By David Sims
[email protected]
The news as of the first coffee this morning, and the music
is Robert Earl Keen’s What I Really Mean,
an album which is, if possible, even better than I had thought at first:
One thing that’s been missing in this whole GlobeTel
deal so far is how it looks from the other side. So I decided to get an
industry opinion on the Russian angle, since that’s been virgin ground in the
journalistic coverage so far.
Of course I have no stake in the company at all, financial
or otherwise, and I don’t cheer for companies to fail. I’d like to see these
guys pull this off, it’d be a massive coup and shake the Wi-MAX industry up in
a good way. If it all turns out to be hot air, that’s no good for anybody – bad
for the shareholders, bad for the industry, bad for Russian investment. Nobody
wins. And I do believe strongly that stable investment in the former Soviet
Union is crucial, so I’d hate to think GlobeTel is playing fast and loose here.
Yet from their lairs in disused missile silos in North
Dakota, bought for a good price from the Y2K refugees, the tinfoil hat brigade
mutters darkly about the “motives” of journalists who cover GlobeTel’s
spectacular Wi-MAX in Russia claims in anything less than sycophantic manner –
“why’s this clown dissing my stock? Why doesn’t he just believe GlobeTel’s
press releases like I do?”
Actually the better question is, why would anyone take
GlobeTel’s claims – any company’s claims, GlobeTel’s, Microsoft’s, Dubai Ports
World’s, anyone’s – at face value? But hey, don’t take my word for that. “If I
were an investor, there are sure a lot of questions I would want answered,”
says “Nigel,” a Brit who’s worked on emerging economy telecom projects, many in
Russia, as his career.
The plot so far:
GlobeTel stock shot up 75 percent in a single day in late
December after the firm, which describes itself as a “diversified, global
telecommunications and financial services company” announced a $600 million Wi-MAX
wireless network deal for the 30 largest Russian cities.
GlobeTel CEO Tim Huff predicted at the time that “Russia will, quickly and at a relatively modest cost, have a
wireless infrastructure that will rival any in the industrialized world,” according
to Red
Herring.
He promised GlobeTel would have $150
million of the financing in place by January 31. That deadline came and went, GlobeTel
announced that it had extended by 30 days the payment deadline for their
Russian partners, LLC Internafta, to present its first payment “so that lawyers
and bankers for the parties may continue to work on structuring the payment to
be in compliance with banking and currency transfer regulations” in the United
States and Europe.
“This is a highly complex international transaction on which
all sides continue to work together in good faith,” Huff pleaded. “There are
numerous legal and regulatory issues that must be resolved and those steps
require time and specialized expertise.”
The real head-scratcher here, as Motley
Fool’s Seth Jayson puts it, isn’t that things in Russia get snagged, they
do, but “how is it possible for this unheard-of Florida company, with little
track record, to suddenly vault past established equipment makers like Qualcomm,
Cisco, Nokia, and Motorola,
not to mention powerful multinational telecoms?... Especially since GlobeTel
seems to have no technological advantage, as evidenced in its regulatory
filings, where it explains that the equipment and software it uses are readily
available from major suppliers on the open markets?”
Jayson also finds the only publicly-identified member of
Internafta is Maxim Chernizov, who
made his money in “rare earth metals” and admits he has no experience in
telecom or wireless. He swears he isn’t Mafia.
Wondering how all
this looks from the other side, I sought Nigel’s opinion. “Funny,” he
wrote, and you could almost hear him sigh. “All the operators here in Russia are
getting lots of calls on GlobeTel, and even the authorities are asking us about
it.”
The Russian market has lots of potential, but the
penetration of broadband is not going to be that spectacular, Nigel thinks, “even
amongst us that are enthusiastic over the market potential. We don’t see
more than 10 per 100 penetration for broadband subscribers (note
subscribers and not users) over the next 6 years on a nationwide basis.”
Still, given that current penetration is less than 1 per
100, that’s big growth. GlobeTel is onto something, at least in theory, since “at
this sort of density, DSL and cable are not good economic options. Too much
money has to be invested up front. And, in most cases, the existing copper can’t
accommodate these technologies so it has to be replaced which adds to the
cost,” Nigel explains.
“Conversely, wireless is pretty well suited in terms of
coverage versus cost. And, with wireless there is better matching of costs and
revenues, so it’s friendly to investors in these sorts of economies.”
Now GlobeTel seems focused on both voice and data, which Nigel
thinks would greatly expand the addressable market, and would justify
a $600 million investment. The hitch, he says, is that “mobile voice requires
different licensing, and I am not aware that there are licenses available right
now. There is no license available even for mobile WiMAX (802.16e), only fixed
wireless.”
One thing I hear from people who have worked on emerging
economy telecom projects is that they don’t throw big money at these markets
without really understanding what they’re getting into. “I sure wish I had $600
million to spend in Russia, but even if I had a quarter of this amount, it
would be a challenge to invest it wisely,” Nigel observes.
By the way, according to Nigel, it takes a good nine
months in Russia to obtain the spectrum permits and to file the “radio
plans” with the State Spectrum Committee and the Federal Authority for
Communications before an operator can begin operation. Just like in the United
States, the operator needs to specify to the authorities the base station
locations, equipment being used, etc.
“This all takes a lot of time and experience,” Nigel
notes, adding that “most of the really interesting spectrum is not even
available at this point. That’ll change as more spectrum is “cleaned” and turned
over to civil authorities, but Nigel shivers at the prospect: “In any case, I
would not want to be doing this for the first time in Russia.”
Nigel doesn’t think Huff is out of line in not talking to
the press, saying it’s not unusual to be secretive when planning such a huge
project, “secretive on partners, equipment, spectrum, license applications,
etc. However if I were an investor, there are sure a lot of questions I
would want answered.”
In other words, Russia has a difficult investor image
already. If GlobeTel is a hoax, Nigel says, the association with Russia
will probably hurt the credibility of legitimate operators who are in the
equity markets. Another reason to hope they pull this sucker off.
Jayson wrote a piece for Motley Fool titled “GlobeTel’s
Australian Odyssey,” which is required reading before sinking a nickel in
GlobeTel, where he raises a number of other questions investors should want
answered.
GlobeTel is, in fact, “primarily
a VoIP telephony provider that, until recently, was most notable for its years
of heavy losses,” Jayson found: “GlobeTel’s much-hyped foreign operating units,
which are always trumpeted with promising PR, not only come under strange
circumstances, but they also often do very strange things and meet with very
strange ends.”
(Incidentally, someone speculated
that Sir Chris switching to independent director hints that Huff’s getting his
ducks in a row to list on NASDAQ, where you need things like independent
directors. Bear in mind that back in January Dorian Klein became one, too.)
Of course of GlobeTel does swing
the deal, and stranger things have happened, it’ll be a great
David-kills-Goliath story, a lot of investors will be very happy, and Russia
will get improved Wi-MAX coverage. I have no reason not to hope that all that
happens, but at this point no reason to think it will, either. Right now my
gut’s telling me it’s not going to happen, but I’ve been wrong before and it
would be nice to be wrong again.
Stay tuned.
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