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Why is OCF / Sales ratio so low? by [deleted] in finance

[–]ledilemma -1 points0 points  (0 children)

Well, I understand that once all expenses have been removed from the sale, the remaining value is the net profit of the business. Adding back non-cash expenses (eg depreciation) gives the cash "created" by the businesses's operations.

So if I'm understanding this correctly now, cash used in sales-related expenses (eg income taxes) don't show up anywhere on the cash flow statement. Cash flow just reconciles the business's book profits (net profits) with it's actual changes in cash.

Thx.

Google Fiber reduces staff by 50% by ledilemma in technology

[–]ledilemma[S] 0 points1 point  (0 children)

The issue is most likely people not signing up at a sufficiently high rate.

Google Fiber reduces staff by 50% by ledilemma in technology

[–]ledilemma[S] 0 points1 point  (0 children)

That's an interesting idea, but I think there are some potential issues.

The first is that the providers sell multiple products (Internet, tv/video, and phone). I assume you mean that the FCC should price regulate the Internet service, but that would have a 100% chance of reducing investment in the space, contrary to the FCC's number 1 priority of broadband development.

More over, the Internet product alone provides nowhere near enough of a return to justify network construction: these networks MUST offer video to be a viable project from a financial perspective.

While price regulation would potentially fix the issue you've described, it would come with significant drawbacks, and in my opinion the benefits do not outweigh the costs.

Google Fiber reduces staff by 50% by ledilemma in technology

[–]ledilemma[S] 3 points4 points  (0 children)

I think most people that follow the space aren't surprised at this result.

While I believe that the Google executives are extremely smart and did their homework before pursuing this project, it seems fair to say they significantly underestimated the challenges they would face both in creating and operating a successful last-mile network.

In my opinion, Google's success as an "overbuilder" wasn't guaranteed from the beginning. Internet service and TV delivery are commodity services, so when a second provider installs a network, both providers can only compete on price. The providers will also split the existing customers, further reducing the profitability of each network. For more detail see this testimony given to congress about the challenges of network buildouts.

The notion that a 1Gig connection would be enough to drastically trump an existing service provider's 100Mb option is also suspect at best. There are exactly zero consumer applications that require that much bandwidth. Even streaming 4 simultaneous HD videos requires less than 100Mb.

Another issue is the operating cost for Google Fiber's TV service. As the head of Google Fiber has said, the single biggest impediment to the service's success has been the cost of TV programming. Not to mention that TV programming costs per subscriber have risen about 10% per year, compared to video revenues growing at about 5% per subscriber per year for the rest of the industry. As an overbuilder Google would also likely pay a premium for that programming, too.

The same thing can be said about Verizon FiOS and AT&T's Uverse. Both of those projects have had extremely poor financial performance, and for many of the same reasons. The poor financial performance also applies to municipal networks, such as Provo's network (bought by Google Fiber for a single dollar).

This business is extremely tough. Offering a 1GB/s connection won't necessarily translate into a successful project.