GNCMA - General Communications

[gary17]

the preferred comes from AWN to ACS  - not coming from GNCMA.....    so i don't think they should be counted as GNCMA's debt

[no_thanks]

http://www.businessinsider.com/rural-alaska-data-caps-2014-2

 

Ouch, doesn't make me feel to good to be invested after reading this.  Sounds like regulations may be getting some more scrutiny due to the Time Warner Comcast deal.

[Packer16]

What folks don't realize is the cost to provide BB to rural Alaska to begin with and comparing it to urban BB is silly.  The alternative for these folks is no internet or capped internet.  Which would you choose?

 

Packer

[Kiltacular]

What folks don't realize is the cost to provide BB to rural Alaska to begin with and comparing it to urban BB is silly.  The alternative for these folks is no internet or capped internet.  Which would you choose?

 

Packer

 

...Not to mention that the likelihood that this article isn't really being written out of concern for rural Alaskans.  In the lower 48, data caps would shift power from players like Google and Netflix to the cable co's.

 

On the Alaskan front, these people can always rent discs from Netflix (or move).  When I travel overseas, I have to be careful about what my mobile phone consumes. 

[APG12]

We have one of the highest unemployment rates in the nation, and some of the highest rates of suicide, sexual assault, and drug abuse,” Wallace says. “The people that can’t afford it are the ones that are getting victimized.  It was supposed to bring access – true availability of goods and services – but it really just brought a huge bill that many can't afford.

 

Holy smokes! Before the bandwidth caps life was full of sunshine. Now it's all prostitutes, violence, and drugs!! ;D

 

In all seriousness, isn't it bizarre to be offered a service and then claim you're being "victimized" because you don't want to pay for it?

 

Here, I've got some stinky undershirts I'm selling for $500 a piece. But please don't ban me for victimizing CoBF!  :P

[yadayada]

They are installing fibre right? So by 2015, they should have really fast internet? If you compare Alaska internet with the rest of the US, it really fking stinks. Some people were hating on this fibre expansion, but it seems to make alot of sense to me.

 

How would more capacity for GCI affect the bottom line? They cannot make these ridicilous charges anymore? But I supose those charges are charged for a reason?

[Palantir]

Correct me if I'm wrong on this, but GCI's main expense as part of the AWN Transaction was buying assets from ACS for 100M? So basically they bought ACS assets, and then folded them into the AWN entity, and ACS also contributed some assets. End result being that GCI is getting a bump in EBITDA by about 24M this quarter, which amounts to nearly a 100M in EBITDA gain for the year. On top of that they are going to get escalating management fees.....am I wrong? Looks too good to be true.

 

Bump...

[APG12]

I get EBITDA closer to $296 = $62.1*4 (total 2Q EBITDA) - $13.4*4 (2Q wireless EBITDA) + $150m*2/3 (AWN EBITDA (incl synergies of $30m); Note: 2 mo annualized EBITDA from ALSK disclosure closer to $200m) + $5m (AWN mgmt fee).  I have net debt of $958 so EV of $1.343.  Resulting in an EV/EBITDA of 4.5x.

[rayfinkle]

Correct me if I'm wrong on this, but GCI's main expense as part of the AWN Transaction was buying assets from ACS for 100M? So basically they bought ACS assets, and then folded them into the AWN entity, and ACS also contributed some assets. End result being that GCI is getting a bump in EBITDA by about 24M this quarter, which amounts to nearly a 100M in EBITDA gain for the year. On top of that they are going to get escalating management fees.....am I wrong? Looks too good to be true.

 

Bump...

 

this is my simple takeaway too...I suppose the thesis is that as this EBITDA starts rolling through the financials--showing a full year impact--the valuation will become more clear to the market. Interestingly in the 3Q conference call management wouldn't give full year "pro-forma" guidance, but said that the $265M in 2013 EBITDA included only partial year contribution of the AWN. They also mentioned continued buybacks and a "leverage neutral" strategy.

[rayfinkle]

All- it seems like good practice to me that when there's a bullish consensus it is good form to creatively think about what could go wrong....full disclosure I just watched World War Z and I thought that one character's comment was interesting...when all 10 people in the room agree the 11th has an obligation to disagree just to be prudent.

 

So, can some folks chime in with ways that investors get burned here? In levered companies the key things to look at are debt service / covenant levels. For cable/telcos it all comes down to subs. So, anyone have ideas for things we're not considering?

[bookie71]

"On the Alaskan front, these people can always rent discs from Netflix (or move).  When I travel overseas, I have to be careful about what my mobile phone consumes."

.

