our SYSTEM!
They are the WORKS of THE DEVIL. Crush this DEVIL forever!
Got RELIGION? Get rid of GOLDMAN!!!!!!!!!!!!!!!!!!
Lehman Brothers? I remember getting a BAD FEELING when that GOLDMAN Carnival Barker, one who Dr. Byrne correctly called a CRIMINAL in his upcoming documentary, CRAMER, was pumping it on cnbc up around $70 pps, and right IN FRONT of IMPLOSION to ZERO!
I sold every last share at a nice PROFIT, no thanks to CRAMER or those other GOLDMAN CRIMINALS on WRONG STREET!!!!!!!!!!!!!!!!!!!
That’s called FIXING the BOARD, Boyz and Girlz! GOLDMAN FIXES the BOARD for themselves, always and forever, or until we PURGE THE BASTARDS from our system by FLUSHING them down the TOILET including all of their representatives in The Beltway controlling our politicians!
Goldman chose to END Lehman’s life and distributed any of the shares they had left at highs to the unsuspecting PUBLIC through that LYING PUMP and DUMP ARTIST, CRAMER!!!!!!!!!!!!!!!!!!!!
Carl.
Might I suggest you seek counselling. I am no psychiatrist but OCD, ADD, etc. are suggested by every misaligned, garbled, nonsensical piece of crap that your fingers generate. I am sure Goldman has someone who takes care of such problems. Find him/her and get well. You do seem to be spiraling down.
CarlK,
It’s time to take your meds,otherwise you need to be institutionalized and have a straight jacket put on. Your delusions are getting worse. I feel sorry for your poor mental illness. Rob Powell needs to report you to a doctor.
A delusion is a belief held with strong conviction despite superior evidence. Unlike hallucinations, delusions are always pathological (the result of an illness or illness process). As a pathology, it is distinct from a belief based on false or incomplete information, dogma, poor memory, illusion, or other effects of perception.
Delusions typically occur in the context of neurological or mental illness, although they are not tied to any particular disease and have been found to occur in the context of many pathological states (both physical and mental). However, they are of particular diagnostic importance in psychotic disorders including schizophrenia, paraphrenia, manic episodes of bipolar disorder, and psychotic depression.
Hello Carl and Anonymous..
Both of you guys seem to be Intelligent enough.
Please read this article and tell me what you think?
[thirty pages of pro-Ron-Paul political spam… that’s a first, let’s make it an only -Admin]
did i miss something here?
thank you for that!