In addition however, there are many more stellar cuts, such as “New Plateau”, in which Brandon and Medium Zach tell a tale of their creativity and seeking to reach that plateau through each effort, while “Low Highs” shows Brandon & Medium Zach trading off line for line, making for a nice feelgood tune, and “Pefect Match”, one of two tunes containing the vocal assistance from Mankwe Ndosi, shows Brandon retaining his title as the adlib king of Minneapolis, with such quotes as “gunpowder in the sky over occupied Mexico”. The production also shows how much the brothers Bagaason have evolved their ideas and making each tune flow cohesively with the next, giving Commie more of a seamless and wonderful groove. While Cost of Living & From The Home of Brown Babies & White Mothers show why they are dope, it is Party Like A Young Commie that proves to be their grand statement, and in grand statements lie classic records. Consider Party Like a Young Commie in that case, a classic without contention.
An Imploding Telecom Sector Tests Darwinism
The Washington Post March 26, 2001 | Jerry Knight Washington, which gave birth to telecommunications competition 25 years ago, is now leading that industry toward its Darwinian climax.
A ruthless restructuring has moved into its final phase in the past 10 days as three local telecom companies threw in the towel, starting what is projected to be the biggest industry implosion since real estate developers took down the savings and loan industry a decade ago.
E.spire Communications Inc. of Herndon has filed for Chapter 11 bankruptcy protection. Metrocall Inc. of Alexandria says it may have to do the same. PSINet Inc. of Ashburn is trying to avoid it, but isn’t given much chance by industry insiders. More local companies are lined up behind them.
Each of these companies was set up to serve a different piece of the telecommunications market. E.spire was into local and long- distance voice. Metrocall sold wireless paging. PSINet’s specialty was high-speed Internet services. Stockholders of this trio of companies have seen $14 billion in stock market value wiped out. Investors stuck with $5 billion worth of high-risk, high-yield “junk bonds” issued by the companies are expected to collect only pennies on the dollar for their debts. in our site too much fiber
These are the first victims of an epidemic that by some estimates could wipe out more than a thousand telecommunications providers in the next few years.
The word “decimate” doesn’t begin to describe it. Decimate means eliminating 1 in 10. The telecom carnage is expected to be the flip side of that: 1 in 10 will survive, maybe only 1 in 100, by the most pessimistic estimates.
Bluestone Capital, a New York research firm, counts 1,300 companies that went into business to compete with local telephone companies. “The market can support maybe 14. A crushing restructuring is coming,” said Bluestone analyst Susan Kalla, dubbed the “Dr. Doom of Telecom” by Barron’s.
“Darwinian” is the term used by Riyad Said of Friedman, Billings, Ramsey Group Inc. in Arlington. The three local failures, he said, “are the end of the beginning.” In subsequent phases of its evolution, the telecom industry will consolidate, then mature.
The beginning is ending, he explained, because the money ran out before these companies could complete the systems they were building. The cash crunch set off a vicious cycle, Said said. “You have concerns about financing, so the stock goes down. The more the stock goes down, the more financing costs and the more concerns you have about financing.” Washington is ground zero for the telecom tragedy, because this is where communications competition was born. In telecom mythology, the father of the new competition was MCI Communications’ William McGowan, who took on Ma Bell and broke the monopoly of American Telephone & Telegraph Co.
Starting a telecom company often meant finding a legal loophole that would allow a new business to be born or understand how arcane regulations created opportunities. The K Street lawyers came up with the plan, the engineers and entrepreneurs and financiers set up shop in Virginia and made them work.
Today the telecom industry is falling victim to its own success. It is drowning from an excess of product in much the same way that real estate developers choked on empty office buildings when S&L deregulation flooded them with unlimited financing.
There were too many buildings then, too many developers and too few tenants. There are too many telecoms now, too much fiber-optic cable, too many innovative technologies and too few customers.
A crucial difference is that government-insured financial institutions did not put up the money for the telecom bust, so taxpayers will not be forced to pick up the tab.
The money this time came from Wall Street, from institutional investors such as pension funds and insurance companies and, to a lesser extent, from individual investors who bought stocks in promising new companies.
Just as the Internet and biotechnology industries were financed during periods when investors were willing to buy shares in companies that had nothing to sell but their brilliant ideas, competitive telecom companies raised much of their venture capital through initial public offerings.
Such massive investment was required to build networks, switches and other infrastructure that even the hyperactive IPO market of the 1990s could not coin enough cash. Much of it had to be borrowed by selling bonds. You can call them “speculative grade” or “less than investment rated” or “high yield” or “junk bonds.” In 1997, 1998 and 1999, telecom companies accounted for 30 percent to 40 percent of the speculative bonds issued, according to Moody’s Investor Service. A business credit rating service, Moody’s evaluates bonds, decides how risky they are and thus determines indirectly what interest rate the borrower will pay. go to site too much fiber
By Moody’s count, $93 billion in junk bonds have been floated by wireless phone companies, paging and satellite communications companies — specialized firms that own and build communications towers — and the assorted species that sell telephone and Internet services in competition with local phone companies.
