Telecom and the Return of the Big Hitters

As telecom valuations linger at multi-year lows, the chances that big money value investors may make another foray into the telecom space are increasing.The last time it happened was in 2002-2004, when Buffett threw a lifeline to Level 3, Leucadia scooped up WilTel, Carl Icahn took over XO, Singapore along with Carlos Slim and Richard Rainwater took over Global Crossing, and even Wilbur Ross tried to rescue 360Networks. It seems like only yesterday these financial players swooped in, some left with a profit, others a loss, but only one (Icahn) remains. If valuations stay low, I look for a second foray by such players.

Why? Because opportunity knocks and these guys are naturally contrarian. Even as the economics of bandwidth have become better understood and the supply/demand picture has improved dramatically, the whole sector sits at attractive prices. It is much less of a gamble than it was the last time. Add to that the fact that the debt markets are expensive right now, and folks like Buffett might be able to get the sweetheart deals they like to get. The prize? To be on the *right* side of bandwidth supply/demand over the next decade.

Sure, few of these guys came away with a pot of gold, and several got their fingers burned. But what use are such lessons if you don’t apply them to the future?

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Categories: Financials · Information · Internet Backbones