MEMO TO: Robert Zimmerman, Senior Vice President of Business Development From: Business Development Team Subject: Valuation of AirThread Connections Overview AirThread Connections is one of the largest regional wireless service providers in the United States; however, they are at a unique disadvantage in their competitive standing. Competing with large, national wireless carriers inhibits their ability to capture large portions of the available market. These companies also have a plethora of financial and marketing resources at their disposal. AirThread faces the risk of being swallowed by their much larger competition. To sustain growth and gain access to sustainable growth opportunities, they need to be acquired by a larger strategic …show more content…
Their operating regions cover a network of 80 million people and ATC also has contracts in place with other carriers regarding roaming agreements to provide customers in non-ATC operating areas with coverage. While ATC has an impressive business model, there are inherent downsides to competing in the telecommunications industry. High levels of competition hinder rapid growth through any one firm. The following reasons illustrate ATC’s competitive situation in the telecommunications …show more content…
Jennifer Zhang at the University of Chicago prepared for us. We were relatively comfortable with the growth and cost assumptions she used and decided use the framework she built. Given ATC’s current competitive situation and declining average revenue per minute, it was reasonable to assume revenues would decline from 14% in 2008 to 7% in 2012. The one assumption we did question was the growth of Equipment Revenue. In 2006 and 2007 equipment revenue grew 27% and 3.2%, respectively. Ms. Zhang estimated year-over-year growth to be 7.5% until 2012, an assumption that seemed high given the most recent year. However, because it is difficult to predict something with such a volatile history, we decided that her method of taking the halving the average of the two growth rates was sound given what we had to work with. Cost, capital expenditures, and working capital estimates all fell in line with the history of the business (see appendix A). Capital expenditures ranged from 14% to 15% of revenues and ratios involving the cash conversion cycle and other operating assets remained constant throughout the projection horizon (see Appendix