Ragas Report on Sat, 9 Jun 2001 02:29:44 +0200 (CEST)

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[Nettime-bold] THE RAGAS REPORT - Wireless Carrier Stocks - Inside the Wireless Balancing Act

Knowledge Capital For Next Economy Architects
Editor: Matt Ragas
"Now read by over 25,000 next economy leaders"

In This Issue  
  Commentary: Wireless Carrier Stocks - Inside the Wireless Balancing Act
More Knowledge Capital: Microsoft, AT&T, Hewlett-Packard, Napster, RealNetworks
Quote of the Week: Intel Feels Chip Recovery Coming

This Week's Commentary


Editor's Note:

Before I begin the report this week, I'd like to invite everyone to visit Unstrung.com, the leader in wireless analysis and commentary. It's a site that no savvy tech investor will want to be without. I've been consulting for Unstrung and believe that we've put together the sharpest monthly premium reports on the wireless industry in the business.

In fact, if you act now, you can download a free trial report at Unstrung.com by visiting: http://www.unstrung.com/premium/index.php3

Your satisfaction is guaranteed so don't forget to check it out. And if that's not enough to peak your interest, The New York Times recently called Unstrung "a must read." So take a look and then please let me know what you think.

Now on with this week's RagasReport…

Wireless Carrier Stocks - Inside the Wireless Balancing Act

Betting on the wireless world right now is definitely not for the faint of heart. Especially when it comes to investing in U.S. based wireless carriers.

This sector reminds me right now of "close your eyes and jump" investing. In other words, it alll comes down to - become the contrarian and - you just gotta believe.

On one hand, the potential for much anticipated third generation [3G] high speed wireless services make wireless operators seem very appealing. After all, it potentially opens up a whole new range of lucrative revenue streams for the carriers.

Think streaming video and audio, videoconferencing, advanced data transfer, increased voice capacity and mobile commerce opportunities galore on your 3G handsets.

On the flipside is the argument that wireless operators are not only taking on mountains of debt to expand their networks, but that they are also falling into the trap of sacrificing long term profits in the name of short term subscriber and revenue growth.

Both sides to this debate hold some validity. Much like we've already seen in dot com land, even with strong subscriber growth still ahead, consolidation among the group is likely.

The days of local U.S. markets supporting eight to nine wireless providers will eventually come to an end.

With this in mind, I decided to take a look at the three largest publicly traded U.S. wireless carriers. Thus, AT&T Wireless Group, Sprint PCS and Nextel Communications are under my analytical microscope for the week.

Let's take a closer look.

AT&T Wireless Group [AWE]

The days of AT&T Wireless, the nation's third largest wireless operator, trading as a tracking stock is quickly coming to a close. By mid-summer the spin off of AWE from Ma Bell into a truly independent publicly traded company should be complete. This move should allow AWE greater financial and operational flexibility, and perhaps most importantly, should help distance the firm in investors' minds from the badly tarnished image of scatterbrained AT&T [T].

For all of the problems that Ma Bell has had lately, the Wireless Group seems to have stayed largely above the turmoil. While AWE's wireless network is tied to TDMA (time division multiple access), a more expensive technology to upgrade to high-speed data rates, Wireless did land an invaluable partner earlier this year in NTT DoCoMo. The Japanese wireless giant stepped to the plate back in January with $9.8 billion in cash for a 16% stake in AT&T Wireless.

About a month ago, AWE reported that first quarter sales rose 46% to $3.2 billion, while EBITDA increased over 81% to $788 million. AWE also added 588,000 subscribers during the quarter, bringing its total customer base to 15.7 million. The only blemish on AWE's results was that average monthly revenue per customer dipped 7% to $62.60 during the quarter. Regardless, with its independence finally on the horizon and an invaluable wireless technology partner in DoCoMo, AWE shares look like a good play at current levels.

Sprint PCS [PCS]

With nearly 12 million subscribers, Sprint PCS is currently the fourth largest wireless carrier in the U.S. A subsidiary of long distance giant Sprint [FON], Sprint PCS has built a highly sophisticated all-digital network based on CDMA (code multiple access) technology. Through the marketing of its "Wireless Web", PCS has arguably been the most aggressive of the U.S. wireless carriers in the data arena. PCS has also publicly announced a very aggressive schedule for rolling out its 3G services.

While Sprint PCS is pushing ahead full throttle on the technology front, the company's financial results are not without their share of speed bumps. While sales jumped 68% to $2.05 billion during the most recent quarter, the firm's EPS loss of $.40 cents was three cents greater than Wall St. had expected. In addition, the company reported EBITDA of $253 million for the period, as it added over 800,000 new subscribers. Data usage for Sprint PCS customers rose 30% in the quarter.

For the year, Sprint PCS management expects EBITDA to hit $1.6 billion and for the firm to add 4.1 million new subscribers. Analysts currently expect PCS to report sales of $9.2 billion for the year. While PCS has built out an impressive technology infrastructure, I remain skeptical of the company's seemingly "grow at any cost" marketing efforts. Even with PCS shares currently trading near their 52-week low, I still believe that there are better places to hunt in the wireless universe right now.

