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The Almighty Buck

The Tangled Web Of Fiber Optics Lines & Gates 220

Posted by Hemos from the what-will-happen dept.
sdirector writes "Monday, super investor Warren Buffett jolted the nearly prostrate telecom industry by leading an investment of $500 million in Level 3 Communications ... Buffett's investment could set in motion a complex web of relationships and -- if you play it all out in just the right way -- put Bill Gates in charge of every fiber-optic line in the USA." The actual article itself is pretty interesting reading. Update: 07/12 08AM GMT by C :The link was broken, it has now been fixed. Sorry about that.
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The Tangled Web Of Fiber Optics Lines & Gates More

The Tangled Web Of Fiber Optics Lines & Gates

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  • Fixed link (Score:5, Informative)

    by Gogo Dodo ( 129808 ) on Friday July 12, 2002 @03:29AM (#3869385)
    Here's the fixed link [usatoday.com]. The submitter didn't code the HTML correctly.

  • Interesting... (Score:1, Offtopic)

    by JanusFury ( 452699 )
    I wonder how a major screwup in the HTML like that got through. Maybe it's because the EDITORS DON'T READ THE STORIES BEFORE PUTTING THEM ON THE FRONT PAGE? Nah, couldn't be. Probably just a supernatural screw up - act of God/CmdrTaco sort of thing. :)
  • After reading that article, I must say there's some pretty strange possibilities. It seems silly to think of Bill Gates owning the entire telecom industry, but with the way things are now, the author's little prediction of the future may very well come true. And we'd all be in deep shit then.

  • uh, whatever... (Score:3, Insightful)

    by bigNuns ( 18804 ) on Friday July 12, 2002 @03:54AM (#3869441) Homepage
    i love the part about just dismissing at&t at all... yeah ok... whatever... this is fantasy...

  • I don't think so. (Score:5, Insightful)

    by msaavedra ( 29918 ) on Friday July 12, 2002 @03:57AM (#3869447)

    The author is really reaching here. Such a deal would never make it past the regulators without selling off large portions of the network. Of course, GWB could always decide that such regulations are un-American, and tell his people to look the other way, but that is not likely considering the lack of trust that most US citizens have for corporations these days.

    Additionally, Warren Buffett never buys into a company with plans to turn around and sell it; he's almost always in for the long haul. Still, Buffett has always stayed away from tech stocks in the past, so maybe he's turning over a new leaf.

    • Re:I don't think so. (Score:4, Informative)

      by vidarh ( 309115 ) <vidar@hokstad.com> on Friday July 12, 2002 @06:17AM (#3869675) Homepage Journal
      I'm fully with you about the regulators. As for Buffet, I think the reason he's going for telecom now is that they pose an exceptional opportunity:

      The market has fallen extremely far to start with, then the KPNQwest bankrupcy in Europe, the Worldcom scandal and the Qwest investigations, makes telecom take a nosedive. There are bound to be lots of opportunities now.

      If Level3 is healthy (I wouldn't know, haven't looked at their numbers), and there's no scandals lurking, they should be in a very good position to steal worried customers from the others, and even if they don't their shareprice should still have a reasonable growth potential when the market rebounds.

      I guess he might have seen it as a larger than usual opportunity. But before you run of to buy level 3 stock, remember that Buffet knows people - he may have deals in place that gets him way more potential from Level 3 than the average investor will (and btw. I'm referring to legal possibilities here - it gets so much easier to make money when you're already rich and people want to cut deals with you)

      • Short answer is that Level 3 is actually pretty damn solvent, as telcos go, certainly better off than anyone but the RBOCs and some of the cable companies. Through some combination of tremendous foresight and blind luck, they raised a boatload of debt/equity/converts/you name it at the absolute peak of the market. Result? They have cash, enough to buy some of their bonds back at 30-40 cents on the dollar. Is Level 3 debt a good place to put your grandmother's retirement fund? Nope. Is it pretty attractive on the risk/reward scale? I think so.
        • As much as Level 3 ain't as bad as other Telco's - it ain't a RBOC, and this market that ain't good. The only way L3 can meet the revenue covenents of their loans is by acquiring more companies - without acquiring new revenue streams, they're going to default on their loans, because the sure as hell can't raise revue from their fiber right now. This is why recently they've beeen acquiring non-telco companies - give them a quick source of revenue.

          As for the reason for the bailout - the best explanation I've heard was it's a "capitalist" bailout. I.E Alan G., Paully O, a the W got on the horn and begged Warren. Historically, this scenario ain't that far fetched - particularly in light of the relatively small amount of money(relative to his portfolio) that Warren invested.
        • Short answer is that Level 3 is actually pretty damn solvent, as telcos go, certainly better off than anyone

          Perhaps better than most of its peers (of which many/most are bankrupt...), but hardly anything spectacular compared to companies in other sectors. Have a look at its financials [yahoo.com] and see how well it's doing.