Let's see, you live in a village without any road connection and can only get there by air or sometimes water.  You live a subsistence life style and get most of your food by hunting, fishing and gathering in the summer. It's only about a thousand miles to Fairbanks so moving is no big deal. 

[Kiltacular]

"On the Alaskan front, these people can always rent discs from Netflix (or move).  When I travel overseas, I have to be careful about what my mobile phone consumes."

.

Let's see, you live in a village without any road connection and can only get there by air or sometimes water.  You live a subsistence life style and get most of your food by hunting, fishing and gathering in the summer. It's only about a thousand miles to Fairbanks so moving is no big deal.

 

The "or move" part was tongue in cheek.  I thought the article insulted intelligence a bit...no offense meant to anyone in Alaska or anywhere else!

 

If you subscribe to a service where there are enormous penalties for going over some predefined limit, it's hard to understand how you can be shocked when you are hit with an enormous penalty for going over the limit.

 

Providing telecommunications services for cheap prices to widely dispersed and sparsely populated areas must be expensive.  I think that was the point Packer was making.  It isn't cheap to do so the telecom might not be gouging customers at the same price level where it clearly would be gouging customers in a densely populated area.

[APG12]

All- it seems like good practice to me that when there's a bullish consensus it is good form to creatively think about what could go wrong....full disclosure I just watched World War Z and I thought that one character's comment was interesting...when all 10 people in the room agree the 11th has an obligation to disagree just to be prudent.

 

So, can some folks chime in with ways that investors get burned here? In levered companies the key things to look at are debt service / covenant levels. For cable/telcos it all comes down to subs. So, anyone have ideas for things we're not considering?

 

There's a valuation risk that comes with the leverage. The difference in equity valuation between an EBITDA multiple of 6 and an EBITDA multiple of 5 is pretty dramatic. Minor fluctuations in EBITDA have a magnified effect.

 

On the other hand, it's my opinion that GNCMA deserves a higher than peer group multiple due to its ability to grow organically with good returns on invested capital (at least by telco standards).

[yadayada]

verizon is rolling out a wireless network i think for mobile phones. So they can lose some roaming revenue and ebitda. But for now they haven't come close to completing that. Anyone know how much ebitda they can lose there?

 

And what about their fibre internet upgrade? How will that affect prices? Seems like they make the most money there right now. What are the bear arguments here?

 

And leverage doesn't seem like much risk, they arent that levered for a telecom. And with their market position, I doubt that is going to be a problem.

[Palantir]

Correct me if I'm wrong on this, but GCI's main expense as part of the AWN Transaction was buying assets from ACS for 100M? So basically they bought ACS assets, and then folded them into the AWN entity, and ACS also contributed some assets. End result being that GCI is getting a bump in EBITDA by about 24M this quarter, which amounts to nearly a 100M in EBITDA gain for the year. On top of that they are going to get escalating management fees.....am I wrong? Looks too good to be true.

 

Bump...

 

this is my simple takeaway too...I suppose the thesis is that as this EBITDA starts rolling through the financials--showing a full year impact--the valuation will become more clear to the market. Interestingly in the 3Q conference call management wouldn't give full year "pro-forma" guidance, but said that the $265M in 2013 EBITDA included only partial year contribution of the AWN. They also mentioned continued buybacks and a "leverage neutral" strategy.

 

How is this possible though?....spend 100M and get a 100M bump in EBITDA annually....they must have fleeced ALSK.....

[rayfinkle]

verizon is rolling out a wireless network i think for mobile phones. So they can lose some roaming revenue and ebitda. But for now they haven't come close to completing that. Anyone know how much ebitda they can lose there?

 

And what about their fibre internet upgrade? How will that affect prices? Seems like they make the most money there right now. What are the bear arguments here?

 

And leverage doesn't seem like much risk, they arent that levered for a telecom. And with their market position, I doubt that is going to be a problem.

 

At 25% of revenue wireless contribution is clearly important...I'm not familiar enough with the industry to comment on contribution margin from this segment... good ones yada

[yadayada]

Didn't they add some assets themselves in the AWN? So isn't there some synergy as well for them?

[rayfinkle]

another interesting point. Raymond James analyst report targets 6x 2014E EBITDA less estimated $50M distribution to AWN. So they are treating this financing payment as a basis for valuation. I think the numbers referenced earlier in this thread ignore these payments (both as debt and as cash flow). The right way to handle these $50M payments--since they are not a part of the operating cost structure and therefore not a permanent negative force in EBITDA/OCF--is to count the NPV of these payments as debt. If you take them out of EBITDA and then apply a multiple you are suggesting that these part of the LT FCF generating power of the business which seems wrong. Thoughts appreciated.

