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To: All Mtn Ski who wrote (2888)6/20/2001 10:37:51 AM
From: SecularBull
   of 3816
 
That's understandable, and rational.

~SB~

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To: MangoBoy who started this subject6/20/2001 12:55:09 PM
From: IndioBlues
   of 3816
 
Q & A with a Nervous Investor

Q: So, how heavily are you invested in the fiber optic sector? Tell the truth now...

A: I bought in hook, line and sinker. I even had a Gilder subscription for a while! What a joke that was. I am, today, the nervous owner of several tarnished stars from last summer: LVLT (3000 shares at $20 avg.), MFNX (2500 shares at $12 avg), GX (1500 shares at 19 avg.), AVNX (300 shares at $11 avg), GLW (300 shares at $18 avg.)

Q: Why have you stayed long while your portfolio shrinks before your eyes?
A: Good question. I guess I have not stopped believing that broadband internet demand is here to stay, although I also think I was not realistic about the pace at which applications and connectivity would develop to take advantage of the infrastructure in which I am primarily invested. I still think it will happen. I'll just have to wait a while I guess.

Q: What do you make of all this talk about a bandwidth glut?
A: From what I can tell, it is a fallacy. If we're talking about lit fiber, the supply is basically constant right now and is being sucked up steadily, though not exponentially. Dark fiber is abundant but I don't see why that is a problem. Won't it get lit up as demand dictates?

Q: Accepting that premise, will your chosen companies be able to hang until the demand/supply equation tips back in their favor so can sell some of their unlit capacity?
A: That is the question being asked by the capital markets isn it. I think LVLT, GX, and MFNX are more likely than others to last. LVLT is mostly built out and fully-funded. It has substantial credit facilities, a top-pedigree management, and has non-core assets (the coal mining operation) it can sell if it needs more of a cushion. GX is nearly built out and dominates in the subsea category. GX did a smart thing spinning out ACGX and its associated debt a while back, and also teaming with EXDS to drive traffic to the GX network. It is also easy to forget that GX got a hefty capital infusion last year courtesy of Q when Q decided it had to have USW. MFNX looks awfully good in terms of competitive position in the metro loops. On the capital side, it has a major, well-financed shareholder in Verizon. Lets not forget the Goldman put MFNX on its Rec (not "Wreck" heh heh) List for a reason earlier this year.

Q: What is going to stimulate new demand?
A: Interest rates need to drop to stimulate corporate IT spending. And the last mile problem has to be solved. As to the former, I just cross my fingers. I'm no economist. As to the latter, I have to think that is a matter of "when" not "if." Once you've had high speed access at home or work, there is no going back. It's like a drug. When businesses see what can be done with realtime video applications instead of face of face meetings, the cost savings are obvious. Ultimately, the market will force a last mile solution, I think, because the potential rewards are so high. When that occurs, the long haul and metro loop providers who survive surely will be standing in the background to provide Problem Solver's single most important raw materials: seamless connectivity and limitless bandwidth.

Q: So I guess you have it all figured out, huh?
A: No, in fact I'm so nervous I'm going through self-examination exercises like this. But I'm hopeful and still willing to believe that the better companies will get through this debacle. Check back in 18 months.

Q: Are you still buying?
A: Yes, I'm averaging down but it sure is hard.

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To: JMD who wrote (2885)6/20/2001 2:13:51 PM
From: Raymond Duray
   of 3816
 
Hey Mike,

No habla, no salsa, no tabula rasa. But plenty of water under the bridge to the Information Century...... most of it down the drain.

It seems as though Mr. Market is having a complete snit-fit about the prospects for LVLT and MFNX. Once MFNX gets down to about six bits, I'm going to kick the tires again. I think there's some value there, then.

As far as LVLT, I'm not so sure I want to play it. It'll be sold before too long, I suspect. Just a feeling. The party is over, the spare conduits are..... just that. And the costs are sunk. Like the Andrea Doria. An $8 Billion gamble that got sucked off the table because too many players were allowed to ante up. The deck of cards was only so big, and once you had 29 or so new SPs all vying for the same four-of-a-kind, there just weren't enough cards to go around.

Nice to see ya comin' round, Ray :)

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To: Raymond Duray who wrote (2891)6/20/2001 5:58:59 PM
From: A.L. Reagan
   of 3816
 
Ray, do you see any values in the long-haul fiber carriers these days? One would think that out of the crowd of LVLT, MFNX, 360, GX, Q, one or two will survive w/o bankruptcy reorganization... these are better business models than the hapless CLEC's.

Somewhere in here is a good investment at these prices...

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To: A.L. Reagan who wrote (2892)6/21/2001 1:47:15 AM
From: Raymond Duray
   of 3816
 
Hi A.L.,


Re: Ray, do you see any values in the long-haul fiber carriers these days?.......... Somewhere in here is a good investment at these prices...

This lot is lot like the lot of bull-oney in dot.bombsville that Charlie Munger (BRK.a) commented on thusly: "It's hard to pick the raisins out of the turd."

Good luck trying. I find that the vulture funds like Promethean do quite well by ruining the equity holders. So, what's your angle? Have you been following Winnick's cynical gamesmanship at GX? What chutzpah...

