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Technology Stocks : Winstar Comm. (WCII)

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To: gabor boda who wrote (6776)6/18/1998 4:12:00 PM
From: Sauron of 12468
 
The only problem is that WCII is doing mostly resale right now. This means that they will lose a lot of money building a customer base that then has to be migrated eventually onto their 38 gHz wireless. This migration is not an easy matter. As you roll out your network you'd rather have your sales force going and putting on new custs rather than slowing revenue growth by migrating existing resale custs. Teligent will probably have more on-net customers than WCII by the end of 1998 because they will do almost exclusively on-net. It is not possible to have positive operating margins in resold local. Discounts from the ILEC are roughly 20%. Pricing at a 10% discount cuts that in half to 10% for a gross margin. I think you will find that most telecom companies find it difficult to keep SG&A under 20% so that means you have a (10%) operating margin for local. If you were WCII and hoping to sell it would be smart to bag the resale and prove your wireless works.
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