[rayfinkle]

Didn't they add some assets themselves in the AWN? So isn't there some synergy as well for them?

 

yes i thought $100M right, or am I confusing two things?

[Palantir]

They bought 100M in assets from ALSK and moved them to the AWN. But overall it seems that in this whole transaction, they've only spent that 100M....

[APG12]

verizon is rolling out a wireless network i think for mobile phones. So they can lose some roaming revenue and ebitda. But for now they haven't come close to completing that. Anyone know how much ebitda they can lose there?

 

And what about their fibre internet upgrade? How will that affect prices? Seems like they make the most money there right now. What are the bear arguments here?

 

And leverage doesn't seem like much risk, they arent that levered for a telecom. And with their market position, I doubt that is going to be a problem.

 

Yeah, I agree with you about the risk of leverage from the perspective of permanent impairment of capital. My point was only that when minor changes in your assumptions produce large changes in valuation it's tough to be precise. Anyways, I think you hit the nail on the head with respect to the largest risk. It's impossible to quantify the Verizon threat at this point.

 

There are reasons to suspect that the impact won't be very large, though. GNCMA has a pretty much permanent voice roaming position and VZ will need to pay GNCMA for the use of their backhaul. Maybe they'll even take market share from AT&T and bring it onto GNCMA's backhaul.

 

It seems like these things were discussed a few pages ago but now I can't remember lol. I don't dare venture inside the SHLD thread but this is what I imagine it looks like... it starts repeating every 10 pages  :P

[APG12]

another interesting point. Raymond James analyst report targets 6x 2014E EBITDA less estimated $50M distribution to AWN. So they are treating this financing payment as a basis for valuation. I think the numbers referenced earlier in this thread ignore these payments (both as debt and as cash flow). The right way to handle these $50M payments--since they are not a part of the operating cost structure and therefore not a permanent negative force in EBITDA/OCF--is to count the NPV of these payments as debt. If you take them out of EBITDA and then apply a multiple you are suggesting that these part of the LT FCF generating power of the business which seems wrong. Thoughts appreciated.

 

You're exactly right. A multiple is a shorthand discounted cash flow. If you apply the multiple to (EBITDA-payments) you've calculated a value that assumes the payments are made out to infinity. This isn't true so the analyst has made a mistake. I noticed the same thing when I read that report.

 

Edit: I should add, ALSK owns 33% of AWN so that portion of EBITDA should be subtracted from GNCMA's numbers. It's only the portion of the minimum payments that is above the 33% that ALSK owns which should be discounted and added to debt.

[rayfinkle]

 

Edit: I should add, ALSK owns 33% of AWN so that portion of EBITDA should be subtracted from GNCMA's numbers. It's only the portion of the minimum payments that is above the 33% that ALSK owns which should be discounted and added to debt.

 

Just to clarify, the GNCMA EBITDA is fully consolidated, not just reflecting 2/3 of AWN?

[APG12]

Just to clarify, the GNCMA EBITDA is fully consolidated, not just reflecting 2/3 of AWN?

 

SAY WAH? No, I think we're both confused here. What I'm saying is this: Compute EBITDA for GNCMA's non-wireless segments. Add to this 2/3rds of AWN's EBITDA (Packer did this, I quoted it on the prior page). Add to GNCMA's debt the present value of the portion of the minimum payment that is greater than 1/3rd of AWN's income.

 

So, in the end you have just the EBITDA that belongs to GNCMA and you have added to debt the money that GNCMA will owe ALSK in the next four years.

[rayfinkle]

Just to clarify, the GNCMA EBITDA is fully consolidated, not just reflecting 2/3 of AWN?

 

SAY WAH? No, I think we're both confused here. What I'm saying is this: Compute EBITDA for GNCMA's non-wireless segments. Add to this 2/3rds of AWN's EBITDA (Packer did this, I quoted it on the prior page). Add to GNCMA's debt the present value of the portion of the minimum payment that is greater than 1/3rd of AWN's income.

 

So, in the end you have just the EBITDA that belongs to GNCMA and you have added to debt the money that GNCMA will owe ALSK in the next four years.

 

Agreed-we are saying the same thing. I'm pretty sure that the AWN contribution is baked in to the GNCMA's numbers for 3rd quarter--in the conf. call they suggested that $265M was the actual 2013 guidance, and that included contributions from the transaction, but did not represent pro-forma impacts for periods before close. So as the AWN contribution rolls, the only adjustment (to EBITDA) should reflect any synergies that have not yet benefited cash flow.