Company Assets for the Telecom Industry—
What Are They Worth?

By Chris Richter

Volume 1

Over the past 24 months, the telecom industry has lost over $2 trillion in market value. Compare that to the Savings and Loan crisis of the 1980’s at a cost of only $250 billion. A significant part of this loss comes in the realization that the assets of these companies have been over-valued. Sales of wireless, wireline and CLEC assets in the past 12 months point to a major loss in value of these assets by as much as 85% or more.

Only now are many analysts beginning to recognize the full impact of the telecom disaster. Within the past 12 months, one major wireless provider has seen its value drop from its recent purchase price by as much as 73% (down to as little as 27¢ on the dollar). One long haul carrier agreed to a purchase price that is one third (33¢ on the dollar) of offers it had received as recently as three months ago for a majority of the company. These declines are not merely the impact of an overzealous stock market being corrected. These are actual purchase prices of companies and assets at as little as one tenth of their cost.

Specifically, analysts are now concluding that average values for towers, which peaked at close to $1 million each a few years ago, are now closer to $300,000 per location. This devaluation has occurred, despite the fact that analysts believe carriers need to double the number of tower locations currently in existence to facilitate second-generation networks and predict a further doubling of towers as carriers offer 2.5-generation services.

CLEC’s are also writing down assets as the market value for telecommunications infrastructure plummets. One such company voluntarily wrote down the value of its assets in 2001 by $2.6 billion (an 86% reduction to 15¢ on the dollar). Again, most of this write down was attributable not to the goodwill (only 15% of the write down) or intangibles (less than 3% of the write down), but to the plant in service and construction in process (82% of the value decline).

Another indication of the extent of the fall is a recent tender offer of an investor to purchase the debt of one large telecommunications company at 50¢ on the dollar. Arguably, a liquidity premium is being offered for debt instruments collateralized by the underlying assets which may or may not have a potential buyer.

Just because a company is not having financial troubles now does not mean that its underlying assets are any more valuable than those of its competitors presently in bankruptcy. What brings down the industry brings down the individual as well. Analysts are concerned over the current economic condition and have predicted that 83% of the nations top telecommunications companies (those that have not already filed for bankruptcy) are at risk of filing for bankruptcy in the coming months. The bottom line is that assets of telecommunications companies are not worth their book values unless recent market valuations have been taken into account and the asset values on the books reflect this adjustment.

Rash & Associates provides comprehensive support and detailed experience to its telecommunications clients in pursuing fair and reasonable property tax valuations at local and state levels. In addition, our systems and staff are specifically tailored to the compliance and tax management needs of our clients.

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