$6,250 per Home Passed

You know you've been covering the cable industry too long when you start employing a "cost per home passed" metric to economic issues far outside the broadband domain. In this case, it's the $700 billion financial bailout plan that just crashed and burned in Congress. If passed, that plan would cost $6,250 per home passed. It's a number that makes any cable or telecom industry watcher's head spin.

The figure is enough to cover the cost of installing fiber to every single home in the U.S. with enough left over to outfit half of all homes for solar electricity. (The assumptions for these zany scenarios are a cost-reduced $600 per home passed for fiber-to-the-home and $11,000 per home for solar as part of a massive national deployment.)

Sound nuts? Well, if the U.S. government is going to inject that much cash into the economy to spur liquidity, why not invest it in high-value infrastructure and the jobs that would be created by both building it and leveraging it? Heck, if you want to buy direct, $700 billion is enough to buy 3 million jobs at the average U.S. wage of $47,000 per year for five years. Let the markets fix Wall Street and the banking industry. There is no tougher medicine.

Like most industry analysts, I’ve sat in on countless earnings calls for cable MSOs and their infrastructure suppliers over the past decade. We’ve all listened to managers from famed Wall Street institutions like Merrill Lynch & Co. Inc. , Lehman Brothers , Goldman Sachs & Co. , Credit Suisse , and UBS AG chide MSOs for their debt ratios, continuing capital investment requirements, and challenging competitive prospects.

Watching names like these stumble and even crumble under the weight of their “toxic assets” has been, to say the least, ironic. Perhaps the banks would have been better served if their analysts had closely tracked their own financials

Compared to their counterparts on the Street today, “leveraged” cable MSOs now seem like downright conservative, blue-chip operations.

A recent research note from the principals of London-based investment fund Absolute Return Partners noted:

For the past couple of decades investment banks have been operating like mega hedge funds. An ever larger part of profits has been derived from proprietary activities. I remember once, not that many years ago, when I worked for one of the largest investment banks, it was explained to me that the bank's gearing was around 40-45 times during the month. Then, every month, as we approached month-end, the gearing would be brought down to below 30 in order to satisfy the regulator. I would be surprised if this practice was not widespread, but I would be even more startled if this sort of activity has not been seriously curtailed in the current environment.

And you wonder why investment banks are dropping faster than drummers for Spinal Tap?

The analogy of mainstream investment banks operating as “mega hedge funds” is particularly humorous, given the banks’ pathetic efforts to blame their demise on “short sellers” (a.k.a. hedge fund managers).

In an interview this month with Worth magazine, hedge fund manager and crusader against financial malfeasance David Einhorn defended the role of “shorts” in the marketplace.

I do think that there is a social value in identifying companies that are doing bad things and betting against them. I’ve seen the demise of a fair number of these companies, and it’s not because we’ve bet against them, it’s because these were flawed companies. And our country, our markets, our economy are better when companies that are flawed or cheating are replaced by better ones.

Amen. A speech given by Einhorn in April 2008 forecasting Wall Street’s meltdown trajectory also offers an interesting read.

While hedge fund managers are depicted as demons incarnate (and some might be), my own experience with a few of them through the years leaves a different impression.

Many of these folks had some of the best BS detectors known to mankind. Their pattern was to push back against corporate management fluff and, behind the scenes, ask precise and nuanced questions to uncover the fundamental health of a prospective portfolio company’s business. In many cases, their lines of inquiry proved more insightful than their VC or investment bank counterparts

Rather than flogging the shorts [ed. note: pardon the expression], the Feds ought to emulate them. Perhaps then a workable solution to the current economic debacle will surface, one with a more reasonable per-home-passed price tag.

— Michael Harris, Chief Analyst, Cable Digital News

Tom-Andrew 12/5/2012 | 3:30:30 PM
re: $6,250 per Home Passed By putting the bail-out in telecom language, we understand the magnitude of the number!

I wish or our elected officials could better articulate to the masses the impacts/benefits of the proposed legislation.

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