          Basically they are still bleeding badly; net income from continuing operations is still negative, debt load is high (6 billions), they do have some cash (about 1 billion) but with negative cash flow of almost 200 millions per quarter it's only bit over 1 year they can survive without boost in earnings. They are doing better, and perhaps they can turn the ship in time... hard to say, my crystal ball won't show the answer.

          And companies with negative total stockholder equity (like Level 3) are scary, no matter what.

    • Re:I don't think so. (Score:2, Informative)

      by RawCode ( 464152 )
      I aggree. In the Level 3 press release, Buffett said "Liquid resources and strong financial backing are scarce and valuable assets in today's telecommunications world. Level 3 has both".
      Also note that the ACTUAL amount put in from Buffett is only 100 million with the other 400 million from 2 other investors.
    • The article plays up the soap opera angle, but Buffet is far too experienced to let personalities influence his investment decisions. OTOH, he is also famous for sticking to relatively simple businesses that he feels he understands. So does he now understand the ins and outs of fiberoptic telecom? Probably not. He is likely deviating from his normal practice. Let those tempted to follow his lead on the basis of his past success beware. In all liklihood he really is gambling on a relatively quick pickup in bandwidth demand. The denials are to discourage competative bidding for Worldcom's assets. Unfortunately, his guess about future demand is probably not any better than anyone else's. Perhaps he thinks some MS "innovations", maybe in the DRM area, will somehow spur demand.

  • From the Net-Nexus Seoul article [slashdot.org] - will Bill G focus on pushing content over the pipes, requiring DRM, or will it be interactive person to person applications?
    • Well, knowing what he's been focusing on so far, it would be something like pushing bugs/fud/bloatware/security holes over the pipes, requiring big $$$ + passport info. That process is, however, interactive - Bill is providing, we are paying for provided, so it's not a real dillema.

      On the serious note, this whole story sounds more like screenplay than something that can happen in actual life. There's just too much attention focused on Bill and MS for buyout of these proportions to be allowed.

    • Difference between the US and Asia is cultural (Score:5, Insightful)

      by joneshenry ( 9497 ) on Friday July 12, 2002 @05:21AM (#3869594)
      That Net-Nexus Seoul article explicitly mentioned cultural differences between the US and Korea. To recast the analysis in a different light, the quest in the US for the past few decades has been for individual space. This is reflected in the American obsession for the automobile and the suburbs. The United States has basically spread out development to sustain the "American dream" of home ownership. In Korea on the other hand the article points out that many people are crowded into small apartments without room to entertain friends. As the Koreans wish to be social they will gladly go out to be with others, and for younger people, they will flock to the equivalent of Internet cafes.

      From the American perspective it does not take an evil conspiracy to explain why providers would prefer the Internet to be used to deliver content not interactivity. If there is a market it is likely considering the American culture that this is the best way to make money by satisfying consumer demand. Americans with money will have relatively big houses and the willingness to spend thousands of dollars on home entertainment systems. In the past decade American consumers have shown they are willing to purchase billions in content in the form of DVDs. In the US at least it is not considered shameful to spend whatever free hours one has on self-emersed isolated personal entertainment, and there is a strong psychological demand for such entertainment.

      The fly in the ointment is simply the classic analysis by Tanenbaum that one should not underestimate the bandwidth of a station wagon transporting tapes down the highway. That is, if one can ignore latency of 12 hours, there is no bandwith advantage to the Internet when it comes to delivering content. In the US at least it is very easy for the lone commuter in an automobile to stop by the store on the way home to pick up a DVD. Unless the Federal Government were to launch a program on the scale of the building of the Interstate highway system to close the last mile gap with fiber, something that will not happen, the average US consumer will suffer less latency from just dropping by the local store versus waiting for content to be downloaded. The current cable/DSL piddly bandwidth relative to what DVD quality content demands simply can't cut it.

      • "That is, if one can ignore latency of 12 hours..."

        You must not be an American. I start climbing the walls if my pizza takes longer than 20 minutes.

        Talisman
      • While I don't expect this to happen, it might not be all that expensive to push fiber to most curbs.

        While what I've been hearing is about municipally-owned power companies building their own fiber optics networks for internal use and suddenly realizing that they had a cash cow they could tap by simply opening public access, I would assume that the commercially owned utilities have done the same thing.

        Give them access to long-term public bond financing for the purpose of getting service from the utility poles to the home/business and a mandate to use it.

        Of course, this would force cable companies and telco DSL either to compete on price and service or go out of business.

        So far, in the places where citiLECs have been built, I haven't heard of any companies going out of business, just discovering that they can provide good, reasonably priced service once the customers realize that they don't have to accept excuses for bad service, they can pick up a phone and get the good stuff.

        What I actually expect to happen is that the emerging centers of new technological growth are going where the cheap bandwidth is. That leaves out Silicon Valley and most of the rest of the US. The broadband apps everyone will discover they need will come. And everyone outside these cheap bandwidth areas will be paying cablemodem / telco retail for them.

