ALSK - Alaska Communications

[Guest wellmont]

After building up their broadband revenues, can't they drawn down the marketing spend and "growth" portion of the capex to boost cashflows?

 

doubt it. but keep in mind this a great way for management to "fudge" the future. We are essentially trying to predict an unknown. . And management realizes that. of course they call it "growth cap ex". that's a tried and true management euphemism, like "core earnings". But ask yourself what happens if they stop spending? in this business, they shrink. very hard to take a business in secular decline and grow it. Broadband takes them into deeper technology challenges and competition.

[krazeenyc]

After building up their broadband revenues, can't they drawn down the marketing spend and "growth" portion of the capex to boost cashflows?

 

doubt it. but keep in mind this a great way for management to "fudge" the future. We are essentially trying to predict an unknown. . And management realizes that. of course they call it "growth cap ex". that's a tried and true management euphemism, like "core earnings". But ask yourself what happens if they stop spending? in this business, they shrink. very hard to take a business in secular decline and grow it. Broadband takes them into deeper technology challenges and competition.

 

 

 

This is my worry of course.

 

Voice wireline is going to decline at whatever the rate it's going to decline at. There is nothing they can do to prevent it. This part of the business is in secular decline and will continue to decline. Business voice wireline decline seems to be pretty slow and will likely remain slow. While Consumer voice wireline is declining rapidly, that revenue base will be much smaller in 4 years and its decline will have a far less impact on ALSK.

 

Are you saying wireline broadband is in secular decline too? They operate in a duopoly when it comes to broadband wireline in Alaska. Additionally they own 2 of 4 fiberoptic cables coming into Alaska. Some of their customers can choose between either GCI or ALSK. Many actually cannot -- so in many cases they have defacto monopoly. (Are you saying people will go without wireline broadband and get wireless broadband? ).  It seems so far that their spending is moving the needle - Consumer broadband connections are up 5-6% with ARPU up 15%+ and business broadband connections are up 3% with ARPU up 15% as well.

 

Are you saying that management is being disingenuous  about growth spending here? thx.

If they stop/slow "growth" spending after 4 years of spending and the duopoly is still in effect do you expect them wireline broadband ebitda to drop as well or just overall in conjunction with voice? What will the pace of that decline be? If you're trading at 1.5x FCF and FCF is declining at 1-2% annually it's pretty great no?

[Guest wellmont]

what is the cable competition up there for consumers? what's their market share in consumer bb? what's the market share trends? wireless broadband is a long term threat, within 4 years I suspect. that's one reason why I caution you that once the BB plant gets built out their worries are over. it's a business that changes. for example these guys never anticipated bb internet. however, they were in good position to exploit it once the opportunity emerged.

 

I am not saying management is lying. I am saying they are being management. that's what they do. they take optimistic views of the future. Unless you have a hard nosed owner operator that owns lots of stock who can be intellectually honest. that's what managements do because their incentive is ride the train for as far and as long as possible. the consequences to being wrong about growth cap ex come in the future, and even then they will have excuses. because after all they can't have perfect vision about the future.

 

does the following include BB or not?

 

Consumer access lines declined by 1,716, or 3.3%, to 50,722 and business access lines decreased by 446, or 0.6%, to 80,071.

 

 

I am not saying this is a bad investment. I am just saying think about this business and what management assumptions are. don't take their assumptions at face value. make your own assessment. Even if you haircut their assumptions the numbers still look good.

 

[krazeenyc]

what is the cable competition up there for consumers? what's their market share in consumer bb? what's the market share trends? wireless broadband is a long term threat. that's one reason why I caution you that once the BB plant gets built out their worries are over. it's a business that changes. for example these guys never anticipated bb internet. however, they were in good position to exploit it once the opportunity emerged.

 

I am not saying management is lying. I am saying they are being management. that's what they do. they take optimistic views of the future. Unless you have a hard nosed owner operator that owns lots of stock who can be intellectually honest. that's what managements do because their incentive is ride the train for as far and as long as possible. the consequences to being wrong about growth cap ex come in the future, and even then they will have excuses. because after all they can't have perfect vision about the future.

 

does the following include BB or not?

