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april 27, 1999
Metromedia Fiber Network for Mom
by David Forrest ([email protected])
Trading at $84 7/8 as of April 26, 1999
Dear Mom,
I can't say I blame you for not going online that often to check your email. Sometimes the connections can be sooooooo sloooooow! Did you know that the "experts" estimate that Internet usage doubles every 100 days? With so many new people coming online, it's no wonder that the Information Superhighway sometimes seems like nothing more than a nightmarish traffic jam.
Wouldn't it be great if there were companies spending their time making the Internet faster? Actually, there are! One of the companies I follow is called Metromedia Fiber Network <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MFNX)") else Response.Write("(Nasdaq: MFNX)") end if %> and it is building huge fiber optic networks in major U.S. cities and even in some cities in Europe. This means that it is doing construction in cities like Washington, D.C., New York, Chicago, Dallas, San Francisco, Boston, Philadelphia, etc., and laying fiber optic cable in the ground.
Okay, I know what you're thinking. You don't want to be dazzled and confused by all of these fancy technical terms, right? Okay, I'll try and make it as understandable as possible for you. Think of the phone line connections that we use to connect to the Internet as small, thin straws, like the kind you use to stir your coffee. Very small.
The next step up in speedy connections is a cable modem, which could be considered a garden hose (about 100 times faster than the regular phone line). Fiber optic lines, like the kind that Metromedia Fiber installs, would be the equivalent of a fireman's hose, with the water flowing through it at incredible speeds with incredible force.
A single fiber optic strand can pass information at the rate of two terabits per second. Okay, sorry, I promised I wouldn't use fancy technical jargon. Two terabits per second is the equivalent of sending the entire Encyclopedia Britannica from A to Z... in one second... 320 TIMES! That's right, the whole enchilada 320 times in one second. Now that's FAST!
There are other reasons to invest in Metromedia Fiber besides just the fast pipe. Let's face it, this company isn't the only game in town. Metromedia faces competition from companies like Qwest Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QWST)") else Response.Write("(Nasdaq: QWST)") end if %>, Global Crossing <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GBLX)") else Response.Write("(Nasdaq: GBLX)") end if %>, Level Three <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LVLT)") else Response.Write("(Nasdaq: LVLT)") end if %>, and others. There are three things that separate Metromedia Fiber from everyone else, though:
1. It leases its fiber at a flat fee -- Most other companies that lease fiber optic cable charge a metered rate. Remember how America Online used to charge $2.95 per hour? That was a metered rate. Now it's a flat fee. Metromedia Fiber is the only one doing this with fiber-optic leasing.
2. It goes to the "last mile" -- One of the problems with building these fast networks is that it's much easier to build the highway on the outside edges of the town, or to have one major route through a town. But there aren't always any highways outside of your house. Metromedia Fiber's networks are the equivalent of having the highway attached to your house. Bringing the fiber to the last mile is one of the things that makes Metromedia so valuable.
3. More Strands -- Metromedia is smart. Where many companies in the past have included less than 100 strands of fiber in their "lines," Metromedia Fiber has been laying close to 500 strands per line and plans to increase that to over 1,000 strands per line. As the world adopts the Internet as the de facto communication tool, there will be a lot of people needing last mile fiber. Metromedia will be there.
This is so valuable, in fact, that it has been able to secure important contracts from companies like Bell Atlantic, America Online, Cisco Systems, and many others. These contracts have helped it grow sales from just $2.4 million in 1997 to $36.4 million in 1998. That's a 15-fold increase. The company recently sold some bonds to the public to raise $650 million in cash to keep building these networks. Its goal is to have a "last mile" fiber optic network in all of the major cities of this country and Europe. I think it will do it.
Is it risky? Mom, I've told you a million times that risk isn't a bad thing, but yes, this is a small company and if things go wrong, the stock price could fall very, very fast. One thing that could go wrong would be for something better than fiber optics to come along. Another company could build a better network in exactly the same areas and adopt the same business model. The company could get bought out. I think all of these would be bad. Still, you always have to measure risk against reward. I think the rewards are potentially amazing. Metromedia is staking its claim to the Internet real estate market as we speak.
Give it some thought and let me know what you think.
Love,
David
Metromedia Fiber Network Company Information:
Trades on Nasdaq under symbol MFNX
Metromedia Fiber's website: www.mmfn.com
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Metromedia Fiber Network Message Board
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