The huge amount of money reflected “the ebullience that was shown back in the 1997 to 1999 time frame, when investors would fund all kinds of business plans,” Moody’s analyst Marcus Jones said. “Those plans are not bearing fruit, so you’re seeing defaults and bankruptcies.” E.spire defaulted on roughly $1 billion in junk bonds when it filed for reorganization under Chapter 11 of the bankruptcy code last Thursday. The company hopes the bondholders will swap about $840 million worth of bonds for E.spire stock, which would give them control of the company.
Reflecting what that swap would mean for the rest of the shareholders, E.spire’s stock closed Friday at 35 cents a share. At its peak in July 1998, E.spire stock hit $23 a share. The plunge has wiped out $1.25 billion in shareholder value.
E.spire was one of the first Washington telecoms formed to compete with local phone companies. It also has a construction division that builds fiber-optic communications networks, the infamous despoilers of streets and disrupters of traffic.
Metrocall is the second-largest company in the paging business, a virtual buggy-whip business since cellular phones permitting two-way communications made one-way pagers passe.
Metrocall’s revenue is dropping. Even with 6.25 million customers, it can’t bring in enough money to pay its debts and keep going. With just $26.6 million in the bank and a $19.5 million interest payment due on its bonds, Metrocall defaulted on March 15, refusing to make the payment.
After a 30-day grace period, the bondholders can force Metrocall into bankruptcy — if it doesn’t go earlier. The company’s junk bond debt comes to $762 million. In bankruptcy, the bondholders are entitled to be paid before the stockholders get a dime.
The loss for Metrocall shareholders comes to $1.4 billion in a little more than a year. From $15.75 last March 7, the stock was down to 25 cents a share on Friday. It’s already been delisted by Nasdaq, because it was below $1 for months.
PSINet is the big one. From $59.81 cents a share on March 8, 2000, PSINet stock is down to 22 cents, a loss of more than $11 billion in market value. PSINet also has the most junk bonds outstanding, a staggering $3.4 billion worth. PSINet was one of the first Internet services and a pioneer in raising money to expand into related businesses.
The 75 companies it acquired over the past three years are now being sold off, but not as quickly as they were acquired and, in most cases, for less money than they cost.
Last Tuesday PSINet issued a stunningly blunt assessment of its prospects: “It is likely that the common stock of the company will have no value and the indebtedness of the company will be worth significantly less than face value.” When a stock drops into what’s sometimes called the “drill bit” range — like PSINet’s 7/32, or 22 cents, a share — the market is sending a message that survival is in doubt. That criterion alone puts three other companies in doubt.
Global Telesystems Inc., which moved its headquarters from Arlington to London last year, is down to 75 cents a share. Last month Global “elected not to pay” the dividends due on its convertible preferred stock.
CAIS Internet Inc. of Washington, which hooks up hotels and other commercial buildings for high-speed Internet access, has seen its stock fall from $43 a share to 56 cents in the past 13 months. The big loser in CAIS is Kohlberg Kravis Roberts, the New York investment firm that put $96 million into the company at close to the peak price.
Teligent Inc. of Vienna saw its stock “break the buck” for the first time on Thursday when some shares changed hands for as little as 75 cents. The stock peaked at $100 in intra-day trading a year ago. When the market rallied late Thursday, Teligent stock climbed back, closing Friday at $1.12.
Teligent provides phone service to businesses through a wireless network that uses antennas on the roofs of suburban office buildings. The innovative transmission technology was supposed to be cheaper than hooking up cables. But analyst Kalla said Teligent ran into a roadblock never anticipated by its engineers: Landlords won’t let Teligent use their roofs, at least not without being paid.
As of a couple of weeks ago, Teligent still had $350 million in cash. Founder Alex Mandl has vowed to bring in more money by the end of April.
Teligent’s fundraising, however, could be complicated by another issue raised in Moody’s recent report on telecom junk bonds. Like E.spire, it issued millions of dollars worth of bonds that don’t require cash interest payments for the first few years.
Most companies that issued such bonds were counting on refinancing the debt by the time the interest payments had to be made. That can’t be done today, because no one’s willing to buy telecom bonds, another example of the vicious cycle cited by Said.
Next week: Telecom companies with stocks that are trading at bargain prices, but look like survivors to securities analysts.
Dang you blog spacing! *shakes angry fist*
Thanks for posting this up Josh.
Fixed! I also want to note that we do not post scores anymore, but Ali gave this album a ringing endorsement with a 100/100.
^BLAOW. Reviler (bangarang).
Minneapolis Hip-Hop, Rocks!