Ask Packer - No Seriously, Ask Him Anything (AHA)!

[augustabound]

Yes I am.  I will be listening because our TV provider does not have the stations covering it down here.  I wish a major broadcaster would at least carry the Grey Cup.  Are you a part of Rider nation?

 

No, born and raised in Hamilton, moved to Toronto in my late 20s, now in Newmarket and have little interest in the CFL. I love NCAA more than NFL and CFL.

 

I remember growing up in Hamilton and all the fans seemed to be seniors.  It most definitely seemed to be a game from a generation ago. Nobody talked about it or followed it at school.

Now all those guys from high school seem to be season ticket holders.  ;D

 

Here's a link for all those in Green Bay who thinks that it's cold there.

http://www.cbc.ca/news/canada/saskatchewan/grey-cup-fans-camp-out-in-freezing-regina-parking-lot-1.2437790

-29C translates to -21F.

 

[Packer16]

That is cold.  Some real loyal fans.  I wonder what the coldest Grey Cup game was?  At temperatures that cold the ground has to be like concrete and the ball like a brick.

 

Packer

[augustabound]

That is cold.  Some real loyal fans.  I wonder what the coldest Grey Cup game was?  At temperatures that cold the ground has to be like concrete and the ball like a brick.

 

Packer

 

From the weather network, 1975: This was the coldest recorded Grey Cup in history. The clash between Edmonton and Montreal in Calgary featured a wind chill that felt like -30°C

[racemize]

Packer, since you are looking at the telecom/cable co area a lot, do you have any comment on this and how it affects your longer term thinking on the companies?

 

http://www.businessinsider.com/cord-cutters-and-the-death-of-tv-2013-11

[Packer16]

I think the article is a little misleading because most folks are going from cable to high speed internet and the number of sub losses as a % of total subs is relatively small.  When they total all losses, they only include "cable cos" in their numbers not cable cos plus telcos like they should.  I think the data shows the market is mature but I think most already know that.

 

The only real threat they mention is wifi hot spots.  So unless you think paying cable subscribers are going to transition to mobile devices and watch TV/internet at Starbucks, there is not much of a threat.  Mobile is strarting from such a small base that it does not make sense to compare growth rates.

 

As Malone has stated the key is the wide pipe.  If entertainment starts to use more bandwidth you will see growth in broadband providers both telco and cable and Starbucks wifi hot spot just won't suffice.

 

Packer

[finetrader]

I agree with your observations Packer.

 

The treat is video streaming. And I guess that's why we hear tv satellite providers looking for ways to become an internet provider. Be it by buying radio waves that would allow to send internet signal or by buying wired network.

 

As for cable companies, if video streaming become big I'm pretty confident they will find a way to charge more for internet services to compensate for loss on tv services. The last mile providers have always found a way to protect their revenues.

 

As for data (video) transmission via cell towers, I'm not an expert but my understanding is that it is quite costly to transmit large bandwidth.

[racemize]

Yes, I'm mostly concerned with Internet replacing TV services, particularly for satellites (looking at DTV right now).  It seems like the transition will be much easier for cable companies than satellite providers, unless they pull off the cellular internet bundling...

 

Absolutely agree that free Wi-Fi is not a threat--seems weird that they would mention that in the article, honestly.

[meiroy]

 

Packer

 

Just to invert this, if someone like Google comes out with disruptive technology it's game over?

[Packer16]

If a disruptive technology was developed (call it super-free wifi), it could be disruptive but the infrastructure to make it work has to paid for by someone.  The data/bandwidth has to go across some network that someone has to pay for in part at least.  You also have the issue of dislodging customers tied to an existing network.  These all become issues if Google comes up with a yet to be discovered technology alot of hurdles.

 

Packer

[Liberty]

Google's work with fiber and wifi and such is mostly to catalyze others to improve their service (that's my understanding, anyway). I seriously doubt that they want to be in the business of becoming the world's ISP and deal with all the headaches this brings (you actually need customer service, at some point...). They'd rather keep the pressure on so the internet stays fast and relatively open so they can sell ads without having to do all that.

[meiroy]

 

Google was just an example because they are, well, Google and there's already an existing example of https://fiber.google.com/about/. I actually think it's definitely in their interest to have "neutral" infrastructure, but lets not turn it into a discussion about Google...

 

 

Anyhow, the question was in general if a disruptive bandwidth technology would be a death call for the industry.