  • Damn, it sounds plausible, too. (Score:3, Insightful)

    by Mac Degger ( 576336 ) on Friday July 12, 2002 @04:01AM (#3869462) Journal
    Which is kind of scary. Especially as mr Gates has the money to make that bid mentioned in the last paragraph, and apparently the goodwill-between-friends to make the offer stick. And of course he's shown that he's the kind of man who likes non-competetive markets (read: monopolies). And even more bothersome is that KPNQwest also has lotsa cable running through Europe...and I thought I was safe here :( What's funny though is the bit about mr Gates telling the three friends all about this internet thing...yup, the same mr Gates who ignored the browser market because he saw no future in that internet thingy... Now if only he'd had the same attitude about OS', back in the day...
    • And even more bothersome is that KPNQwest also has lotsa cable running through Europe...

      Point 1: Had. Past tense. Read the news.

      Point 2: You seem to be confusing Qwest (the company mentioned in the article) with KPNQwest (the company which operated an European long-haul fibre network. Qwest is a western-seaboard long-haul fibre company. KPN is the national Telco for Holland. KPNQwest was an independent company which was *funded* by a KPN/Qwest joint venture to build fibre in Europe. It built lots of fibre and over-spent. In attempting to get sorted out it bought (with what? god knows) several profitable companies, including EUnet and Ebone (one of the best trans-European IP networks). Within 2 months it went bankrupt and they turned out the lights last week.

      HTH. HAND.

      ~cHris

  • What would happen? (Score:1, Interesting)

    by Anonymous Coward
    Obviously, the slashdot crowd is anti-gates. We all imagine Gates reaching into our pocketbooks with Montgomery-Burns-like limp-wristed glee. It would cost the end user a lot of money - that's what monopolies are about.

    I gotta figure that close a marriage of "the network IS the computer" would produce some interesting output, however. Yeah, yeah, so online free music would go away. For this discussion nobody cares about online content delivery. It's old news everybody talks about.

    What kind of wacky new tech would something like this spawn? In Gates' mind is echoing the quote from the "Net-Nexus Seoul" article: "(We) wanted to focus on interaction. And what is more interactive than games? We made this market. We made new sectors. American media companies were just using online capacity to distribute offline media."

    Gotta wonder what we'll see. Something has gotta make us give gates that nickle and get the 666 tattooed on our arms...

    Adam
  • Note to all Readers: As of now all your postings are moderated by Bill Gates, owner of the internet in the US.

  • Why? (Score:5, Insightful)

    by thales ( 32660 ) on Friday July 12, 2002 @04:33AM (#3869520) Homepage Journal
    If Billy Borg wanted to buy into the Telecoms, WHY would he need Buffett to come in and buy them first? Why didn't he just buy the stock earlier this week?

    This sounds more likely. Buffett decided the stock was undervalued after the beating it's taken lately and a good longterm investment. A Hack writter noticed Buffett's investment and wanted to grab page hits for the online version of the story, so he invented some half ass conspircy to attract the paranoid.

    • Re:Why? (Score:5, Interesting)

      by truthsearch ( 249536 ) on Friday July 12, 2002 @09:05AM (#3870192) Homepage Journal
      WHY would he need Buffett to come in and buy them first? Why didn't he just buy the stock earlier this week?

      It's not that simple. (I work for an investment firm but I AM NOT SPEAKING ON THEIR BEHALF, SO DON'T LET THEM SUE ME, BOSS.) It seems I could walk into the market and buy all the stock that's for sale by a few companies. But it's not that simple. Large trades are automatically tracked by the market (e.g. NYSE has a department with lots of computers checking what's up). Huge purchases can be instantly blocked pending an investigation. Plus remember that only stocks which are being offered can be bought. If 51% of a company's investors aren't selling their stock, Bill could only buy 49%.

      Plus on top of all of that, if the board is against a majority purchase of stock (51% or more) it's called a hostile takeover. It's legal, but angers investors and employees, plus the board might be able to sue to buy stock back. But if Bill's in with a huge investor, he'll face no arguments from inside the company. He can also then slowly move in, rather than buy everything at once, preventing regulation flags from being raised by the SEC.

      So basically it's a lot more complicated than you might think. Although I agree that this probably isn't a conspiracy. Buffett saw a good deal and took it. Anything now that happens with Bill probably was not planned.
      • Buying up companies is done all the time. In the US, when you reach 14% ownership, you have to file a statement with the SEC, but that's no big deal.

        Usually, not that much of a company's stock is being actively traded. Often, you have to negotiate individually with some big buy-and-hold investors. But Worldcom stock is so low, and has been so heavily traded recently, that somebody with a few hundred million probably could buy it up.

        But it will be much cheaper to buy up the assets after the bankruptcy. Then, you're not stuck with the old loans.

