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Not truly a high-tech company, Cbeyond's business model is in fact a sales organization selling a product that is no longer unique. It provides bundled telecomm services to small to mid-size companies (generally 4 to 100 lines) in a package. This includes business phone, long distance, internet, mobile phone, website hosting, voicemail, and optional services. Their business plan is centered on hiring a sales force of ambitious young people who actually go knocking door to door in office parks to solicit customers, incentivized by big commissions for reeling in new customers on three year contracts.

Citron believes the growth story the company wants Wall St. to believe is pure fiction. Adjust it to reality, and you have a low-or-no-growth company with sustainable market presence in only 3 or 4 cities, selling for a PE of over 100. From this precarious point, the stock could fall by 2/3rds and still be seriously overpriced.

Competitive forces have been mounting steadily and now present a totally different landscape than when Cbeyond established its presence in its lead cities a decade ago.

More importantly, as mentioned in a Merrill Lynch research report from June 29, it is not only pricing with their current competition that CBEY has to worry about but it is the inevitable push of cable operators threatening their mainline business - the cable companies are simply better configured to go cheaper and wireless.

Probably the single most toxic statistic to Cbeyond is "churn rate" - the rate at which it loses existing customers. Cbeyond quotes its churn as a monthly figure, so some investors may not understand the true significance of a rise from a historically "below 1%" to current 1.5% "” which is a rise from single digits to 18% per year.

CBEY's best days are behind them. Investors who "follow the money" see beyond - a company whose insiders have sold stock in larger amounts than the company's remaining cash.

Cautious investing to all.

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