[Packer16]

I think in term of killing these firms, it would depend upon how fast the change occurs.  If you look at telecom history they have been able to co-op both wireless and internet technologies to date.  Newspapers on the other hand were hurt by the internet and did not come up with an effective response (paywalls and unique content not given away for free) fast enough to loose ad dollars.

 

Packer

[ageofsocrates]

Hi Packer,

 

Just had a couple of questions. Hope you could share further.

 

Any key financial metrics that you look at ( apart from ev/ebitda)? Any checklist that you go thru first before investing? Any investing mistakes that you can share ?

 

Many thanks

[investor-man]

Hi Packer,

 

Thanks for taking questions. I'm a fairly accomplished engineer, so I am comfortable with math and statistics, but I'm a fairly neophyte investor. Do you have any books you recommend for coming up to speed on valuation? Beginner? Intermediate? Advanced? I've read maybe 10 value investing books that you'd expect to find on the shelves of Barnes and Noble and I'm looking for something deeper than them. Have you read Demodaran's books? Also do you feel obtaining a CFA is a worthwhile endeavor?

 

Thanks

[Packer16]

The primary metrics I use for non-financial firms are EV/EBITDA, EV/EV FCF and Equity/FCF.  I also look at coverage ratios for levered firms and track trends in EBITDA, FCF and leverage ratios over time to see what the story is historically.  I also compare these trends to comps to see where they fall out against other possible investments.  The primary mistakes have been buying levered firms that blew up.  The lesson - stay away from levered firms who have low coverage and are trending worse.

 

As to valuation books, Damodaran's are probably some of the best.  He is a great communicator.  There is Damodaran on Valuation and his web site has alot of data and information.  At one point I think you could audit his class remotely.  If you have the chance do this as he is great speaker/communicator.  There is another book we use in business valuation (How to Value a Business by Shannon Pratt) but I think it gets into specifics that are not very useful outside of the appraisal profession.  Other good concept books include: The Intelligent Investor, Security Analysis (2nd & 6th Edition - really good footnotes), The Most Important Thing (Annotated Version), Modern Security Analysis (Whitman & Diz), You Can Be a Stock Market Genius (Greenblatt), How to Make Money with Junk Bonds (Levin) and 4 in the Little Book Series (Still Beats the Market, Valuation, Behavioral Investing and That Builds Wealth).

 

Packer

[Guest valueInv]

Google's work with fiber and wifi and such is mostly to catalyze others to improve their service (that's my understanding, anyway). I seriously doubt that they want to be in the business of becoming the world's ISP and deal with all the headaches this brings (you actually need customer service, at some point...). They'd rather keep the pressure on so the internet stays fast and relatively open so they can sell ads without having to do all that.

 

And push prices down.

[Guest valueInv]

I think the article is a little misleading because most folks are going from cable to high speed internet and the number of sub losses as a % of total subs is relatively small.  When they total all losses, they only include "cable cos" in their numbers not cable cos plus telcos like they should.  I think the data shows the market is mature but I think most already know that.

 

The only real threat they mention is wifi hot spots.  So unless you think paying cable subscribers are going to transition to mobile devices and watch TV/internet at Starbucks, there is not much of a threat.  Mobile is strarting from such a small base that it does not make sense to compare growth rates.

 

As Malone has stated the key is the wide pipe.  If entertainment starts to use more bandwidth you will see growth in broadband providers both telco and cable and Starbucks wifi hot spot just won't suffice.

 

Packer

 

Cablecos are the most aggressive deployers of Wifi hotspots.

[Liberty]

What reassures me about cablecos is that mobile computing (phones, tablets) isn't nearly as mobile as people seem to think it is. People usually end up somewhere like home, the office, a restaurant, whatever. While you're in transit, sure you'll go cellular, but it's still way more efficient to run a wire to a building and have a wifi router there than to have a bunch of people do high-speed transfers over shared, expensive and limited spectrum, with reception always varying based on the terrain and other factors that are hard to control.

 

When cablecos go all-digital (which Charter is doing), that'll free up a ton of bandwidth on their lines (analog signal uses a surprising amount of capacity), allowing them to crank up internet speeds at almost no extra cost.

 

I think wireless will be a bigger challenger in developing countries that aren't already blanketed with cable. But in North-America, cablecos can just keep using most of the same wires and upgrade modems, switches, routers, or run fiber to a neighborhood but keep the last mile copper, etc. It's not as if that's a huge disadvantage since wireless companies need to upgrade their cell towers and run fiber to them too (in fact, I wouldn't be surprised if in some places, cell towers are connected to cableco infrastructure, though I don't know that for sure).

