----- Original Message -----
Sent: Thursday, April 01, 2004 10:10
AM
Subject: RE: [sharechat] MUL.ASX - Lets
party like its 1999
Cris,
First of all - I must state I have high
regard for your research and stock picks. I read everything you post and
have acted, successfully, on your ideas (won't use the word "recommendations"
as none of us make "recommendations").
Wrt MUL.ASX - the value proposition looks
compelling, on paper. However, while you bring significant research
skills to investigate this area of business/technology - I actually live
here!
The Australian "bush" is currently served
by Telstra through a network of telephone "grade" copper and microwave
systems. There is a significant political emphasis on taking care of the
"bush" - as they decide who wins State elections (esp Victoria).
Private microwave networks exist for health services (esp Victoria) and the
schools are largely connected to private networks for Internet services.
From a network provider viewpoint - these networks elements are expensive and
offer minor revenue. Furthermore, extensive satellite coverage has been
available across Australia for many years (Optus). I could see a new
service bringing lower cost structures being of interest - but where are the
revenues?
Private networks, in Australia, are
dominated by the Telco "club" - most businesses would spend money in the major
metro centres and would be looking for a single supplier who had the difficult
"edge" bits subsidised by the high capacity metro network elements. I
can't see a business opportunity here unless they have a strategic
alliance with Telstra, Optus or AAPT (cross out the first two).
As far as Internet is concerned - the
"last mile" is a commodity business. Fibre wins as the high bandwidth,
low latency technology of choice; xDSL is next - as it reuses the copper
telephone infrastructure (ISDN is a xDSL technology and has been deployed in
Australia as a data service for decades). Satellite is a poor choice -
high latency, risk of transponder saturation, TDM "sag" as subscibers come on
board. The best schemes are terrestrial uplink with satellite downlink -
these hybrids are expensive and are being eaten alive by xDSL.
Another key factor in Internet strucutures
is access to upstream Internet services. This is where the real costs
are. What peering arrangements do MUL.ASX have in place? What is
the ratio of real upstream Internet bandwidth to total subscriber
bandwidth? http://www.apnic.net do not even have
them as a member (unless they have a subsidiary as a member) - this does not
bode well for sophisticated peering arrangements.
Australia deregulated the
telecommunications sector in 2001 (sort of) - New Zealand deregulated in
1987. Alot of ideas were trialled in the 1987 - 2000 time frame in NZ; a
few good ideas emerged; a number of lessons were hard won on exactly how Telco
services should be structured to make money. The problem is I don't see
MUL.ASX as being clear on where their value or differentiation occurs - this
does not mean they don't have these points, it just is not clear to me.
I am of course prepared to concede I may not have a full grasp on the core
issues.
[Another side point - Telco's usually
invest in infrastructure on a 3 year full depreciation basis. They
usually want to cover their direct costs within 1 year's worth of revenue (2
at a stretch). Power companies, for example, usually have a much longer
recovery time - 10 years. Beware of "naked" revenue projections that
don't also cover the capital equipment replacement costs/times].
I think detailed answers to these
questions should be available before any estimate of share value can be
arrived at.
/dbg
See IRG research reports
