Friends-turned-foes complicate Buffett's foray into Telecom

USA Today ^ | 07.10.02 | Kevin Maney

[dtel]

The telecommunications industry truly ought to be made into a soap opera. Maybe we could call it General Telecom. No? How about As the WorldCom Turns?

The Young and the Bankrupt?

Monday, super investor Warren Buffett ( news - web sites) jolted the nearly prostrate telecom industry by leading an investment of $500 million in Level 3 Communications. Telecom companies now are so reviled, and Buffett is so worshiped, the investment is like the prom queen deciding to dance with the greasy kid who broke both legs of the star quarterback by accidentally running him over in the school parking lot before the first game.

[dtel]

Didn't see this posted anywhere, this is my first post, so be gentle. ;^)

[dtel]

BTTT

[razorback-bert]

[dtel]

Very interesting stuff.
Gates with the whole shooting match, kinda scary.

[Cable225]

With cogent speculation like this, maybe the best investment would be stock in Reynolds wrap.

I have a feeling their sales are gonna go throught the roof!

[dtel]

Follow the money.

[Cincinatus]

It's an amusing fantasy, but there are still anti-trust laws in this country.

[dtel]

Let's jusr call me an interested spectator.
Having worked for a few of these companies and being familiar with the names, this is not too big a leap.
The new telecom market is just an incestuos rehash of the AT&T, Ma Bell telecom market.
Same players, different companies.

[razorback-bert]

Really, look at the oil industry.

[Siegfried]

Pretty good analysis and projection, except for the last part. Gates has no intention of "owning" the physical internet. He's got his sights set on owning the internet transport protocol instead. Let somebody else own the physical connections, Gates thinks, so long as they send MS a big fat royalty check every month for putting information over it.

Search out the various threads under the keyword "Palladium" for info on how Gates wants to patent and make standard a new transport protocol under the guise of "internet security". Bill Gates is evil. And the scariest part is he just might succeed unless internet users start to get the word out, RIGHT AWAY!

[Southack]

"The combined LevelWorldQwest could drive AT&T into insolvency, then Crowe could buy that company, too. The Omaha boys -- Crowe, Scott and Buffett -- would own a near-monopoly in U.S. long-haul fiber networks."

That and a quarter will get you a cup of coffee.

Over 90% of American fiber capacity is unused right now. It's dark (too many uses of the phrase dark fiber - means different things to different people).

That's a lot of capacity (read: supply) and very little useage (read: demand).

What investor would want to PAY to be in that environment?!

Moreover, better hardware (e.g. routers) and software (e.g. compression) mean that the existing fiber lines will INCREASE their capacity over the next few years even if no one lays another mile of fiber, in a market that is already 90% empty.

Own the internet? Don't most people consider the Internet to be free?! Why pay for a service that is almost being given away for free??

Methinks that the smart money is laughing at articles like this one, but it does make for a great soap-opera read!

[dtel]

"...What investor would want to PAY to be in that environment?!"

Apparently Warren Buffett, after sitting on the sidelines during the whole game.
This is either a brilliant move on his part, or one of the greatest wastes of one half billion dollars lately.
What is your take?

[dtel]

Further.
Level 3 is not exactly a juggernaut, they have next to zero in revenues and are carrying debt on about 3 billion.
Why them, why now?

[Southack]

Buffett has been burned recently by his ill-timed move to purchase General_Re. He's completely missed out on buying undervalued hotels such as Wyndham, too.

Perhaps his skill/luck has run out. Is it really so smart to own GEICO insurance (as well as a major re-insurer) in the new age of terrorism?

His other big holding is a charter jet service (OK, and also Coca-Cola).

[dtel]

Seeing as how every company mentioned in this article has yet to turn it's first dollar of profit, I have tried to make up a flow chart of the players.

MFS 1989
Walter Scott
James Crowe

buys UUNet 1995
John Sidgmore

MFS sells to WorldCom 14 bil 1995
Bernie Ebbers
James Crowe
John Sidgmore

Months later Crowe out 1996
John Sullivan in.
Recently fired CFO John Sullivan, that is

Crowe to Qwest
Joe Nacchio
Crowe
Crowe leaves.

Crowe and Scott start Level 3.
(Please excuse crudeness, I am an amateur level sleuth)

Crowe (and by extension Scott) has been the one common denominator in all of these companies.
Not one has ever made a profit and they all seem to fail after he leaves.
Now he can come in and pick them up for pennies on the dollar after the crash.
It's all just coincidence, I'm sure.

[dtel]

Keeping in mind that Scott and Crowe made all their money back and more in '95 from Ebbers and Worldcom, and that Buffett has sat on the sidelines during the whole fiasco.
They won't be going back and recouping their investments for pennies on the dollar, but yours and mine.
Checkmate, indeed.

It makes it easier to understand how Level 3 was able to build a gold-plated, fiber optic plant while having zip in revenue.

[dtel]

"That's a lot of capacity (read: supply) and very little useage (read: demand)."

From the article:
"Crowe's priority is to buy customer bases, which means buying companies or pieces of companies that serve end users. Level 3 would then move that traffic on its long-haul fiber-optic network to make use of Level 3's excess capacity."

One last point and I will let it rest.
He is not buying dark fiber, he has plenty of that, he is trying to buy the traffic.
He who controls the traffic rules the roost.
Later.

[Dick Vomer]

Uhhhh...... excuse me my friends but if you have wireless......... do you need fiber optics?

[dtel]

Yes, for the long haul and even short hauls for that matter.
Just for ease of illustration, if you make a wireless call from LA to NY 98%+/-, would be via fiber, with the wireless connection for the last mile at both ends.
Otherwise the conversation would be more like a ship to shore radio. Over

[Southack]

"Level 3 is not exactly a juggernaut, they have next to zero in revenues and are carrying debt on about 3 billion. Why them, why now?"

Because there is a sucker born every minute.

You yourself have already noted that Crowe's companies have never made a penny in profits.

They don't have to.

All that they have to do is come up with some half-cocked businessplan that fleeces ignorant, greedy, lazy investors out of their money.

Here's how it works:
Step #1: Build the hype
Step #2: Show that respected investors are interested
Step #3: Float rumors of big deals/mergers/synergy
Step #4: Deposit all of the money from crazed "investors" trying to get in on this "Next Big Thing"
Step #5: Repay the "respected investors" with money from the suckers, plus give them a hefty profit for cashing out
Step #6: Continue to sell off stock to the late-to-the-party investors
Step #7: Quietly exit company
Step #8: Watch company implode
Step #9: Announce new company
Step #10: Build the hype
Step #11: Show that respected investors are interested
Step #12: Float rumors of big deals/mergers/synergy