        Buying up telecoms at bargain-basement prices is consistent with Buffett's strategy. He buys up companies that generate earnings over a long period of time, when he can do so at a price that makes those earnings affordable.

        • As of about 1:50pm EST on July 12, their market cap was hovering around $400M. I'm sure that just their long-distance service would sell for more in a post-bankruptcy auction, so an outright purchase right now by a relatively wealthy investor, say, someone with a few billion dollars, could conceivably take the company private, using existing revenues and perhaps a moderate cash infusion to pay off the debts. The owner could then spin off or sell some aspects of the existing business (such as MCI) to raise some additional capital to fix procedural issues that prevent profitability (I'm sure there's a lot of streamlining that could be done), and one of the biggest turnarounds ever could be seen.

          Obviously, there are some technical difficulties, as such an offer would require a great quantity of pure cash to work out, or a lot of stock trades to raise the cash, and would probably attract more media attention than most people would like to consider, but it is possible. It would also be a tremendously fun gamble to watch play out.
        • Once you reach the ownership threashold, you have to file with the sec. HOWEVER, you can ask for them (the sec) not to disclose that filing to the public for a while. Buffet has been using that "loophole" a lot harder than anyone else anywhere. So, dear old warren can buy a lot of the company and NOT tell anyone about it.
      • The problem with a "hostile" takeover isn't quite so much being sued by the board, but the board taking action to "defend" the company. Many times that involves issuing lots of new stock (called the posion pill) or taking action which might degrade the value fo the stock. Also, they can start to use the companies moeny to buy back shares to push the price up and make the acquirer pay a LOT more to get controll.
        Lawsuits come in once someone HAS controll and they take actions with the company that harm the other shareholders value.
        I've read securites law in a nutshell, have you?
    • Warren Buffett dropping $500 Million in pocket change isn't a big negative deal. Bill Gates doing the same thing would definitely get everyone going. Seeing the problems that Microsoft has gotten itself into, Bill needs Warren to provide a smokescreen. Now, if Bill invests $200 million in Level 3, WorldCom/MCI or anyone else with languishing excess bandwidth, it's going to slip under most people's radar screens.
    • Why wouldn't it happen this way?

      Buffett and Gates are very good friends, they dine together and Warren speaks highly of Melinda... ...he also considers Gates a genius.
      • If Billy Borg was looking for a stooge to buy the stock for him, don't you think he would find one with a lower profile than Buffett?

        • Why does he need to... you don't think Warren Buffett more using Billy Borg to do something really "cool" with his investment.

          They both stand to make money. Warren lends some control and his initial investment will skyrocket. It's sad, but it likely will happen. Imagine signing a contract with you next home builder which gets you a T1 or whatever Microsoft has to hold you in their greasy hands...
    • If Billy Borg wanted to buy into the Telecoms, WHY would he need Buffett to come in and buy them first?

      Wouldn't he set up a shell corporation? Aren't lots of companies owned by a "holding" company?

      First he would set up Microsoft Holdings to own the stock of another corporation, Microsoft Strangleholdings. Then this company would own all the stock of another corporation Microsoft Chokeholdings which would in turn own Microsoft Balls-holdings, which would finally own all of the stock of every telecom corporation to be followed by every bank, cable tv company, and news outlet.

  • Telecommunications Consolidation (Score:5, Interesting)

    by panaceaa ( 205396 ) on Friday July 12, 2002 @05:07AM (#3869573) Homepage Journal
    The telecommunications industry is definitely ripe for consolidation. There is just too much bandwidth and too much telecom competition for any company to be very profitable. The article predicts that L3, with Warren Buffett's investment, will buy up the assets of WorldCom and Qwest to consolidate their customer bases, reduce costs, and lower competition. Since Gates has a relationship with Buffett, and current investments in L3 and WorldCom assets, he will be in a powerful position in the telecom industry after the mergers go through. But he'll still only own about 5-10% of L3. Then the article goes completely off a limb and states:

    Gates could approach Buffett to buy it all. Gates would own the Internet.

    This is stupid. If Gates (or probably Microsoft) wanted to own telecom, he could just buy it now at lower prices. He has enough money to buy L3, Qwest and WorldCom now. Why would he wait for consolidation to occur, the market to improve, and the price of these companies to probably triple?

    Sure, Gates could own the infrastructure. But if he was still interested in infrastructure, why did he stop investing in MSN? Over the past few years Microsoft has abandoned most of its infrastructure projects and focused once again on software. And the Qwest/L3 investments are years old, back when MS cared about MSN.

    Saying that Gates is trying to buy the telecom industry is just flamebait. There's nothing recent to suggest that he's trying to do that.
    • too much ... competition

      Yeah. Too much competition. Shame.

      Like too much democracy, or too much freedom.

      sigh...

      • It's definitely good for consumers to have too much competition. But hey, when have Warren Buffett and Gates cared about consumers. They just want to make money. And you make more money in a heavily competed industry by bringing companies together, taking away redundant assets and services, and (unfortunately) removing customer choice.

