Telecom service bundler Talk America
The buy argument was, and still is, easy to explain: You don't find many companies in today's market selling for Talk America's enterprise value-to-free cash flow ratio of under 4. The company is cheap, cheap, cheap.
The sell argument is a little trickier. Talk America's business model is under attack by the Baby Bells, such as Verizon
In March, the Baby Bells won a legal victory over Talk America and the other non-Bells when the U.S. Court of Appeals for the District of Columbia struck down a Federal Communications Commission ruling (known as UNE-P) that had required the Baby Bells to rent access to outsiders at cost.
Ever since that ruling, the non-Bells have been negotiating for access to the Baby Bells' networks at affordable, but non-government-mandated, rates. In late April, AT&T
An amicable settlement would be good news for Talk America shareholders. Any reduction in uncertainty over the business model's viability should result in a stronger share price. However, to date, the Baby Bells seem inclined to play hardball. Talk America was stunned when its negotiations with SBC resulted in a demand that Talk America abandon use of its own network and use only SBC's facilities for at least 90% of its business. And AT&T is now so upset that it wants to cut off negotiations and submit the whole issue to binding arbitration.
Rather than simply hanging up, however, Talk America called in a ringer. It released a copy of SBC's demands to the FCC (at the FCC's request), embarrassing SBC in front of its primary regulator.
Although SBC initially objected that the FCC had no right to see its proposals to Talk America because they were "confidential," it has since abandoned this position and agreed to open negotiations with no confidentiality provisions. That's good news for Talk America, and good news for investors who wish the Baby Bells would finally learn how to play well with others.
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Fool contributor Rich Smith owns shares in SBC, but not in any of the other companies mentioned in this article.