Subject: [NEXTEL-1] Casting Doubt on Nextel's Never-Ending Success

From: Marcel <[email-masked]>
Date: Fri, 21 Feb 2003 14:01:31 -0500

RealCommentary from TheStreet.com
Casting Doubt on Nextel's Never-Ending Success
Thursday February 20, 3:37 pm ET
By Cody Willard, Special to RealMoney.com

Nextel's (NasdaqNM:NXTL - News) quarterly earnings reports almost
seem too good to be true. Although I'm certainly not accusing the
company of anything untoward, I am beginning to wonder how it
manages to outperform every other wireless operator in the U.S.

About a year ago, when its shares were trading at $2.50, Nextel
appeared to be just as vulnerable as the other U.S. wireless
carriers. Average revenue per user was cracking, its growth rate was
slipping, and churn looked like it was going to get worse. Then,
suddenly, Nextel began to do better than everyone else. Now, as
shares change hands for more than $13, ARPU stands at an industry-
best $70, about 10% to 15% higher than the industry average. Churn,
which measures how many customers are lost each month, is a measly
2.1% vs. somewhere just below 3% for the rest of the industry.

In the past year, Nextel has consistently raised its estimates for
growth, for earnings before interest, taxes, depreciation and
amortization, or EBITDA, and for free cash flow each quarter, and
then gone on to blow away those estimates. This quarter, Nextel beat
Street estimates pretty much across the board, as revenue, EBITDA
and capital expenditures were all better than expected. Operating
costs have dropped incredibly fast. Nextel now expects $3.8 billion
in EBITDA for 2003, substantially higher than the already astounding
$3.1 billion in 2002. No other carrier in the U.S. has even come
close to raising estimates this way.

Bullish analysts cite Nextel's business customer base and the walkie-
talkie feature of its handsets as reasons for its success. Although
having a significant percentage of subscribers who are business
users, not consumers, results in higher ARPU, I'm not sure that
explains Nextel's ongoing explosive growth rate. Same goes for the
walkie-talkie: It undoubtedly is a great feature, but does it really
account for the low churn?

The incentive to keep this stock rocking is there, as management has
been exchanging equity for debt to ease its interest payments and to
reduce debt. Share count has been on the rise, and the higher the
stock goes, the less the dilution to shareholders in these
exchanges, because the higher the share price, the fewer shares you
have to exchange for a set amount of debt.

Finally, its $13 billion in outstanding debt is no piece of cake to
deal with, either. That makes this company's enterprise value
(market capitalization plus outstanding debt) awfully steep at about
$26 billion.

Verizon (NYSE:VZ - News), Sprint (NYSE:PCS - News) and the rest of
the wireless providers are all eyeing Nextel's astounding success.
No bones about it, Verizon and/or Sprint will eventually get around
to offering their own walkie-talkie features in the next few
quarters. The result? Things could indeed get tougher for Nextel --
even if its current numbers are truly the real deal.

http://www.thestreet.com/p/_tscs/rmoney/theteleconomistrm/10069961.html
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