Nobody in unlicensed is going to get 6X
Thats where you are wrong. However, the value of a higher Multiple is
relevent to the amount of customers one has and what stage of development
the company is in.
For example, If I bulit a network today, the very first day after it was
turned live, there would be Zero customers and zero revenue, just monthly
loss for the reoccuring fees that the company obligated themselves to. Would
you then say the company was worthless because it had zero revenue? Selling
on multiple of revenue would be stupid. If your neighbor thought you were a
threat and wanted what you built, you would sell for the "cost to build" +
ROI for creating the "potential". Its very possible that a 6X evaluation 6
months after starting would be no where near the same profit margin in a
sale as getting 1X after the second year. I got a 6X offer a number of
years back and turned it down, because I like the business, I wasn't done
yet, and it was way to early in the development of my company relating to
revenue. If you bought a race car, would you sell it for revenue, before
it ran its first race? Or even First year at the track? No. People buy the
race car, for the hope it will allow them to win races in the future.
Buying Alvarion is like buying a supercharged race car, that you want to
guarantee can hold up on the track year after year without blowing engines.
Where the trick comes in is having the revenue and the infrastructure in top
form, racing to be the first to the finish line, to have as much revenue as
poissible in the shortest period as can be, so infrastructure still has the
highest value, so at evaluation day, you can maximize a ROI.
I'm not saying Alvarion or Mikrotik is better for a WISP, I'm just saying,
each of them has clear benefits over the other, and Alvarion's clearly is
ruggedness. And that can't hurt an evaluation.
> (zero tax deduction for equipment
depreciation).
Great Point. That also reminds me that owning the CPE outright may not
always be an advantage in an evaluation either. The buyer gets hit with
heavy Property tax every year, that adds up to a significant amount. We are
concidering owning the gear not more than the first year, and then switching
to term contract after the first year, or giving it to them right from the
start under a cancellable term contract, and (then when they renew the
contract -idea 1), we give them the CPE, and secure the term contract with
the gear. Because you can gift anything under $600 with out 1099, and CPE
cost is less than $600, You could by pass property tax, sales tax, Possibly
still get the full deduction of the gear (section 179), and still have the
security of having term contract with subs to help bank financing and
evaluations. This is a mute point for people that lease, but for people
that pay cash, this may be a better tax way to do it. Disclaimer, I'm not
an accountant, and still checking the viability of the idea. The end user
contract can be cancellable any time without penalty, they just have to give
you the gear back as condition of breaking the term. The only disadavantage
I saw of this, is that on the balance sheet it would show less assets owned
by the comapny, but it could still be reflected on the books as a dollar
value of "security" as collateral for revenue.
Tom DeReggi
RapidDSL & Wireless, Inc
IntAirNet- Fixed Wireless Broadband
----- Original Message -----
From: "John Scrivner" <[EMAIL PROTECTED]>
To: "WISPA General List" <wireless@wispa.org>
Sent: Sunday, December 03, 2006 11:31 AM
Subject: [WISPA] Network Valuation Considerations
Tom DeReggi wrote:
The big thing here is... Is one selling revenue or selling a network?
Both. No way around it.
If one is selling revenue, the buyer could probably care less what allows
the revenue to happen.
I have been looking at other WISPs around me for possible merge /
acquisition and I do care. I am a potential buyer of WISPs. I understand
the costs related to forklift upgrades or high costs related to OPEX of a
network if things are not done the way they need to be done. It most
certainly matters to me.
But personally, I Don;t want to jsut sell revenue, I want to get credit
for my infrastructure also.
If a network is installed right, with the right gear, it should be worth
MORE than the cost to buy the gear new uninstalled, NOT LESS as used
gear.
Exactly. Understand this though also. If I am buying a WISP and he has
depreciated all the gear before I bought his corporation then I am a fool
to value his gear higher (zero tax deduction for equipment depreciation).
Please do not think this means that fast depreciation is a bad thing. It
most certainly is not.
Good infrastructure could make or break a deal though too. I would never
pay a good price for a network I did not think was already built solid and
reliable. Why bother? I could always over-build my own network if I
thought the existing network was bad.
It is harsh truth and we all know it happens. None of us own the spectrum
we operate on. Build it right and others would go broke trying to
overbuild you (we hope). Build it like crap and others can run you out of
town (almost certainly). This kind of thinking changes the perception of
the value of one's network doesn't it? We all have to think about these
things when we are building our network. It's the kind of stuff that makes
for sleepless nights for some folks. Do we build it cheap since we don't
own the spectrum and we could be overrun by spectrum hogs who come to town
and trash the spectrum or do we build it strong and serve our customers
well with expensive gear in hopes others would go broke trying to steal
customers too loyal to leave our service? It is quite a conundrum. One
that everyone here would undoubtedly have a slightly different answer for.
I'd argue Alvarion type gear could maximize the value allocated for the
infrastructure.
I can see that. I can also see other's philosophies too. I do not think
there is one silver bullet design / platform / business plan. I think
there are about 1000 ways to get the job done in unlicensed. I can see the
cream coming to the surface in a few business plans and platforms though.
It is not too hard to see which ones are doing well. You do not hear much
from those doing badly....who could blame them?
It also depends on whetehr someone is trying to get 1X annual versus 6 x
annnual. To get the high Xs, you need more than just revenue to sell.
Nobody in unlicensed is going to get 6X unless they have a network doing
10s of millions of dollars a year in revenues or a smaller network with an
ARPU of say $500 per sub. Then maybe I could see 6X.
The flip view, is if the flexibilty of selling the Mikrotik can gain you
revenue quicker (which would need debating), then it could be argued as
an advantage to have higher rate of revenue growth than infrastructure
credit..
I have a novel idea. Why doesn't Alvarion sell their basic radios and
firmware in module form to Mikrotik or Mikrotik sell their software and
routers to Alvarion and they put out a jointly developed, dual branded,
certified Alvariok Radio! (Or is it Mikrovion?) Best of both worlds!
Sorry folks....it's the weekend. We're supposed to have a little fun
right?
Scriv
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