 

Consumer access lines declined by 1,716, or 3.3%, to 50,722 and business access lines decreased by 446, or 0.6%, to 80,071.

 

 

I am not saying this is a bad investment. I am just saying think about this business and what management assumptions are. don't take their assumptions at face value. make your own assessment. Even if you haircut their assumptions the numbers still look good.

 

Wellmont those numbers are voice wireline numbers -- they're not broadband.  In their quarterly reports "access lines" are voice while "connections" are broadband.  I'm expecting them to grow their broadband revenues over the next 4 years nicely.  I was just trying to make the point that if u take out the "growth spend" after 4 years -- the FCF and EBITDA can balloon -- even if it then continues on a slow decline.

 

Or rather I'm trying to say for everyone who sees FCF at $15 million this year or EBITDA as $40 ex-AWN that those numbers are depressed as they're putting that towards growth. (But if management is simply BSing us, then I don't like the investment nearly as much).

 

By the way wellmont, thx. I'm looking for people to tell me all the various reasons I'm wrong (although agreement is OK too). 

[gary17]

Kraze

When they say they are investing in "broadband" what Don you think they mean? 

 

My understanding is that broadband is just a generic term for fast Internet - this could be cable modem at someone's home or 4g LTE for wireless.... 

 

So all the wireless is now with AWN so when they say investing in broadband i think they mean broadband for home and businesses (ie, through wires).

 

But keep in mind 4g LTE or future witless technology will likely one day be faster than wire broadband.

 

I suppose weather it is wireline broadband or witless broadband, they all need to get connected to the main "pipes" that connect the data to the Internet.... and I believe ALSK owns two of the four in the state.

 

So the question is: how relevant is wire broadband in the future, or more specifically in the next decade?  And when management say they are spending 45m in cap ex what exactly are they investing in?

 

[krazeenyc]

Kraze

When they say they are investing in "broadband" what Don you think they mean? 

 

My understanding is that broadband is just a generic term for fast Internet - this could be cable modem at someone's home or 4g LTE for wireless.... 

 

So all the wireless is now with AWN so when they say investing in broadband i think they mean broadband for home and businesses (ie, through wires).

 

But keep in mind 4g LTE or future witless technology will likely one day be faster than wire broadband.

 

I suppose weather it is wireline broadband or witless broadband, they all need to get connected to the main "pipes" that connect the data to the Internet.... and I believe ALSK owns two of the four in the state.

 

So the question is: how relevant is wire broadband in the future, or more specifically in the next decade?  And when management say they are spending 45m in cap ex what exactly are they investing in?

 

When they say they're investing in their network they're basically saying they're investing in FTTN /last mile delivery (with a focus on business customers) -- basically offer their customers more reliable and faster internet. If you look at both GCI and ALSK they're offerings are quite lame and expensive -- but I think that's Alaska for you (being very rural and sparse and of course being a duopoly doesn't hurt high prices low speeds, etc). 

 

 

Yes. Alaska owns 2 of 4 main pipes to Alaska including the newest AKORN -- which cost them $150 million to build.

I expect wireline broadband to be extremely relevant for the next decade -- but I'm no tech expert when it comes to that -- it is just a guess.

 

 

[gary17]

here are the analyst reports

Q3_2013_-_Drexel.pdf

Q3_2013_-_BofA.pdf

Q3_2013_-_Raymond_James.pdf

[xtreeq]

here are the analyst reports

 

Thanks

[gary17]

I have a hypothetical question here

 

If say in 10 years wireless completely replaces wireline broadband.... what do people think will happen to ALSK and GNCMA's revenue mix... would AWN become very valuable while the wireline businesses for these two company's become almost worthless? 

 

Thanks

[Packer16]

I don't think wireline will go away especially in harsh climates like Alaska.  Wireless will replace wireline in dense areas where bandwidth is low.  In Alaska, you have just the opposite.

 

Packer

[bookie71]

We have kept our land-line for that reason, in the last big storm, the land-line went out and only our cell phones worked. Everything is digital any more.

[gary17]

Bookie sounds like you live in Alaska.

 

So does that mean you will likely get rid of your phone line? 

 

But I think when we are talking about wireline we mean the regular home Internet broadband conneection... less about phone line.

