Subject: [NEXTEL-1] WR Hambrecht + Co Maintains "HOLD" Rating On Nextel- Comments on PTT

From: Marcel <[email-masked]>
Date: Thu, 20 Feb 2003 01:59:31 -0500

Hambrecht

NXTL: MOVEMENT BY EQUIPMENT OEMS TO PROMOTE STANDARD FOR PUSH-TO-TALK
OVER GSM HIGHLIGHTS IMPENDING COMPETITION COMMUNICATIONS TECHNOLOGY

Peter C. Friedland, CFA

•Yesterday, Ericsson, Nokia and Siemens announced plans to join
forces to promote a unified standard for push-to-talk (PTT) service
over GSM networks. Initial trials based on the PTT-over-GSM standard
are expected in the second half of 2003, and both AT&T Wireless and
Cingular are apparently evaluating the technology.

•Although the emergence of competition to Nextel's proprietary Direct
Connect PTT service has been speculated for some time, we note two
points regarding yesterday's announcement: 1) support by
Ericsson, Nokia and Siemens, which together account for the majority
of global GSM infrastructure sales, suggests that there is now
meaningful vendor support behind PTT-over-GSM; and 2) most current
speculation regarding competitive PTT service has centered on CDMA
carriers Verizon, Sprint PCS and ALLTEL, who have announced plans to
launch PTT during 2003—however, yesterday's announcement suggests
that GSM carriers AT&T Wireless and Cingular are also considering
entering into the PTT fray.

•While we expect Nextel's Direct Connect service to continue
to dominate the company's core blue/grey-collar market, we believe
competitive PTT services will make it more difficult for Nextel to
expand into the broader consumer market. Nextel's Direct Connect
service has the advantage of: 1) better call set-up time (i.e.,
latency) versus emerging PTT technologies; and 2) a large installed
base of customers on the company's proprietary Nextel Business
Networks, which makes it less likely that these customers would
migrate to a competitive incompatible network. That said, as
Nextel's ompetitors roll out competitive PTT service over the next 12
months, we believe it will be more difficult for Nextel to expand its
addressable market into the consumer/retail space.

•Separately, Nextel reports its Q4:02 results before the open on
February 20, followed by a 5:30am PT conference call (800-548-9057).
In line with the company's re-affirmation of guidance on December
17, we expect Q4:02 net subscriber additions of 450-500K, EBITDA of
~$875 million, and full-year 2002 capex of less than $1.9 billion.
For 2003, we expect guidance for quarterly net adds of 400-500K,
EBITDA of $3.8-4.0 billion and similar capex versus 2002.

•We maintain our Hold rating. Nextel has posted a steady stream
of strong operating results, improved its balance sheet by swapping
out debt/preferred for common equity, and worked with Motorola to
enhance the capacity of iDEN technology, making the company more
capital efficient. However, we remain concerned that a combination of
competitive PTT products coming to market within the next 12 months
and continued intense industry pricing competition and slowing
industry subscriber growth will make it challenging for the company
to continue its robust pace of growth. Our $12 price target is based
on a DCF analysis using a 12.5% WACC and 6x terminal multiple, which
is in line with the historical trading range for the RBOCs.

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