Williams Communications
(WCG) - Get Report
keeps promising it will ride the crest of the bandwidth market, and observers at a conference Thursday seemed inclined to agree.
The Tulsa, Okla., company, which puts the fiber in the diets of telecommunications providers, made a presentation Thursday morning to investors and analysts at the
Wall Street Analysts Conference
in New York. The company tried to dispel what it called the myth of a coming bandwidth glut, promoted its recently completed next-generation 33,000-mile network and even waxed poetic about its baseball-like tech-farm system.
But perhaps most notably, Williams stood firm on what many observers are most concerned about: the health of its balance sheet. "We believe we are on a clear path to profitability," Chief Financial Officer Scott Schubert said. "We have a sound funding strategy in place."
Stock in the
Williams Cos.'
(WMB) - Get Report
unit closed at $15.20 on Thursday. That's some 75% below its 52-week high, as it shares the pain felt by telecommunications stocks of all stripes since the spring.
The Cash Question
Indeed, in these economically softening times, you don't need to be a pessimist or a skeptic to worry if
debt-heavy network spenders like Williams will manage to stay afloat. Finding cash a little hard to come by last year, the company
trimmed its network spending and liquidated its stake in
Sycamore Networks
(SCMR)
.
But this week, the communications arm, which expects to be spun off from its parent during the first half of the year, reaffirmed its goals of producing operating earnings before interest, taxes, depreciation and amortization, or
EBITDA, by the end of the year. The company projects network revenue will grow 60% to 65% a year through 2005. Williams also forecasts full-year 2001 network revenue of $1.3 billion to $1.4 billion.
As for 2001 consolidated expenditures, Williams expects to spend $1.8 billion to $2 billion, with about $1.5 billion targeted to its network projects. Thursday morning, the telecom company emphasized it sees a "tremendous shift" in 2001 spending from last year, during which spending went toward laying its "base capabilities" and as a result was "highly nondiscretionary." It said it expects discretionary capital spending to hit 50% this year and to exceed 70% over the next few years.
"I expect that in the future years
spending will continue to decline," Schubert said.
Equity strategist William Garrison, president of
Garrison Bradford & Associates
, believes Williams is adopting the right strategy and that the company "will be the first of the independent companies to be profitable on an EBITDA basis." He owns both Williams and Williams Communications stock.
Other Looming Questions
Outlining a range of funding options in the pipeline, the company said it is confident of getting about $3.5 billion to $4 billion -- above its projected needs. Among its main funding sources will be a $1 billion loan and an undetermined amount from stock issuance for asset purchases from Williams Cos. Issuing a structured note, engaging in sale-and-leaseback transactions and increasing its commercial bank facility will also offer more flexibility, Williams said.
But saying is easier than doing.
Banc of America Montgomery Securities
analyst Andrew Hamerling, whose company does underwriting for Williams, spoke of the company's "excellent" business plan. However, Hamerling reserved some room for skepticism: "We are convinced the company will indeed receive its sources of capital, but it still has to do that. Once we see the capital, we'll be 100% convinced."
While balance sheets might be the bottom line, pricing and competition are two related issues that doubting Thomases have homed in on.
Williams this morning called the bandwidth business a "declining-price business" and said lower prices would drive demand. Maintaining that bandwidth glut is merely a myth, the long-distance overbuilder also distinguished itself from more the more retail-oriented
Level 3
(LVLT)
, which only three days ago
claimed superiority in the long-distance communications capacity market.
Williams focuses on building and leasing capacity to a few large telecommunication carriers, like
SBC Communications
( SBC). While the Broomfield, Colo.-based Level 3 also leases so-called dark fiber, its retail focus includes other services, including dedicated circuits, Internet access and server and network equipment colocation.
Williams, which believes the global demand for bandwidth will soar by a factor of 300 within eight to 10 years, also suggested its own focus on technological research and goal of establishing long-term contracts and achieving "recurring revenue" make it a different type of player.
The outcome remains to be seen, but for now, Williams has supporters.
"The name of the game is put to put a network in place, drive down costs and deliver advanced services," says
Prudential Securities
analyst Floyd Greenwood, whose firm doesn't underwrite for Williams. "In our view, Williams is doing just that."
