FNT fiasco, page-27

Hi Tebley,

I took another look at the ASX release of 7/10.

Points for further consideration:

1)
THE EARTHQUAKE:

This occurred in late August, but no market guidance was offered at that time regarding a reduction in Q1 revenue vs Q1 forecast (ASX 4/7).

No other carrier impacts were advised to local or international bourses. So, where is the ATC impact?

2)
Q1 vs Q2 REVENUE:

The ASX release (7/10) advised that "the rare undersea earthquake ..... deferred some increase in revenue to the next Quarter".

So, some of the October revenues were apparently due to September activity. Yet, the ASX release updating the October forecast (28/10) makes no mention of this.

The 7/10 ASX release also notes 30/9 revenue @US$44,000, whilst the 28/10 ASX release notes 24/10 revenue @US$52,000.

This type of increase does not squarely account for the missed Q1 results, or the 7/10 deferral statement. Some, yes, but not all.

To account for the October revenue increase, 100% of the increase, on 24/10 over 30/9, extrapolated to all Q2 would need to be attributed to the Q1 revenue deferral in order for ATC to make up the difference. And that includes no attribution to incremental revenue improvement, or to growth of new business.

3)
OCTOBER REVENUES.

The ASX release (28/10) was coy in pointing to the October revenue gains, whilst ignoring the deferal question.

Tebley, you are quite right, ATC did not, as part of its 28/10 announcement, identify the revenue portion "that relates to October traffic only".

4)
CARRIER CONNECTIONS:

The ASX Release (7/10) states that "(m)any connections were made at the latter part of the quarter
following the successful commissioning of AdvanTel's new London switch in August. The full revenue value of these connections should be realized in Quarter 2".

This may well prove to be correct, but if so, October was a slow start to this, given:
a)
underlying core growth (ie: from established customers;
b)
the China deals (mid-year);
c)
the Q1 to Q2 revenue deferral; and
d)
doubling the connected carrier base from 28 to 62 (up 34 in Q1).

5)
BAD DEBTS AND CREDIT WORTHINESS:

The ASX release of 7/10 concerning credit worthiness is to be applauded.

The release stated:
"We are inundated with interested potential customers but we are only contracting those customers that fit our credit criteria and present real value to our business. We will not allow customer demand
to compromise this approach".

Previously, however, this was not being questioned in the market. It was only as a result of the Q1 report last week, that a question of credit worthiness first arose, due to:
a)
declining cash balance;
b)
net cash outflow;
c)
limited in-quarter collections; and
d)
>70% of Q1 revenues being outstanding at end Q1.

6)
FUTURE CAPITAL RAISINGS:

I agree with your statement that:
"(i)n terms of looking at more sophisticated means of raising finance, I dont see any change to previous capital raisings".

7)
KEEPING THE MARKET INFORMED:

ATC is keeping the market informed, but only with part of the story, as the revenue misses, subsequent explanations, and trumpeting of revenue growth demonstrates.