        There's a post about 10 above mine about Gates liking monopolies, so he'd probably like to make a telecom monopoly too. It's funny, but it's so true. But the root of it is that you can make more money with less competition. That's business. You just have to be careful not to piss off too many consumers or make a scene while doing it. (Something Microsoft hasn't been good at recently.)
        • Too much competition means little or no profits. Small profits means no investment in new technology. No profits means cutting costs on things like maintance.

          How is an aging poorly maintained infrastructure "good for consumers"?

          What are consumers going to consume if they destroy the producers reason to produce by eliminating profits?

        • Is it beyond all comprehension and possibility that Gates thinks hes doing the right things ?

          I've got the floorplan to bill gates office. There's no architectual elements that look like a throne, pit of fire, or dungeon room. I don't see anywhere he could sit in solitude contemplating his next evil move.

          People that are worth billions of dollars and don't retire are into life for more than money, and more than evil. There's something else going on.

          Here's a question for contemplation: Without Microsoft, how many of you would be using a PC ?
          • How many of us would be using a PC? Me for sure. And the Mac was a perfect newbie-friendly computer in '84 when it came out.

            The industry would be doing just fine without MS. We owe them nothing. (Sure, they've done a few things, but they've also harmed the industry by trying to avoid standards bodies, and much/all of what they did would have been done by other companies.)

            If there's any one company to thank for the modern PC world, it's Compaq and their reverse-engineering of an IBM-PC which made the hardware cheap.
            • Did you own an apple ][ ? Did you have one of the earlier S-100 bus computers ?

              Once upon a time computers were relegated to the realm of hobbyists ONLY.
              Incidentally, who do you think wrote Applesoft basic for the apple ][ ?

              You may not feel that microsoft had anything to do with the popularity and adoption of the PC for yourself, but do you feel the same way about their affect on the masses ? Can you imagine an apple][ that booted directly into a BASIC interpreter in every home in america ?

              Somebody worked really hard on the idea that normal people should be able to use computers. Someone made it a priority to "get a computer into every home".

              Guess who.

              • Woz wrote one basic interpreter (Integer Basic I think), and ended up buying the MS one because it was easier than writing a new one. But it's not like MS was the only choice or anything.

                Yes, I had an Apple ][+, a //gs, a vic-20, a c-64, an old mac, and a few PCs, in the 80s.

                The apple ][ was where they were trying to make a computer usable by everyone. Apple's office suite was pretty good and sold a ton of computers before they brought the mac out.

                Amiga might have been a player if they'd been marketed better.

                There were many companies trying to make computers usable by the masses, MS didn't do anything that other companies weren't trying to do.

                Where do you get this load of bull about MS? It sounds like it's from Bill's book, and MS marketing material. Apple had a program of supplying computers to schools long before MS did. Apple also pointed people towards organizations that would offer grants/scolarships to buy home computers for people.

                Had MS never existed, there'd be just as many PCs today, without the disturbing monoculture (email viruses that can infect 95% of computers are not fun) and without one company in a position to push crap like Palladium on us.

      • Re:Telecommunications Consolidation (Score:4, Insightful)

        by stu72 ( 96650 ) on Friday July 12, 2002 @06:04AM (#3869664)
        uh... no.

        Too much competition results in prices to low to sustain healthy businesses, which results in rashes of bankruptcy. Less competition results in prices high enough to sustain healthy companies for the long term. No competition results in the highest prices and will sustain a company long after it has ceased to be useful to the world.

        As in all things, balance is key.

        Your metaphor is also flawed because freedom and democracy are not zero sum games. If you have more freedom, you don't need to get it at someone else's expense. But if you pay less money for a product or service, that person that provides that product or service earns less. If you earn more money for a product or service, the customers who buy it must pay more.

        As in all things, balance is key.

        Oh, I forgot, this is /. and whatever the issue, it's always the corporation's fault.

        • Re:Telecommunications Consolidation (Score:4, Insightful)

          by Junta ( 36770 ) on Friday July 12, 2002 @08:35AM (#3870067)
          Umm, not quite right either....

          'Too much' competition does indeed cut profits to the bare minimum which the companies care to get away with, but so long as no company has a drastic advantage over the other and they all realize it, companies will sell below production costs most of the time. True, promotions come about that do this occasionally, but they are typically short lived. A company in a market full of competition *knows* they can't survive if they sell below production cost. They will of course cut production costs and maintenance, etc, but only as far as they can before the quality falls below the point the consumer will take. This results in a market-driven quality/price 'sweet point' after time is given to reach equilibrium.

