Subject: [NEXTEL-1] Lehman Brothers Equity- On The "Timmy The One Trick Pony Show" Motorola & Nextel iDEN show

From: Marcel <[email-masked]>
Date: Tue, 07 Jan 2003 12:49:46 -0500

Lehman Brothers Equity- On The "Timmy The One Trick Pony Show" Motorola & Nextel iDEN show

Like I said------

NEXTEL COMMUNICATIONS - IDEN UPDATE PROVIDES LITTLE NEWS: NEXTEL COMMUNICATIONS - IDEN
UPDATE PROVIDES LITTLE NEWS

Written by: John M. Bensche CFA
Released: 12/31/2002
Provider: Lehman Brothers Equity

http://www.multexinvestor.com/download.asp?docid=29077616&ticker=NXTL&target=%2Fstocks%2Fcompanyinformation%2Fanalystresearch

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Nextel Communications
Figure 1: Nextel – Vocoder Quality, Mean Opinion Score
Mean Opinion
Scale 1-5 Score
Wireline (Source) 3.97
CMDA (EVRC) 3.86
GSM (SMV) 3.80
CDMA (SMV) 3.89
iDEN (3:1) 3.73
iDEN (6:1) 3.94

Source: Company reports

As experienced by the CDMA camp in their deployment of CDMA2000 1x, Nextel will
not benefit from the more efficient vocoder until a significant portion of its base
actually
uses 6:1-enabled handsets. Limond Grindstaff, senior vice president of Network
Engineering and Operations for Nextel, admitted that the benefits would likely not begin
to be experienced until late 2004, when the company expects roughly 50% of Nextel’s
subscriber base to have the new phones. While Grindstaff said he expected Motorola
to deliver the upgrade on schedule, he informed us that he had “land-banked” critical
cell sites in case he needed to split cells rapidly in order to cope with increased demand

the old fashioned way in the event of such a delay.

It is here where we are puzzled by Nextel’s ability to cut dramatically its capital
spending budget in 2004. While the company expects its 2003 budget to be
comparable to the 2002 level of $1.9 billion, Nextel anticipates spending roughly $1.0
billion in 2004, representing an astounding 47% year-over-year reduction in investment.
(Our estimates are for $1.9 billion in 2002 and 2003, with a slight decline to $1.8
billion in 2004, which represent 23%, 20%, and 18% of service revenue, respectively)
Before the benefits of the 6:1 vocoder begin to manifest themselves in late 2004, Nextel
plans to generate capacity increases due to other software upgrades including RF
congestion relief (the ability to transfer calls to an adjacent cell in the case of
congestion)
and integrated 800 MHz and 900 MHz capabilities, which will enable the utilization of
4 MHz of currently unused spectrum in the 900 MHz band (requires handset turnover
before capacity increases).

While these improvements are expected to lead to increases in RF capacity, we are
skeptical of the ability of such upgrades to maintain network performance in the face of
an increasing (albeit more slowly than in prior years) subscriber base and subscriber
usage, as well as to reduce capital expenditures so drastically. In terms of annual
capex, Nextel has consistently invested 35%–40% of the annual budget in nonnetwork
areas (IT, billing, retail stores) and switching. Over the last two years, the company has

increased its portion of investment on development from 0% in 2000 to 12% in 2002.
Assuming Nextel’s forecast for overall capital spending and that investment in the RF
network remains between 50% and 60%, absolute levels of RF investment will decline
Nextel will not benefit from the more efficient vocoder until a significant portion of its

base actually uses 6:1-enabled handsets.

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