Nextel Communications [NXTL]

As Sprint PCS and AT&T Wireless battle largely for the highly competitive consumer wireless market, Nextel Communications remains focused primarily on serving business customers. As the nation's fifth largest wireless operator with over 8 million subscribers, Nextel has built a cult-like following for its two-way radio walkie-talkie like calling feature. Tech billionaire Craig McCaw and his family own over 20% of the firm. Motorola [MOT] is a 14% shareholder.

Much like Sprint PCS and AT&T Wireless, Nextel is rapidly growing its customer base, while trying to pare its sizeable losses. Sales grew almost 50% to $1.74 billion for the most recent quarter, as operating cash flow rose 39% to $318 million. Even after lowering guidance and issuing an earnings warning, Nextel's EPS loss of $.56 for the first quarter was five cents greater than Wall St. analysts' estimates. The company added 695,400 new subscribers for the period.

On the funding front, Nextel is well cashed up, having recently raised $2.25 billion in debt financing. The company will need its roughly $7 billion in liquidity to upgrade its network, which is based on older proprietary technology from Motorola called iDEN. On the plus side, Nextel's focus on the enterprise has helped the company generate an industry leading average of $71 monthly from its subscribers. While NXTL shares are somewhat intriguing right now, AWE is my favorite of the two.

p.s. Want more investable insights and analysis into the wireless universe?

Then sign up now for a trial subscription to the Unstrung Insider at: http://www.unstrung.com/premium/index.php3

Buy It Here!
More Knowledge Capital


AT&T PULLS THE WOOL OVER MICROSOFT'S EYES: Apparently, it takes more than just $5 billion to buy a lasting friend these days. AT&T surprised Microsoft earlier this week by announcing that it would not move forward with plans to distribute a sophisticated set-top box using Microsoft's interactive TV service. For those needing a quick refresher, the software titan had pumped $5 billion into AT&T two years ago as part of a deal to distribute its set-top software to as many as ten million AT&T cable customers.

The news comes only a day after Microsoft announced the first commercial rollout of a Microsoft powered interactive TV box with TV Cabo of Portugal. With Microsoft clearly still struggling in the interactive TV market against the likes of OpenTV [OPTV] and Liberate [LBRT], this makes the launch of Xbox later this year even more important. One way or the other, be it interactive TV or a gaming console, MSFT is going to break into your living room. Gates and Ballmer won't be denied. Look out Sony [SNE] and Nintendo. They're coming.


HEWLETT-PACKARD CRIES ABOUT GLOBAL SLOWDOWN: Is it just me or does HP have a real issue with owing up to its own problems recently? While positive news trickled out of tech titans like Intel [INTC] and Sun Micro [SUNW] earlier this week, HP informed investors that the tech sector is now in a "global IT slowdown that will last for some time." HP chief Carly Fiorina then used the news to issue the company's whopping fifth warning of the year. Maybe Fiorina should ditch HP and host her own show called "The Blame Game."

If the likes of IBM [IBM] or Microsoft [MSFT] had announced that they feared a prolonged global IT slowdown, then I actually might be worried. However, in this case, the news comes from a tarnished tech blue chip in HP that has been unable to find its way even after spinning off Agilent [A] in recent years. Let's be honest. HP is a great printer company these days, but simply a B player in more important growth areas like servers, storage and services. Even with HP shares now down near their 52-week low, I'm still not biting.

Buy It Here!

NAPSTER TURNS INTO A MODEL CITIZEN: I don't know about you, but it's been a lot of fun to watch Napster wreak havoc throughout the music business for the past two years. Everyone loves a good rebel. That's why I must admit that I'm somewhat saddened by the news earlier this week that the controversial file sharing service has decided to smoke the peace pipe with three of the major labels [Time Warner, EMI and BMG]. Not that Napster really had much of a choice, with the courts still breathing down the company's back, and users fleeing to less restrictive Gnutella based systems.

When you scrape away the hype, this deal essentially boils down to this. Napster has become an affiliate of MusicNet, a music-licensing venture backed by the before mentioned major labels and RealNetworks [RNWK]. While this is interesting news, it is unlikely that Napster will ever regain its fading popularity through this deal, nor will it leave the labels as digital media kingpins. So far, MusicNet remains convinced that when it launches later this summer that it will be able to successfully charge users for a limited number of monthly music streams and downloads. Fat chance. Try again guys.

Quote of the Week

``We totally and one hundred percent sign off on 'the semiconductor sector is recovering' theory. There were a lot of analysts saying they were going to reduce the range. Midpoint is a victory.``

-- Comments made this week by Salomon Smith Barney analyst Jonathan Joseph in reference to an announcement by Intel that it sees the semiconductor market stabilizing finally.

June 8 , 2001














































































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About Matthew W. Ragas: Ragas is President and Chief Analyst of Matthew Ragas & Associates, an Orlando, FL based strategic advisory and venture development firm. He was previously the founding editor of Raging Bull and is the author of the new e-business book Lessons From the E-Front from Prima Publishing.

The RagasReport and Matthew Ragas and Associates, are not a registered Investment Adviser or a Broker/Dealer. Readers are advised that the report is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy. The opinions and analyses included herein are based from sources believed to be reliable and written in good faith, but no representation or warranty, expressed or implied is made as to their accuracy, completeness or correctness. Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report should be independently verified with the companies mentioned. In addition, we receive no compensation of any kind from any companies that we mention in this report.

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