          The companies that will sell stuff at a loss are companies that are nearly monopolies in order to drive a perceived competitor out of business (or in the case of MS, to try to force its way into another market, the home entertainment market). Only when a company knows it has enough staying power to pull it off do they go beneath production (or if a bigger company is bullying them out of the market, forcing their hand...)
          • Two things to remember:

            1. The telecom industry is damn close to a zero marginal cost business (once you've built the network, the cost of sending an incremental bit of traffic is virtually zero)
            2. The telecom industry has huge upfront capital costs for building the network - these need to be financed (i.e. the network needs to be paid for over time)

            Hence, pricing is heavily driven by #2 - you need to charge enough to make your interest payments.

            Problem is, if you have a provider which has gone bankrupt and gone through resturucturing, it will have sharply reduced debt and hence interest payments (assuming, as typical, some sort of debt-for-equity swap was part of the bankruptcy proceedings). Hence, you've got a player in the market which can charge prices damn close to #1, since it really doesn't have to worry about #2. This creates market prices below those at which the other (non-bankrupt) players can run their networks and pay their debt, driving them into bankruptcy as well.
          • It looks like you're agreeing with stu72.

            From the first post:
            As in all things, balance is key.

            From your post:
            This results in a market-driven quality/price 'sweet point' after time is given to reach equilibrium.

            Seems like the same point to me.

            I guess your disagreement is with this part -

            Too much competition results in prices to low to sustain healthy businesses, which results in rashes of bankruptcy.

            But honestly, I don't know why you'd have trouble accepting this. You seem to miss the point that even if a product is priced above the cost of production, nobody has to buy it. There is a finite pool of consumers with finite amounts of money, and even if company x makes a per-time profit on product y, company x can still have a net loss if they do not sell enough of their inventory. In fact, from the perspective of minimizing net loss, selling below production cost might be the optimal strategy. So too much competition can be a bad thing. I think the appropriate economic topics are the income elasticity of demand/elasticity of supply. I know next to nothing about pricing strategies, though. Perhaps one of those CS/Econ double majors can lend a hand...
        • Painfully moronic.
          Who marked troll to 3?
    • I agree with this and other posts that state that the idea of Gates buying the L3/Qwest/WorldCom conglomorate from Buffet is quite a stretch, but if they have the "friendship" that is so highly touted in the article, it is possible that some really strange squence of events could lead to Gates owning it all, unintentionally.

      Lets examine a senario.

      Gates and Buffet. Chillin like a pair of penguins somewhere, way past toasted, playing various games of chance; for sake of argument lets make it Poker.(not entirely chance, but lets just say it is) Both are out of cash currency on there persons, so they start betting property, a car here, a chunk of stock there. So 'round bout middle of the night, both sh!tfaced beyond compare, each pulls a hand that they think the other cant beat. So Buffet says "I'll bet you my L3/Qwest/WorldCom to your Microsoft". Gates, never backing down from a challenge accepts, and wins with a pair of queens to Buffets hand of sh!t. Lackeys ever vigilent in the shadows shake hands andBAM!, All Bow Down To Gates, Owner Of The Free World.

      or maybe not *shrug*

    • Another point (Score:3, Insightful)

      by Spunk ( 83964 )
      While this would be unlikely behavior for Gates, it's even less likely for Buffett.

      His strategy is based on taking a very long-term view. Generally, when he buys stock (or the company, outright) he intends to hold on to it "forever." Why would he go ahead and sell this company he just invested in - to make a quick buck? Not his style at all.
  • Gates owns the internet.
    There is a world outside the US.
  • We never learn i guess. This monoply will again lead to antitrust cases mebbe 10 yesrs from now.. and by then, the states may be powerless to stop anything

  • Call me Paranoid... (Score:3, Interesting)

    by DarkHelmet ( 120004 ) <mark AT seventhcycle DOT net> on Friday July 12, 2002 @05:57AM (#3869654) Homepage
    But there was a story on Slashdot about an Editorial on The Pulpit in regards to the death of TCP/IP. Robert Cringley's article puts forth the idea that Microsoft wishes to banish the protocol in favor of its own non-anonymous, proprietary system.

    If Bill Gates owned every single piece of fiber in the US, it's definately a step in that direction. Perhaps even the only thing preventing a standards change now.

    You can find the article here:
    http://www.pbs.org/cringely/pulpit/pulpit20010802. html [pbs.org]

  • I watched the price jump by $10 a share 2 weeks ago when my gramps bought the stock, maybe I should listen to him instead of buffet.
  • Communications will be all about wireless.

    Let's look at the 802.11x market: the little local guys who used to pull Cat 5 for companies are probably sufferring, because a lot of companies are moving to 802.11x.

    Wireless home networks (and public ones, such as at Starbuck's or public parks) are ruining the chances of the major equipment manufacturers to move their existing product lines into homes.

    Those same networks are causing broadband providers to fuss about "bandwidth sharing" as if it were a capital offense.

    Every week new technologies are announced that extend the reach (and reliability) of wireless networks. Five years ago, only the adventurous would connect a corporate campus using only wireless. Now wireless MANs can connect an entire city.