 

Do you still use home broadband and do you see replacing with 4g lte?

[bookie71]

Have been in Alaska since 1970 and love it.

We have seriously thought about it, but our kids insist we keep it, so we have kept it.  Our cells are ACS and our land-line is GCI as is our internet.  (part of a package deal).

[gary17]

Options confuse me

 

but i sold some july 14 $2.5 calls for 0.25 today and then bought equal amount of shares at $1.88ish -

 

so i figure the downside protection is $1.63/share - which is near how low it has been and that was before AWN

and the upside for the trade is $2.75 which is a nice gain for a short duration if we get there...

 

this goes so much against my philosophy of buying a business because now i'm just trading a stock....    oh well, i want to stay open minded and be flexible.

 

 

volume doesnt matter for my small PA :)...  I also was buying common and writing them at 0.45 and 0.5

 

also implied upside is higher than $2.4...  implied upside is call price + strike so more like $2.8  :)

 

My goal is to not have it be a ceiling. I am hoping, but cant count on it that I will be able to offload the options before it matters at a cheaper price, but I would take either scenario

 

also gives you 30 cents of downside protection at todays price

[Cunninghamew]

I dont think it means you are trading, but rather just changing the risk/reward relationship. I am hoping that these calls will budge some more, so I can buy to close. It is amazing how they just hang out there.

 

Also, thanks for the reports

[gary17]

No problem  -  that's the least i can contribute  ;D

 

it amazes me how fast the calls got filled - like instantly -  someone wanted to buy them INSTANTLY...    may be my volume is so tiny it's so insignificant to those with deep pockets  ;D

[blainehodder]

1.89 Mr. market?  What am I missing here?  Im buying some today.

[no_free_lunch]

I think it's a great trade Gary.  I'm actually thinking about putting it on myself.  People are generally thinking FCF will be in the $15-20M range.  Even at $10M, at $1.63 that is putting the stock at around 8x FCF, which in my mind is too cheap.  Even if the stock slowly sinks into the mud, which I don't think is likely but certainly possible, you should be able to recover a significant part of your investment if you keep writing calls.

[zippy1]

up more than 8% with no news. Someone bought 100K shares around 1030AM?! 

[tombgrt]

The day after I decide to sell the rest of my position. :D Nice timing..

[krazeenyc]

No problem  -  that's the least i can contribute  ;D

 

it amazes me how fast the calls got filled - like instantly -  someone wanted to buy them INSTANTLY...    may be my volume is so tiny it's so insignificant to those with deep pockets  ;D

 

I've been buying (as expected) -- not sure why it's popping today -- other than maybe general strength in the sector/being oversold post earnings. (FWIWI own some GNCMA too but less than ALSK, and I bought GNCMA at lower prices).  (I'm by no means an expert re: options) Given the leverage at GNCMA I think that selling covered calls makes sense depending on where you think the EV should be. If you think the enterprise value is only at a 20% discount it definitely makes sense to sell the calls -- if you think EV should be 40/50/60% higher than it's probably better to either just own the shares.

[Hielko]

up more than 8% with no news. Someone bought 100K shares around 1030AM?!

Publication of Seeking Alpha Pro article. I'll let you guess the exact time of publication ;)

[vpagano]

http://seekingalpha.com/currents/post/1433961

 

 

[abcd]

The day after I decide to sell the rest of my position. :D Nice timing..

 

I understand the pain, but I think the impact of this board/thread is being under estimated on the daily price movement, especially since the great migration started about 8 weeks ago from ALSK->GNCMA.

[tombgrt]

The day after I decide to sell the rest of my position. :D Nice timing..

 

I understand the pain, but I think the impact of this board/thread is being under estimated on the daily price movement, especially since the great migration started about 8 weeks ago from ALSK->GNCMA.

 

I think platforms like SA generally have a much bigger impact than this board. Proof is in the jump after both this article and the one feom harry long. Where is the jump when packer announces his alak position?

 

I also read a claim that the board is moving SHLD in the shld topic... I really don't think our impact is that big.

 

Pain is ok, I made a lot more than I lost because of the same stock movement randomness so I can't complain. :)