Subject: [NEXTEL-1] Weisel on Telecom Services

From: Marcel <[email-masked]>
Date: Thu, 06 Feb 2003 16:18:41 -0500

Telecom Services

Nextel Communications (NXTL; $12.61; Cap. $12.5bn; Buy) - Channel sources
indicate strong 4Q/1Q03 start; Reiterate
Buy ahead of Feb 20 conference call.

. Our channel sources are indicating that Nextel Communications will post
net adds of over 500,000 in the fourth quarter,
well above Street recent expectations. We also believe that strength in
December, which the company disclosed at a
conference in early January, has carried throughout January and bodes well
for Q1 results. Our sources are also
indicating that ARPU for some of the newer Nextel promotions resulted in
below average ARPU and have thus been
discontinued. The move is coincident with a scale-back by several other
carriers of their highly promotional offers. Overall,
pricing at this time in the wireless environment appears to be getting
firmer.

. For the upcoming conference call, we think the key question will be the
level of aggressiveness for 2003 guidance. We
think the consensus net add and EBITDA figures for 2003 are roughly 1.6 mn
(about 400,000 per quarter) and EBITDA of
$3.6-3.7 bn, respectively. We are slightly above that figure at $3.776 bn
for 2003. We also note that our 2003 and 2004
ARPU estimates allow what seems like inevitable ARPU degradation - and are
at $68.25 per month for 2003 and $66.00
in 2004 (though five years worth of predictions of ARPU degradation have not
yet occurred.).

. Based on the strength of business, we think there is a reasonable shot
that the company's 2003 guidance will hew more
closely to current trends, implying 450,000-500,000 net adds per quarter and
EBITDA closer to $4.0 bn rather than the
above noted figures. We expect Nextel to turn free cash flow positive in
2003. Our estimate for 2003 is $366.0 mn of free
cash flow.

. The key concern remains the development of push-to-talk capability by
other competitors. We expect one of the CDMA
players to eventually develop a rudimentary version of PTT over the next
year. Alltel mentioned on its 4Q call that it would
see something in the first half of 2003 but had admitted it would be a trial
not a commercial launch in 1H. We think
Verizon is probably on a similar path (trial in 1H03; undetermined
commercial launch). We expect an alternative product
to eventually be developed but a competitive offering seems unlikely in the
next year. We would also note that only 11 mn
of the U.S. subscriber base of 140+ mn has PTT today; thus, competition
could easily stimulate the market overall rather
than cannibalize Nextel's base or growth prospects.

. Nextel trades at 7.7x 2002 estimated EBITDA and 6.5x 2003 estimated
EBITDA, a slight premium to the average of the
national service providers. We reiterate our BUY recommendation on the
shares of Nextel Communications.

Estimates: Dec '02 Rev. $8.7 bn, EPS $0.29; Dec '03 Rev. $9.9 bn, EPS $0.84;
Dec'04 Rev. $10.7 bn, EPS $1.28

Analyst: Ned P. Zachar, CFA 212-271-3838

Sprint PCS (PCS; $4.00; Cap. $4.1 bn; Market Perform) - Dec Q results better
than expected; Increasing '03 est.

. Sprint PCS reported fourth quarter earnings on Wednesday that were
generally better than lowered expectations with net
adds of 250,000, revenue of $3.1 bn, and EBITDA of $729.0 mn for the
quarter. We were expecting 200,000 net adds,
revenue of $3.1 bn, and EBITDA of $618.9 mn. The company appears to be
working out some of its issues with the Clear
Pay (sub-prime) subscriber segment, while improving the quality of
subscribers and taking steps to improve customer
service and retention rates.

. We have made revisions to our model and we now look for total revenue and
EBITDA in 2003 of $12.67bn and $3.20bn,
up from our previous estimates of $12.53bn and $3.16bn, respectively. We
look for churn to decrease during 2003 from
Q4 levels of 3.5% to about 3.1% for the full-year. While lower, we are
modeling churn to remain substantially still above
industry averages.

. Sprint PCS is trading at 6.2x 2003 estimated EBITDA and 5.7x 2004
estimated EBITDA, in between Nextel
Communications and AT&T Wireless. Our five-year DCF analysis suggests a fair
value for Sprint PCS of $6.00. The
DCF assumes a WACC of 11.0% and a 7.0x terminal EBITDA multiple. We
reiterate our MARKET PERFORM rating on
the shares of Sprint PCS.

Increasing Estimates: Dec '03 Rev. from $12.5 bn to $12.7 bn, EBITDA from
$3.1 bn to $3.2 bn; Dec '04 Rev. $12.9 bn
to $13.5 bn, EBITDA from $3.4 bn to $3.5 bn

Analyst: Ned P. Zachar, CFA 212-271-3838

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