 

In short: If you're sitting on your sofa at home, streaming 1080p Netflix, you get no benefit from being connected to a cell tower rather than to cable + wifi, while the wireless company would get all the disadvantages of having people take up lots of scarce spectrum, thus reducing the number of paying subscribers they can serve per cell tower.

 

That's my understanding of the situation, for what it's worth, but I'm not nearly as smart as Packer so take it with a grain of salt.

[gary17]

I tend to agree - my only concern is the unknown unkowns - could 4G or 5G get so fast that people want to stream using 5G or 6G instead of cable... you know, download a 1080p video in 5sec instead of 5min.    the chance of that in the next 5 years is probably low, but hard to say -

 

 

[tombgrt]

I tend to agree - my only concern is the unknown unkowns - could 4G or 5G get so fast that people want to stream using 5G or 6G instead of cable... you know, download a 1080p video in 5sec instead of 5min.    the chance of that in the next 5 years is probably low, but hard to say -

 

 

 

Bandwidth usage will increase exponentially as well so I don't think that scenario is very likely in the near future, even if 6G was here in a couple of years.

 

 

Thanks for the discussion all!

 

[Liberty]

Bandwidth usage will increase exponentially as well so I don't think that scenario is very likely in the near future, even if 6G was here in a couple of years.

 

 

Thanks for the discussion all!

 

Yeah, that would be a problem if cable was at the end of its runway. Malone says that speeds could be brought to gigabit levels pretty easily. That seems believable; I don't live somewhere known for fast internet speeds, and the local cable company has a 200mbit/s package.

 

If you're going to handicap it, I'd say that's a negative for wireless. The cable roadmap is pretty known and low-risk, while wireless' roadmap is less clear and they're still working on getting LTE everywhere.

[gary17]

Got a dumb question (I'm not a tech person)

 

So a company like ALSK is NOT a cable

It's a phone company so it's wireline broadband will be limited.... right? cuz the telephone technology is at the end...

 

When we talk about cable we mean a company like GNCMA? Right? 

 

Thanks!!

[nodnub]

I tend to agree - my only concern is the unknown unkowns - could 4G or 5G get so fast that people want to stream using 5G or 6G instead of cable... you know, download a 1080p video in 5sec instead of 5min.    the chance of that in the next 5 years is probably low, but hard to say -

 

I think we may be at that point now for many people. For example, in North America a lot of people already have faster internet access (LTE) than on their fixed cable internet connection unless they are paying top dollar to their ISP for a premium connection (100Mbps or higher).

 

As far as 5G and 6G:  It looks like they are a long way off.  It took a long time to develop the standards and technology involved in each mobile generation.  I think it's possible that the pace of development will quicken in the future, if there are economic benefits to faster adoption.

 

(wikipedia): 

A new mobile generation has appeared approximately every 10th year since the first 1G system, Nordic Mobile Telephone, was introduced in 1981. The first 2G system started to roll out in 1992, the first 3G system first appeared in 2001 and 4G systems fully compliant with IMT Advanced were standardised in 2012. The development of the 2G (GSM) and 3G (IMT-2000 and UMTS) standards took about 10 years from the official start of the R&D projects, and development of 4G systems started in 2001 or 2002

 

edit: the tradeoff between mobile data and cable network data will be very region-specific, depending on the mobile data speeds and cable/phoneline network speeds in those areas.

[yadayada]

What is a good start to learn the telecom industry? I am looking into GNCMA, but feel no where near qualified to make a judgement so far. I am reading Malone's book, cable cowboys. Just start with reading 10k's? Found a book on amazon, but it seemed v technical, and had 800 pages :) . So that seems a bit too much for just one stock pick.

[augustabound]

What is a good start to learn the telecom industry? I am looking into GNCMA, but feel no where near qualified to make a judgement so far. I am reading Malone's book, cable cowboys. Just start with reading 10k's? Found a book on amazon, but it seemed v technical, and had 800 pages :) . So that seems a bit too much for just one stock pick.

 

I've got an industry primer from 2007.

https://drive.google.com/file/d/0B7ZQujnVzj_9ZDNoWXZsbi16VzA/edit?usp=sharing

 

I've found it useful to Google "telecom industry primer" or whichever sector you're looking for. Sometimes it's easier to search by filetype in google as pdf.

Some are outdated like one from 1999.

 

There was one site that had 99 primers (a torrent file though)