-Ray

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To: Raymond Duray who wrote (2893)6/21/2001 9:25:15 AM
From: A.L. Reagan
   of 3816
 
Ray, I actually bot some GX on Tuesday, after digesting the Winnick flap and the latest batch of analyst reports, plus realizing the magnitude of the write-off GX will be taking on some of its fine other long-term assets, but also looking at the net cash expected from selling Frontier business to CZN.

So, having had a twinge of buyer's remorse, and recognizing that you've had a pretty good track record with this industry, I said who ya gonna call to pick raisons outta turds? Ray Duray, he's the man! <g>

P.S. Some of the dotcoms (that are left) are showing signs of life now. Yahoo up pretty good yesterday, my main i-nut that I've had since way pre-IPO days has roughly quadrupled year to date. (Hold the champagne, it lost 90% in 2000.)

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To: MangoBoy who started this subject6/24/2001 9:58:51 AM
From: Freedom Fighter
   of 3816
 
Level 3 raised approximately 14 billion dollars.

It currently has a tad over 10 billion dollars of property plant and equipment.

It currently has a tad under 8 billion dollars of debt.

Let's assume that despite the short term revenue shortfall and slowdown in spending from carriers and other companies with bandwidth needs, etc... that this network will "ultimately" generate a return on capital that justifies it's existence. I don't think that's too much of an outlandish assumption. It appears to me that the long term demand for bandwidth will be enormous. Most of the stories about a fiber glut are way off base because most of the fiber is dark and won't be lit until it makes economic sense.

Given the fact that not every legacy telecom out there has an IP network of their own, some might be tempted to buy rather than build (or own rather than lease). Furthermore, I believe that depsite LVLT's short term operating difficulties and potential financing difficulties, it can easily be argued that the network is superior in many ways to some if not most of the competitors in the areas that the network covers. Gross margins give some interesting clues there.

If the replacemnt cost is 14B and debt is 8B that leaves 6B.

6B divided by 367M shares outstanding leaves $16+ per share.

If you consider the time value of money, the expertise required to build the network, the rising costs of and difficulty in attaining "rights of way" etc... it appears that any potential buyer would be stealing it at its replacement cost - putting the value well above $16.

IMHO, there might be a real lot of value here relative to the $5 stock price. You just have to make the assumption that once we get past the cyclical downturn, the revenues will come that will justify the existnce of the network and that someone might be interested in buying it.

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To: Freedom Fighter who wrote (2895)6/24/2001 11:41:02 AM
From: IngotWeTrust
   of 3816
 
Just one MAJOR flaw with your postulate, Wayne:
LVLT's replacement cost which you generously lumped together as 14B is NOT the asset you claim it is.
Here's why:
1) the cost of money to put another "project of this size/magnitude/scope" together
would NOT be financed at favorable terms at this time nor with the "glut" of fibre
in current existance, lit or non-lit.

2) replacement equipment, labor, insurance, transportation and fuel costs are larger
now than when the original LVLT was conceived.

3) now that the land has been rapped once by LVLT, the costs of right-of-way
leasing acquisition has either doubled or trebled for any new "entrant"

4) you haven't been reading LVLT's constantly rising costs on their conduit,
which only got more expensive, but also took longer and longer (backlogged) to
actually mfgr due to other projects clamoring for mfgr-ers other competing
customers for limited mfgr-ing capacity, etc.

FIFTH AND FINAL NAIL IN THE COFFIN of your thoughtful post is this:
Mr. Marketplace is already valuing the non-blue sky value of what ASSETS
currently exist at $5 per share. And when they default upon their bond
payments, it will be less than THAT generous $5 per share. At least the
high probability of default upon their bondholders is the level of premium
their corporate debt is currently trading for...WHEW!

That $5-ish should be the correct number you multiply by o/shares and then
subtract your $8 billion in debt, and proceding with your mathematical argument.
Do NOT foget to allow for (that means add) a generous $$ reserve for lawsuits
clear into the next decade from p'oed shareholders.

Now, try dividing THAT negative number by the 367Million shareholders and tell
me what $O divided by lotsa shares i truly worth.

You haven't liquidated a company anytime recently have you? Nor have you been
forced to re-org one in terms of actual asset value at "fire-sale/buyout pricing?"

While you're postulate makes sense to you, it makes absolutely NO sense to
other business persons who have had to liquidate or re-org under difficult
circumstances. This thing will be lucky to attain Lucent's lofty valuations
when all is said and done.

But, you do get an "B+" for effort.

Have a nice day.

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To: IngotWeTrust who wrote (2896)6/24/2001 6:40:36 PM
From: Freedom Fighter
   of 3816
 
Obviously, the key to my valuation is that I still believe LVLT has enough capital and control over cap ex and operating expenses to get to the other side. I think it will survive and so do most analysts. It's the market that disagrees or is panicked, margin called, and shorted into semi oblivion. :-)

>>1) the cost of money to put another "project of this
size/magnitude/scope" together would NOT be financed at favorable terms at this time nor with the "glut" of fibre in current existance, lit or non-lit.<<

I agree. You could not raise the capital on favorable terms right now. That would tend to make me think that it is less likely that new capacity will be coming on stream any time soon until the returns on capital in the industry are satisfactory once again. This in turn means that the overcapacity situation will correct itself eventually - as markets ALWAYS tend to do and LVLT's asset will once again be worth it's replacement cost or more.