    Let's take another wireless technology, that which makes cellphones possible. AT&T, the grandfather of modern telecommunications, is practically out of the long-distance market. It's wireless division has been going gangbusters for the last 5 years. That means AT&T, who built most of the land-lines in the world, including the last mile to most homes, is still making great money, but not off those decades of investment in cabling.

    Oh, one more: we live in a security conscious world. Fear of weak physical infrastructure means the US Government (and military) is continualy looking for ways to remove single points of failure from essential public or strategic infrastructure.

    Add it all up? Investment in physical telecom infrastructure is sure loser in the long-term. If Gates wants to "own" the land-lines, so be it. With the continued growth (and interest) in wireless technology, using wires to connect people and machines will become old-fashioned and a specialty need. One can cut a trunk cable to block communications, but you have to be good to block every wireless communication technology under the sun.

    Sure, all that investment in last mile cabling and undersea pathways and trans-national networks won't rot overnight. There may always be a need for such networks, but only as a specialty. As time goes on, the need or such networks will be reduced, as the continued evolution of cheap, effective wireless technology makes all of it seem antiquated.

    So even if I was paranoid enough to believe Bill Gates could pull off such a feat as owning the Internet (how many billion in cash does Microsoft have right now?), it may not matter for very long.
    • Communications will be all about wireless.

      Let's look at the 802.11x market: the little local guys who used to pull Cat 5 for companies are probably sufferring, because a lot of companies are moving to 802.11x.
      Uhm...right. Wireless can't get me 100Mbps or 1000Mbps like cat5/fiber can. Until then, wireless is best suited to PDAs and laptops. At my house, the desktops are all cabled while my laptop and Zaurus are on 802.11. At work, there is some wireless, but security issues have everyone looking for a better solution. The cable pullers are still very much in business here, and I don't think they will be fearing for teir jobs for quite a while.

      • There is only so much bandwidth to be had from any reasonable chunk of the electomagnetic spectrum. Cell phones have gotten as far as they have mainly by using "space-division" multiplexing. I.e., the same frequency channel can be reused many time among reciever/transmitter pairs that are sufficienly far separated and use sufficiently low power. But how much greater can the density of cell phone towers go given that it is not even just placement but cost that must be considered?

    • Let's take another wireless technology, that which makes cellphones possible. AT&T, the grandfather of modern telecommunications, is practically out of the long-distance market. It's wireless division has been going gangbusters for the last 5 years. That means AT&T, who built most of the land-lines in the world, including the last mile to most homes, is still making great money, but not off those decades of investment in cabling.
      AFAIK the cellular technology only uses wireless from the phone to the nearest tower. From then on it's landline based. I see land-lines as being a very sound long-term investment. Wireless will only be a last mile solution for quite a while.
    • Wires still rule. For long-distance hauls, relatively error-free transmission and high-speed links, fiber and wire will be the only way to go for a long time.

      Wireless is susceptible to weather, depends on line of sight, and the requirements for a quality link are very strict. Wireless is also limited by spectrum licensing, data rates, and nasty things like roof-rights and buildings cropping up 5 years later in front of your installation.

      Wireless is fine and dandy for 11Mbps LANs and 45Mbps WANs. But we're not talking about offices and campuses here. We're talking about highspeed datalinks spanning cities, states and continents.

      Even if wireless could approach the level of reliability of fiber and copper, you have that little "curvature of the earth" problem for long haul networks. And bouncing signals off sattelites is not a solution.

  • Snow Crash here we come.

    -Mark
  • Just glancing at the title I thought it had something to do with rivalry between Linux Torvalds and Bill Gates.
  • They should both take a lesson from the real Buffett -- Jimmy and get wasted away in margaritaville [margaritaville.com]!!
  • It seems that Buffet's investment in Level3 Communications is more like $100 million. The other slice of the half-billion-dollar pie is coming from partner investors, Legg Mason and Longleaf Partners. They bought the stock on the cheap, feeling that they would survive the shake-out in the telecom sector.

    Here's a good article [msn.com] that details the nuts and bolts of the deal.
  • Level3 is heavily in debt with junk bonds, but it has an awesome network underground in both the US and Europe. They built their fiber network in a way that can be easily updated as new fiber technologies come along. They build 12 conduits, say, and fill two with fiber. When the technology changes, they have all these empty conduits to blow new fiber through. They have co-location facilities in nearly every major city, and these facilities fill up almost immediately after construction. They are doing backbone stuff for companies like AOL. It's actually Level 3 equipment that is used for dial-up in many places. It's an all-IP network.

    Level 3 stems from Peter Kiweit (may have the spelling wrong) which is a hundred year old and extremely well respected construction company. Through some very weird transactions the base company turned into Level 3 and spun off the construction arm. The construction arm then contracted with Level 3 to build out the network!

    As I understand it, Level 3 is taking full advantage of the WorldCom and others' problems by buying up local loops these other companies are dumping because of their distress. Of course, their stock has doubled in price in the last week because of the Buffett news. Then again, that makes it worth $5.00 when two years ago it was in the $80.00 range, so maybe that's not saying much.

