No. of Recommendations: 5
I was reading the Fool on the Hill column and noticed how Metro One was mentioned as an interesting company.

I once looked at Metro One around $12 when it was trading at what seemed like attractive multiples relative to the market at the time. But there was one thing I couldn't swallow: customer concentration.

Since the company is pretty young, they had never had to really renegociate contracts and at the time, I worried about pricing pressure and how a cut in pricing would flow almost straight into the bottom line. With the top 3 customers representing 85% of revenues in 2001, a small price discount would affect profit margins by a few hundred basis points. Being so large to Metro One, those clients have enormous pricing power.

After the market close today, Sprint announced that it will not renew its EDA contract with Metro One: http://biz.yahoo.com/bw/021022/220579_1.html

Sprint represented 32% of revenues in 2001...

At the time, I also questioned the value-added of EDA. After all, most calls are 411 calls with 30% to 50% of those 411 calls having enhanced directory assistance content. Now Sprint decided to dropped the service, I get part of my answer. At this point, I don't know if Sprint will bring the service in-house or simply let go of the service.

It will be interesting to see how the stock reacts to the news tomorrow. It was down 44% in after hours. Going forward, who knows what AT&T and Nextel will do about their EDA service. They will each represent about 55% and 45% of revenues respectively, so the issue of customer concentration is still there and even worse. I must admit that I didn't really think that they would lose a customer, but that they would be more subject to pricing pressure. I am still in shock.

Andrew
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