>>2) replacement equipment, labor, insurance, transportation and fuel costs are larger now than when the original LVLT was conceived.<<

Which means that if the asset indeed does have value (which #1 seems to make certain as an eventuality) it would be even more expensive to duplicate. That in turn means that down the line if someone paid 14 billion for it, they would be getting a bargain. They should pay more. It is worth more.

>>3) now that the land has been rapped once by LVLT, the costs of right-of-way leasing acquisition has either doubled or trebled for any new "entrant"<<

Which means that if the asset indeed does have value (which #1 seems to make certain as an eventuality) it would be even more expensive to duplicate. That in turn means that if someone paid 14 billion for it, they would be getting a bargain. They should pay more. It is worth more.

>>4) you haven't been reading LVLT's constantly rising costs on their conduit, which only got more expensive, but also took longer and longer (backlogged) to actually mfgr due to other projects clamoring for mfgr-ers other competing
customers for limited mfgr-ing capacity, etc.<<

I'm not sure this would be a factor for someone who needs a network such as LVLT's down the line. But if they were deciding to purhase or build, anything that makes it more expensive to build tilts the value of LVLT UP!

>>FIFTH AND FINAL NAIL IN THE COFFIN of your thoughtful post is this: Mr. Marketplace is already valuing the non-blue sky value of what ASSETS currently exist at $5 per share.<<

Perhaps they are as wrong now as they were at the stupid price of 132 share? :-)

>>That $5-ish should be the correct number you multiply by o/shares and then subtract your $8 billion in debt, and proceding with your mathematical argument.<<

$5 is the value of the equity. The enterprise value is the value of the equity plus the value of the debt. 14 billion is the total capital it took to create the network. Some came from debt and some came from equity. No matter how you break it down, if someone wanted to build a similar asset down the line, it would cost 14 billion or more (more by your own admission) 14 + - 8 = 6+. The actual tangible equity is something like 10+ per share and shrinking because of the operating and start up losses. But any legacy company out there would face the same losses. So in trying to determine whether to buy or build, 14+ billion is the number they are looking at and LVLT has only 8 billion in debt.

Now of course we have to go back to my first point (and I'm sure that you would be most interested in as a bear) - they have to get to the other side of the downturn etc..

I think the recent disclosure shows how much control the company has over cap ex etc.. at this stage. It also has Walter Scott as the largest shareholder - a man with a lot of billions at his disposal and a large "equity stake" to protect. He recently injected more capital into another of his investments and also bought back shares of LVLT from Crowe. I say they make it. You obviously disagree, but I think you actually helped make my case that LVLT is worth a real lot. They need to get to the other side. Down the line there will be plenty of potential buyers and it will cost them a fortune and a lot of time to build what LVLT already has and they need - a lot more than 14 billion and a few years. I say they buy and not build and they pay a huge premium. Good Luck!

Wayne

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To: Freedom Fighter who wrote (2897)6/24/2001 9:00:25 PM
From: IngotWeTrust
   of 3816
 
Wayne sez: >>Obviously, the key to my valuation is that I still believe LVLT has enough capital and control over cap ex and operating expenses to get to the other side. I think it will survive and so do most analysts.<<

I submit to you that if you are going to start with the same flawed premise, such as you stated above, Wayne, you will never come up with a different set of conclusions..

I do NOT believe LVLT has enough "capital" to survive, let alone "CONTROL" over cap expenses and operating expenses to get to the other side. We part at opening premise.

This is a classic case of trying to close the "operating expenses" barn door AFTER the cows have left the building.

RE: $5 is the price of the "equity."
Last time I looked non-blue sky assets minus liabilities IS the value of a company.
If you truly think 14bil is an accurate reflection of assets of LVLT, you have a rude shock coming, and your beloved anal listers to starboard will all be "adjusting" shortly, thereby proving my point. S&P has already weighed in on the "value" of their debt paper. And the pool of debt buyers are the ones dictating the obscene -priced to default-LVLT paper on the street. Wake up, Wayne.

You brobably bought into Woops a few years back also, yes?


Selah.
And Scott didn't get wealthy by sending good money chasing after bad. Even he has his limits. Funny he waited until things got so bad to put a leash on Crowe's cawing and over-extended neck. Doesn't sound much like a thrifty "Scot" t'me.

Sorry, but I don't make your point for you simply because I do NOT share your optimistic premise.

As far as what "most analysts" think...the anal listers to the optimistic starboard side of the LVLT-titanic are just that...listers instead of leaders.

Just keep reciting to yourself that Crowe bought himself 1.6 years of helmsmanship at last count. I bet he can't get the ole ship Lolliplop off the optical illusionary sandbar---the buyout/takeover scrap telephony boys are waiting onshore itching to carve up this behemoth.

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