    My belief is that when bandwidth demand creeps up, as it surely MUST, Level 3 is going to be there to take advantage.
    • Just to clarify, Level3 isn't in debt because of junk bonds; they're in debt because they're leveraging their infrastructure on credit. Their stock rating is "junk," but if you'll check where the pickers have positioned every other stock in the telecom sector, you'll see that of any 10 small-cap telecom companies in the industry, 9 of them currently have a junk rating. It's more of an artifact of the market-wide downturn than an actual picture of how this stock can perform. Check out their stock chart [yahoo.com], and you can quickly see that depending on how they ride out the current storms in the sector, this could be a really attractive, albeit risky, buy.
  • It's called the Warren Buffet - all you can eat, right inside Nebraska Furniture Mart/Megamart (Nebraska's attempt at a Fry's clone)
  • Anyone else notice that whenever we hear about these mutigazillion dollar acquisitions and mergers all that's ever talked about is obtaining an already existing product and by extension an already existing customer base? You never hear about them, I don't know, maybe intending to create a NEW product or something? Think about the amount of money that is spent just shifting ownership from one entity to another with no items of actual worth (a subjective term I know, but I think you get the idea) being created. More likely, jobs will be lost as a result. Here's a crazy idea, how about we take all that money and invest in more research or supporting fledgeling inventions or industries. I'd love to see a breakdown of total dollars spent on mergers/acquisitions vs. R&D in this country, I bet the discrepancy is staggering.

    It's just one more example of how here in the U.S. we've totally transitioned from being a nation and society of mostly producers to being a nation and society of mostly consumers - be it multibillion dollar companies, customer bases, automobiles, hamburgers or lousy mass media. I'm not saying we should all go back to being farmers, but sweet fancy jeebus, how many middle managers, investment advisors, busines oriented laywers and accountants do we really need? We've created a bizzaro culture of championing parasitic occupations which feed off the results of an ever shrinking pool of actual producers and creators. So if you're with me, go out there and hug an artist, craftsman or scientist (even a computer scientist) today!

    Thanks for putting up with me, I think I'll go buy something now.
    • That's because the research arms of most companies, while potentially of a major benefit, are typically a small consideration. If you bought, say Cisco, do you think more money would be coming out of the existing sales, or out of the R&D department? (Ignore the common barbs against Cisco's R&D.) While R&D could come up with some really great products, that will be then, not now.

      The customer base is also important. Consider that if you have 100,000 customers, and your target company has 50,000 customers, if there is no direct competition between your company and your target, you now have a 50% larger potential customer base for your original products, and triple the porential customer base for your target. It's a simplified view, I know, but it's still a strong consideration.

      Finally, keep in mind that sometimes it's the smaller companies that don't get advertised that a company buys to allow expansion of the products. Maybe they see that a little $1M a year company is on the right track, but does not and perhaps will never have the capital to make it big. When your $5B a year company offers $5M plus stock and a job with a hefty raise to this little guy, the media isn't going to pay much attention, and the sale will likely end up as a brief press release or perhaps no more than a blurb in the "What happened yesterday in brief" column of the business section of your local paper. The sum total of it would be something like, "XYZ Corp. (Symbol: XYZ) purchased the privately held ABC, Inc., yesterday for $10M is cash and stock." That's often it.

      If you know where to look, you'll see these things. The trick is, there are thousands of publicly-traded companies, and monitoring the sales of all of them can be very tricky.
  • Buffet has always stated that he doesn't understand technology at all and would therefor never invest in it. In all the decenia he's been investing, he has never invested in a tech company before. He acknowledged he missed all the super profits of the technology sector made in the 80's and 90's, yet he claims not to be distressed by that, as he's never been able to judge whether a tech company posseses a durable competitive advantage. As he writes in his 1999 annual report:

    Our lack of tech insights, we should add, does not distress us. After all, there are a great many business areas in which Charlie and I have no special capital-allocation expertise. For instance, we bring nothing to the table when it comes to evaluating patents, manufacturing processes or geological prospects. So we simply don't get into judgments in those fields.

    The author of the article doesn't know Buffet's style that well. When Buffet invests he tends to keep his stocks for many many years. But who knows, this is a strange move of Buffet, he might make another strange move and sell to Gates in the short term.

    By the way, Buffet only invested $100 million, which is a very small investment compared with his other investments. The rest of the $500 million investment is from two others. This too is quite strange, as usually Buffet goes after majority ownership. loz

  • two significant bits the article missed:
    • Walter Scott is a director of Berkshire Hathaway, Warren Buffet's main company
    • Walter Scott is the chairman of Level 3

    loz

  • Didn't Klez render this point moot?
  • Gates could approach each company with a large sum of cash, and buy them. MicroFiber, small wires going a long way. Seriously, he has enough.

    I love the pun...

    The link was broken, it has now been fixed. Sorry about that.

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