DSL Prime News Briefs

In which we ask the Wall Street analysts, again, to take a closer look at telco balance sheets and not report on the headline numbers, which have been padded.

by Dave Burstein of DSL Prime and Future of TV and the Web Video Summit [July 30, 2007]

Briefs

• AT&T and several smaller telcos have reported reduced DSL net additions in Q2, presumably a trend as prices stay too high to attract the remaining 45 percent of U.S. homes. DSL for the indefinite future will continue to grow, but the rate is inevitably going to slow.

Press

• Carol Wilson, one of the best in the business, is returning as Editor of Telephony. Her previous publications Inter@ctive Week and The Net Economy were standouts during the boom, with innovative articles with uncommon depth for a deadline publication. Telephony remains the leading U.S. magazine in the field, with Wilson and the other writer/editors doing a remarkable job despite the staff cuts that plague almost all trade magazines. Wilson is the most active reporter at the big trade shows, finding and filing stories faster than anyone else. She writes that as Editor-in-Chief she intends "to focus initially on improving our website and capitalizing on the experience of our talented writers to produce more in-depth industry analysis." She recently reported from China, where IPTV is bursting ahead in Hong Kong and Shanghai. Telephony Publisher Mark Hickey adds, "Carol brings such a great wealth of industry knowledge and experience to the EIC position. Her ability to lead an editorial staff and provide vision and direction for all editorial efforts—print, online and events—is second-to-none."
  
  
• Michael Wolff has probably the most realistic take on The Murdoch Journal, "a certain leveling, the loss of a few points of I.Q., a quickened pace, a higher sense of drama, less accurate, perhaps, but less tedious too, and, likely, a keener instinct for following the money." I've been reading Murdoch's London Times; the reporting rarely matches the standard of the WSJ.

Wall Street

• AT&T is doing a sale/leaseback on two Atlanta buildings, Scott Leith reports in the Atlanta Constitution. T's strong credit rating allows them to borrow money at rates similar to the likely buyers, so they have little obvious savings taking advantage of the borrowing power of a real estate intermediary. There could be some unrevealed tax advantages, but this typically is a way to borrow money off the balance sheet to "pretty up the financials." The deal is supplemented by the sale of another Atlanta building half-empty because AT&T is dumping so many BellSouth employees. These deals will raise T's cash flow by several hundred million, enough to affect Wall Street's valuation of the company. Such tricks are rarely examined, with most "value estimates" based on a multiple of cash flow, earnings, etc. Therefore, this kind of balance sheet restructuring can aid the stock price enormously. $250 million in cash flow improvement at 10x cash flow raises the stock price over $2 billion. The $10 billion to $15 billion shortfall in AT&T capex the last few years is probably responsible for tens of billions of dollars in the stock price. Please don't translate this comment into a suggestion to sell T, and not just because I'm not in the stock picking business. The iPhone, even in the current pre 1.0 version, is likely to be worth a billion dollars a year in earnings. One of the best on Wall Street, John Hodulik, just re-emphasized his strong buy. Also, I know "off-balance sheet financing" is a weighted term, and I am not suggesting T is breaking any law or reporting properly. I'm leaving the strong term in, however, as a hint to my friends on Wall Street that balance sheets and footnotes need closer investigation.
  
  
• The day before the market crashed on Thursday, I told a fellow reporter the market was much too high based on fundamentals. A few comments like that widely publicized would get me a reputation as a market guru. One publication around 2002 remembered something I had said and reported I had called the bust. Great publicity, but it would be fallacious. I remember well concluding the market was too high around 1998. It continued to boom for two more years. Very, very few folks can consistently beat the market over time without inside information or heavy risk, and I'm not one of them. Neither, of course, are most hedge fund managers, almost none of whom can beat 2 and 20. People are starting to understand the game is rigged and the "extraordinary returns" of most hedge funds are fudged. In a very private conversation, a senior hedge fund guy explained to me their edge is almost exclusively enormous leverage while interest rates are low.

People

• Gary Tauss will present at Tony Perkins' high profile Stanford Summit August 1st. He's now CEO of Mobidia, a Vancouver company with a mobile QOS product line and a mobile video sharing application. DSL veterans remember Gary from Tollbridge, one of the voice over DSL companies that were among the hottest of boom products. He's since been CEO of VOIP companies InfiniRoute Networks and LongBoard. Charlie Nieman, once at Copper Mountain, is Mobidia's sales VP.
  
  
• Dan O'Shea, the former editor at Telephony, writes "after almost 15 years, I'm ready to accelerate my long-standing plan to broaden my horizons by covering new topics and working with new organizations. … I love Telephony. I think, as you've noted, we've done very well with a limited number of people—our recent multimedia coverage (print, online, audio podcasts, TelephonyTV) and show daily duties at NXTcomm are testament to that. I think Telephony's also in a great position to take advantage of new opportunities." One of his gigs will be a new publication at Fierce Markets, an online service doing some interesting reporting.

Copyright 2007 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

"The power of the printing press belongs solely to those who own the presses"
—A.J. Leibling

The Internet is the cheapest printing press ever invented.