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Leucadia National Corporation Message Board

  • rrb1981 rrb1981 Jul 30, 2002 8:32 PM Flag

    Telecom related

    Carl Icahn is continuing his efforts to take control of XOXO Communications. He has upped the ante, now offering .50 on the dollar for the distressed bonds and I believe maybe .45 for bank debt. It appears that quite a few people are starting to enter the telecom battlefield. Lets not forget, ole HOJO, Howard Jonas at IDT. He really goes against the tide but has a debt free telco, ripped off AT&T for a billion or so, bought Winstar for 42 million when it cost 5 billion to build, has allied himself with John Malone and is gunning at Worldcom. So its, Buffett and LVLT, LUK and Willtel, Icahn and XOXO, Jonas and IDT and of course the RBOC's(counting Qwest and Broadwing) plus Alltel and Centurytel, Cox Cable(12th largest telco in nation I believe), AT&T and the other minors. Should be very interesting.....Wonder if Bill Gates will enter the fray sometime.

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    • Gates has entered the 'fray', it's called XBOX (carries voice). MS announced LVLT would host XBOX infrastructure, LVLT already carries most MSN traffic.

      I agree the telcom consolidation will be interesting to watch, but I think MOST bit players who hope to leverage investments in distressed assets. They don't have the intent, skills, capital, etc to emerge THE consolidator. RBOC's are too encumbered by their own bureaucracies and dated technology to run an IP network. ATT is even worse, the only thing they are good at is screwing stuff up.

      Time will tell, but LVLT is undoubtedly best positioned - by a significant margin. You need to look beyond a cursorary look at the financials, dig deep and the answer will reveal itself.

      Don't take my word for it, go dig.
      Time will tell, but LVLT

    • David you raise an interesting question-
      could C&S "mine" their investment in WCG by selling off customers? So....sell off the soft assets rather than the hard ones.
      My vote is no- I think these guys (WCG)
      knew how to write a contract. And still do.

      The reliability of the WCG network is/was
      the big selling point and, at the time the plug was pulled, they had a number of
      interesting contracts that were a "foot in the door", with Boeing, Telecom Italia, KDDI, others.
      I don't know what the status is on those now but WCG has maintained that the quality of the network and service has been
      consistent even through bk. The morale, both at WCG and WMB has been abysmal,
      and the WCG cutbacks are common knowledge. (A relative of mine was cut.)There are hundreds of telecom unemployed around down there so there won't be a problem expanding the workforce if they don't wait too long.

      My new, improved guess about all this is that LUK thinks the team they've bought into knows how to run a network. They'll let it run for a few years and then sell out. If there is another distressed player they may buy in.
      Regards, Reify

      • 1 Reply to reify1
      • I've pasted in an old WCG post. This guy
        obviously miscalculated as to the dollar trajectory but he seemed to accurately find out about the contracts. Toward the end he talked more and more about buying the debt. Prescient of him.

        Re: Back on Topic - IV
        by: davidahl1 (47/M/Annandale, VA) 02/06/02 07:57 am
        Msg: 82063 of 119326

        WCG's success in satisfying SBC's requirements has also greatly helped it in the carrier space. The recently announced contract with Verizon is an affirmation of WCG's operational abilities and its financial strength. (Afterall would Verizon enter into a contract with a company about to file for Chapter 11?) As its current contracts expire VZ will likely move all of its voice, traditional data (DS-1 and DS-3), frame relay, ATM and high-capacity (OC-3 and above --155+ megabit/sec) traffic on to WCG. In addition a portion of its IP traffic may move onto WCG as well. (Genuity is carrying a portion of VZ's IP traffic.) Overall IMO this win will, in time, put WCG over the top i.e., enable it to reach cash flow breakeven--cover all interest expense.
        Seemingly unnoticed in the fourth quarter earnings release was the announcement of contract signings with Telecom Italia, Tele Danmark and Belgacom. These are the three former state-owned telecommunications companies in these countries.
        To be able to compete for large Enterprise customers, telecommunications companies must provide network services in three major markets: the United States, Japan and the European Community. All of the European telecommunications companies have been seeking to enter the large Enterprise market. To do that they must have US networks. The "Big-3" European telecos (British Telecommunications, Deutsche Telecom and France Telecom) have all sought to partner with a major US LD-company. All of these efforts have failed. The smaller telcos have learned from the problems the Big-3 experienced. The contracts that WCG signed in all likelihood enable Telecom Italia, Tele Danmark and Belgacom to market WCG's network as part of their own. This gives them complete access to the US market AND Japan, thru WCG' s strategic agreement with KDDI.
        The link with KDDI represents an enormous strategic advantage for WCG. No other global carrier has a strategic relationship with a Japanese carrier. Thus if a European telco wants to acquire access to full-service networks in Japan and the US it can do so by entering into a relationship with WCG. This brings us back to the Big-3 European telcos.
        Among the these companies the one with the largest presence in the global Enterprise market is British Telecommunications. Yet BT is in the process of dissolving its joint venture with AT&T: Concert. With the wind-up of Concert, BT will have no access to the US market. Likewise with Vodaphone having successfully squeezed BT out of Japan Telecom, BT no longer has access to the Japanese market. BT can not sit on its hands and consider its options. To maintain its competitiveness it must move quickly to reestablish its network presence in both countries. IMO BT could achieve this goal by entering into a strategic relationship with WCG. I believe that negotiations to reach such an agreement may have been underway for some time. With the completion of the termination of Concert imminent, we may find out within the next few months.
        In sum, WCG has gained the recognition required to penetrate the large Enterprise market. With its agreements with European and Asian Telcos it has also expanded its global presence which is a key to satisfying the needs of global Enterprise customers. The large number of 4th qtr customer wins strongly suggests that these customers are willing to sample WCG's services. Thus WCG is poised for substantial revenue growth.

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