CZN: Rural Connectivity
We have been talking with Raj Reddy about education, and that led us to the subject of rural connectivity. This morning, we started talking with Maggie Wilderotter, CEO of Citizen Communications, a rural telecom company. Most likely, you have not heard about this company, so here is an overview.
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Citizens Communications Company provides communication services to rural areas, and small and medium-sized towns and cities as an incumbent local exchange carrier (ILEC). It offers ILEC services under the Frontier name in the United States. The company’s Frontier services include access services, local services, long distance services, data and Internet services, directory services, and television services. Its access services enable other carriers the use of company’s facilities to originate and terminate long distance voice and data traffic; local services include basic telephone wireline services to residential and non-residential customers; and data services include internet access, frame relay, Ethernet, and asynchronous transfer mode switching services, as well as other data transmission services to other carriers and high-volume commercial customers with dedicated high-capacity circuits like DS-1’s and DS-3’s.
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Citizen did slightly over $2 Billion in 2006 revenues, and has a market cap of $4.76 B. It’s a fairly inexpensive stock, trading at $14.76 right now, with a 52-week range of 12.25 - 15.21.
The P/E ratio is 13.89 and the dividend yield is 6.69%. In contrast, the P/E ratio for the S&P 500 Index is currently at 18 and the dividend yield is 1.74%.
As Maggie says, “The phone is the lifeline for people that live in low density areas.” But not only phone, for the people in rural areas, television is also a critical piece of the entertainment offering. There is very little to do in these remote areas, but for watching TV, which keeps them connected with the world at large.
While we in Silicon Valley and other technology hotspots are debating PC-to-TV, large chunks of the world population are still just getting connected to the most basic telecom services like phone and TV.
There is basically no growth in this business, so it warrants a low valuation. Look at the revenue performance over the past few years, down every year and flat last year. Maybe it will turn up but it’s a bet i’m not willing to make given the capital structure. There is over $4 billion of debt. You had better hope those access lines have long lived cash flows to justify owning the stock.
John,
I believe the category is going to go through a consolidation. There are a large number of players, and if you read the interview, you will see us discussing these strategies and opportunities.
Sramana
[…] Microsoft, Maggie moved to her current role as CEO of Citizen Communications. Here she explains the reasons for her move and provides some background information about Citizen. […]