Subject: [NEXTEL-1] Wireless stocks start 2003 with a bang

From: Marcel <[email-masked]>
Date: Sun, 19 Jan 2003 13:29:38 -0500

Wireless stocks start 2003 with a bang
But analysts skeptical that industry is ready to bust out
By Jeffry Bartash, CBS.MarketWatch.com
Last Update: 12:05 AM ET Jan. 18, 2003

WASHINGTON (CBS.MW) - Wireless stocks have caught fire with investors early in the new
year, but does that signal a warming trend after Wall Street froze out the industry in
2002?

In a word, no.

The industry remains viciously
competitive in a time of sluggish U.S.
economic growth and slowing demand
among consumers. While prospects
have brightened, the industry still must
run through a gauntlet of challenges.

That hasn't stopped investors from piling
into stocks. So far in 2003, the wireless
sector has surged more than 26
percent, compared to a 6 percent gain
for the Standard & Poor's 500, according
to Williams Capital Group.

Of course, a bounce had to be
expected. For one thing, stocks fell to
absurd lows last year. More important,
the wireless group avoided any
pre-warnings ahead of the fourth quarter
for the first time in several years. That
certainly helped.

"We are relieved that no major carrier
has announced disappointing December
quarterly sales -- a sharp contrast to
2002, when carriers warned of weak
sales seemingly from the first days of
last year," analyst Thomas J. Lee of
J.P. Morgan told clients.

Greg Gorbatenko, of the telecom
research firm Loop Capital Markets, also
suggests that tax issues played a role.
He believes investors dumped wireless
stocks last fall to use the losses to
reduce their tax liabilities.

Now that a new year is underway, the
"true believers" are moving back in, he
asserted.

Back from the brink

Clearly, investors have good reason to
take renewed vows. Wireless carriers
made solid progress in 2002. Under
withering financial pressure, they cut
costs, trimmed heavy debtloads,
lowered capital spending and reduced
churn -- the loss of new or existing
customers.

The industry's house, so to speak, got
more than a coat of fresh paint.

Still, the industry will have to work hard
to maintain its progress. The U.S.
economy, while continuing to recover,
doesn't appear primed for rapid growth
this year.

Meanwhile, the wireless market has
become increasingly saturated. At present, 129 million U.S. consumers own wireless phones,

Federal Communications Commission Chairman Michael Powell noted this week in congressional

testimony.

The industry's hoped-for panacea, data services such as text messaging and Web browsing,
hasn't
captured the imagination of the public.

"Text messenging is no big deal," said Gorbatenko. "There is really no great demand for
it."

To entice customers, wireless carriers are offering cut-rate plans, a development that
worries some
analysts.

"There's already pricing pressure going on in the data market," said David Hoover, a
wireless analyst
at The Precursor Group. "That's supposed to be a revenue driver."

Slack demand is a major reason why carriers have scaled back multi-billion-dollar plans to
transform
their networks to offer high-speed Internet access. From a financial standpoint, it was
all pain for little
gain.

Keep the cash coming

While carriers have tightened their grip on expenses, they can't slacken on efforts to
stabilize revenue
in a hotly competitive environment.

One way to do that is to improve network reliability, analysts say. The industry has
suffered a black
eye amid a rising tide of consumer complaints about dropped calls, billing errors and
other problems.

Indeed, last year marked a big effort by wireless firms to whittle customer churn. They
want to hang
on to their best customers and avoid the costly marketing expenses associated with
attracting new
subscribers.

Still, the industry's biggest problem remains the same. There are too many carriers
chasing too few
customers to make everyone fat and happy.

"It's not sustainable for the U.S. to maintain six national networks and several regional
networks,"
said wireless consultant Martin Dunsby, vice president at La Jolla, Calif.-based InCode.
"There's a
new round of price pressure on carriers."

Even just one big merger, analysts say, could dramatically loosen the industry's financial
straitjacket.
Indeed, the time appears ripe for the kind of shakeout that analysts predicted several
years ago.
Despite recent gains, stocks still hovering near all-time lows.

And that, ironically enough, is the problem. "Ill health for carriers stopped the
consolidation," Dunsby
noted.

Musical chairs

The next year, however, may see a tectonic shift. U.K.-based Vodafone (VOD: news, chart,
profile),
Europe's largest wireless carrier, is seeking to consolidate its brand. Rumors persist
that it may sell
its large stake in Verizon Wireless.

Such a move could trigger a chain reaction. Analysts believe Vodafone would be interested
in AT&T
Wireless (AWE: news, chart, profile) or T-Mobile, the national service owned by Deutsche
Telecom
(DT: news, chart, profile).

Other targets could include Nextel Communications (NXTL: news, chart, profile) or even
Cingular, the
joint venture of BellSouth (BLS: news, chart, profile) and SBC Communications (SBC: news,
chart,
profile).

BellSouth, meanwhile, could decide to part ways with SBC. Some analysts have long
speculated
that BellSouth might sell its 40 percent stake in Cingular and make a bid for Sprint (FON:
news,
chart, profile) and its Sprint PCS (PCS: news, chart, profile) wireless affiliate.

Hoover believes wireless consolidation might take a backseat to shakeups in the wireline
industry.
He believes SBC and Verizon (VZ: news, chart, profile) could make bids for a major
long-distance
carrier, forcing an industrywide game of musical chairs.

Ultimately, Precursor Group doesn't believe standalone wireless carriers such as AT&T
Wireless and
Nextel have a future. Matrimony is seen as the key to a fruitful future.

Gorbatenko, for his part, believes AT&T Wireless has been preparing itself for a sale via
a series of
house-cleaning maneuvers. Even if that's not the case, such as strategy offers salutary
side-effects:
AT&T Wireless is now seen as perhaps the most financially sound wireless operator in the
U.S.

Nextel, meanwhile, caters to a lucrative business audience and is making inroads with
consumers.
The company offers the industry's only "walkie'talkie" type feature, which it's now
marketing to
families.

Of course, Wall Street has been speculating about big mergers for years. Until someone
breaks the
ice, however, prospects for a big industry rebound appear lukewarm at best.

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